| Muthoot Homefin India Limited | ||||||||
| Rating Reaffirmed | ||||||||
| Rating Action | ||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable’ rating on the long-term bank facilities and non-convertible debentures of Muthoot Homefin India Limited (MHFL).
CRISIL Ratings has also withdrawn its rating on Non-Convertible Debentures of Rs 50 crore (See 'Annexure - Details of Rating Withdrawn’ for details) as CRISIL Ratings has received independent confirmation that these instruments have been redeemed. The withdrawal is in line with CRISIL Ratings withdrawal policy.
The rating on MHFL centrally factors in the managerial and financial support that MHFL receives from its parent, Muthoot Finance Limited (Muthoot Finance; 'CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+') and, CRISIL Ratings’ expectation of the same to continue. MHFL, a 100% subsidiary of Muthoot Finance, is the housing finance arm of the Muthoot group. MHFL remains strategically important to the group given its loan portfolio adds to the diversity of Muthoot Finance’s financial product suite. The rating also reflects the company’s adequate capitalisation. These strengths are partially offset by its average asset quality with limited track record of operations, moderation in earnings on account of higher provisioning, and risks inherent to the affordable housing segment.
Over the last 2 fiscals, the company’s growth moderated owing to pandemic breakout and resultant intermittent lockdowns and the conservative approach of the management towards scaling up and focus towards maintaining collection efficiency which resulted in reduction in book size. For the year ended March 31,2023, the company registered a de-growth of 2% in AUM and stood at Rs 1,438 crore as compared to Rs 1,470 crore as on March 31, 2022 (Rs 1,704 crore as on March 31,2021). However, in the first quarter of fiscal year 2024, company has seen ~4% growth in its portfolio to Rs 1501 crore as on June 30, 2023.
In terms of asset quality, Gross stage 3 assets, the company has witnessed marginal improvement in asset quality with GNPA at 3.97% as on June 30, 2023, as compared to 4.01% as on March 31, 2023 (2.93% as on March 31, 2022). The deterioration in past years has primarily been due to application of revised NPA recognition norms (IRAC) which the company started applying from Q3 fiscal 2023. Nevertheless, by the end of fiscal 2024, the management expects to reduce the NPA level to around 2.5-3.0%. The ability of the company to increase collections across delinquency buckets and improve asset quality in the coming quarters while scaling up operations, will remain a key rating sensitivity factor. Nonetheless, with an overall capital adequacy ratio of 52% and gearing of 1.8 times on June 30, 2023, the company’s capitalisation remains adequate.
As on June 30, 2023 MHFL had funding relationships with more than 10 lenders. The funding profile comprises term loans, NCDs, cash credit and working capital loans, securitisation and refinance facility. MHFL raised around Rs 215 crore during Q1 of fiscal year 2024 and continues to demonstrate the ability to raise funds in a timely manner at competitive pricing. The average cost of borrowing during the year ended June 30, 2023 stood at 8.7%. CRISIL Ratings expects the company to continue having a diversified resource base and benefit from lower borrowing costs. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has assessed the standalone financial and business risk profiles of MHFL. In addition, the rating factors in the company’s strategic importance to, and strong financial support from, its parent, Muthoot Finance. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to, and expectation of continued financial support from parent, Muthoot Finance MHFL is expected to continue receiving strong financial support from the parent – Muthoot Finance, given its strategic importance to the group on account of the diversity it adds to the financial product suite of the parent. Muthoot Finance has, in the past, infused need-based capital into the company and is expected to extend similar support in the future also, if required. Furthermore, Mr Alexander George Muthoot, Managing Director of the Muthoot group, and one more director of Muthoot Finance are on the board of MHFL. Additionally, there is strong moral obligation on Muthoot Finance to support MHFL given there is a shared brand name between the two. MHFL has also been granted a line of credit from the parent Muthoot Finance – to the extent of Rs 550 crore (Rs 300 crore of term loans and Rs 250 crore in form of ICDs).
Adequate capital position Capitalisation is adequate for the expected scale of business, reflected in a Networth of around Rs 462 crore and gearing of 1.8 times as on June 30,2023. The Networth base has been particularly strengthened after infusion of Rs 150 crore of capital in fiscal 2019. The capital adequacy ratio of the company was comfortable at 52% on June 30,2023. CRISIL believes that MHFL would continue to receive timely capital support from the parent, for its future requirements and, the same will support MHFL in maintaining its capitalisation at adequate levels.
