| Mahindra Rural Housing Finance Limited | ||||||||||
| 'CRISIL AA+/Stable' assigned to NCD | ||||||||||
| Rating Action | ||||||||||
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| 1 crore = 10 million | ||||||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL AA+/Stable' rating to the Rs.300 crore non-convertible debentures (NCD) of Mahindra Rural Housing Finance Limited (MRHFL) and reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities and existing debt instruments. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has factored in the support that MRHFL is expected to receive from its parent, Mahindra Finance. |
| Key Rating Drivers & Detailed Description |
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Strengths * Expectation of strong support from majority owner, Mahindra Finance The strategic importance of MRHFL to the parent is reflected in Mahindra Finance's strategy of focus on rural customers, continuous strategic oversight over MRHFL and MRHFL's increasing share in total assets and advances of its parent, which has grown steadily and is expected to cross 10% over the medium term. This is in addition to regular capital infusion, ongoing management integration and assistance from Mahindra Finance. Also, the parent's support to MRHFL is also demonstrated in it furnishing a document highlighting its intention to maintain majority shareholding in MRHFL, continue management control and support MRHFL in having adequate resource raising and Asset Liability Management program to ensure that MRHFL meets its financial obligations in a timely manner. MRHFL's operations would remain significant to Mahindra Finance, given the healthy growth prospects of the rural housing finance segment and MRHFL's ability to enhance overall footprint of Mahindra Finance, in rural and semi-urban areas. MRHFL benefits significantly from managerial and operational integration with Mahindra Finance, and access to branch network of the parent entity. * Adequate resource profile MRHFL's resource profile benefits from Mahindra Finances' expertise in raising funds from the market. Mahindra Finance provides funding support to MRHFL through inter corporate deposits (ICDs). Besides, MRHFL also have access to refinance facility from National Housing Bank (NHB). This enables MRHFL to raise funds at competitive rates; cost of borrowings, at 8.4% for fiscal 2018 and 9.2% for fiscal 2017, remains comparable with peers. * Adequate capitalisation Tier-I capital adequacy ratio (CAR) of 23.2%, as on March 31, 2018 (21.3% as on March 31, 2017), reflects adequate capitalisation. Since inception, Mahindra Finance and NHB have together infused Rs 396 crore as equity, which also includes Rs 130 crore infused in fiscal 2018. Absolute networth and gearing stood at Rs 734 crore (Rs 476 crore as on March 31, 2017), and 7.2 times (8.0 times as on March 31, 2017), respectively, as on March 31, 2018. Gearing is expected to remain around 10 times on a steady state basis. Weaknesses * Modest, though growing, scale of operations Scale of operations, although small, has been improving over past few years. Advances have recorded a compounded annual growth rate (CAGR) of 48% over fiscals 2013 to 2018 and grew by 30% y-o-y for fiscal 2018. The outstanding loan book stood at Rs 6248 crore as on March 31, 2018, as against Rs 4824 crore as on March 31, 2017. Disbursements also registered healthy growth of 32% y-o-y to Rs.2789 crore for fiscal 2018, against disbursements of Rs 2116 crore in fiscal 2017. CRISIL expects growth to sustain over the medium term, aided by plans to increase presence in the semi-urban segment, limited competition in key product segment and expected improvement in the rural economy. Nevertheless, MRHFL will remain a small player in the domestic housing finance market. * Weak asset quality Asset quality remains susceptible to seasonality in cash flows of its borrowers, who are primarily engaged in agriculture and related activities, and have relatively weaker credit profiles. Furthermore, the company is present in markets where risks related to documentation of property are significantly high. Hence, asset quality remains weaker than peers and has weakened significantly over past few years, with gross non-performing assets (NPAs) increasing to 10.5% as on March 31, 2018 (9.7% as on March 31, 2017). Recent deterioration has been primarily led by challenges confronted in few southern and western markets and impact of agri waivers. With collections improving, asset quality is expected to stabilize by the end of fiscal 2019. However, given the customer profile and fairly unseasoned loan portfolio, collection efficiency and overall asset quality will remain key rating sensitivity factors. |
| Outlook: Stable |
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CRISIL believes that MRHFL's strategic importance to Mahindra Finance has increased, in line with growth in its scale of operations. Mahindra Finance will maintain its majority equity stake in MRHFL and continue to provide operational, managerial, and financial support. The outlook may be revised to 'Positive' if there is a revision in CRISIL's rating outlook on Mahindra Finance. The outlook may be revised to 'Negative' if there is a significant deterioration in MRHFL's credit risk profile, or in case of significant change in ownership structure of, or decline in support from, Mahindra Finance. |
| About the Company |
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MRHFL was established as a wholly-owned subsidiary of Mahindra Finance in April 2007. Being one of the pioneers in the rural housing finance business in India, the company intends to leverage its understanding and experience of rural markets, by providing housing loans to untapped semi-urban and rural segments. In fiscal 2009, NHB acquired 12.5% stake in MRHFL. The loan portfolio stood at Rs. 6248 crore as on March 31, 2018 (Rs 4824 crore as on March 31, 2017). |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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^Not yet issued
# Part of Long term bank facility
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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