Weakness: Asset quality challenges with limited track record of operations MHFL commenced operations in January 2016, and the bulk of growth was witnessed in the latter half of fiscal 2017; assets under management (AUM) was, therefore, relatively small at Rs 1,977 crore as on March 31, 2020. Thereafter, ridden by the pandemic outbreak and slowdown which followed, the company’s AUM declined to Rs 1,470 crore on March 31, 2022. During year ended March 31,2023 the company witnessed slight de-growth of ~2% which thereby reduced the AUM to Rs 1,438 crore. However, in the first quarter of fiscal year 2024, company has seen ~4% growth in its portfolio to Rs 1501 crore as on June 30, 2023. While the AUM remains small in the mortgage finance industry, it remains sizeable player in the overall pure-play affordable housing industry. As on March 31, 2023, lending to the affordable housing segment contributed to almost 96% of the AUM, with LAP accounting for the rest. Currently, MHFL has presence in 16 states through a network of over 108 branches.
During the second wave of pandemic and various forms of lockdowns being imposed by states to curb the spread of Covid-19, delinquencies inched up and the company reported Gross stage 3 assets at 4.85% as on March 31,2021. The increase in delinquencies have been on account of lower collections and geography specific challenges in Gujarat and Maharashtra. However, the GNPA improved to 2.9% as on March 31, 2022, mainly on account of write offs amounting to Rs 70 crore during fiscal ended 2022 and improved collection efficiency. During quarter ended June 30, 2023, the GNPA stood at 3.97% (March 31,2023, 4.01%). CRISIL Ratings believes that the sustenance of collection efficiency and improvement in asset quality with growth and expansion of portfolio will be a key monitorable.
Moderation in earnings on account of higher provisioning because of the pandemic MHFL’s profit after tax for quarter ended June 30, 2023, stood at Rs 4.7 crore. Company’s profit after tax was Rs 10.4 crore in fiscal 2023 as compared to Rs 8.4 crore in fiscal 2022 resulting into return on managed assets (RoMA) of 0.6% in fiscal 2023 as against 0.5% in fiscal 2022. Earnings profile has remained stable with RoA of around 0.6% during fiscal 2023 as against 0.4% during fiscal 2022. Annualised RoA for the year 2024 was ~1.1%. Ability to grow portfolio and focus on containing operating and credit costs will remain key rating monitorable.
Inherent risks in the affordable housing segment The company operates in the affordable housing finance segment, and caters to self-employed customers, engaged in small business activities; these include provision store owners, vegetable and food-stuff vendors, small business establishments, auto rickshaw drivers, contractors, and labourers. These borrowers have relatively weak credit risk profiles because of the volatile nature of their income and employment in unorganised segments and have limited or no access to formal housing finance in the absence of proper documentation evidencing income and an established credit history. Hence, they are more susceptible to economic downturns. The company plans to diversify its geographic presence, for which it is crucial that it understands the local culture and issues. Furthermore, the low-cost housing finance segment has a short track record of only 7-8 years.
Hence, the segment’s performance across economic cycles is yet to be demonstrated. |
Liquidity: Strong MHFL’s liquidity profile is backed by the support from parent, Muthoot Finance. On standalone basis, the asset-liability maturity (ALM) profile has no negative mismatch in time buckets falling within the next 1 year. In terms of liquidity, MHFL, as on June 30, 2023, had a liquidity balance of Rs 125 crore (comprising of cash and unutilized CC/ WCDL lines of Rs 70 crore) which covers the debt obligations due over the following 3 months up to 1.33 times. There is another Rs 550 crore line of credit from parent, Muthoot Finance. Incrementally, the company has raised Rs 215 crore over the last quarter. |
Outlook: Stable MHFL’s outlook remains driven by the outlook on the parent - Muthoot Finance’s rating. CRISIL Rating believes that MHFL will remain strategically important to, and continue to receive strong financial support from, Muthoot Finance and, will maintain adequate capitalisation over the medium term. |
Rating Sensitivity Factors Upward factors
Downward Factors
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About the Company MHFL, a wholly owned subsidiary of Muthoot Finance, was incorporated on August 26, 2011, and registered under the National Housing Bank. It operates in the affordable housing segment and is building its network in Tier II and III cities. The corporate office is in Mumbai. AUM was Rs 1,501 crore as on June 30, 2023 |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@public issue of retail secured redeemable non-convertible debenture ^Yet to be issued
Annexure - Details of Rating Withdrawn
@Public issue of retail secured redeemable non-convertible debenture |
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Criteria Details
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