| Muthoot Housing Finance Company 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 rating on the long-term bank facilities and non-convertible debentures of Muthoot Housing Finance Company Limited (MHFCL) at ‘CRISIL A+/Stable’.
CRISIL Ratings has also withdrawn its ratings on Non-Convertible Debentures of Rs. 20 crores (See 'Annexure - Details of Rating Withdrawn’ for details) on receipt of required documentation for redemption. The withdrawal is in line with the CRISIL Ratings Policy on withdrawal.
The rating continues to reflect MHFCL’s strategic importance to, and expected strong financial support from, its parent, Muthoot Fincorp Limited (MFL; rated ‘CRISIL AA-/CRISIL PPMLD AA-/CRISIL A/Stable/CRISIL A1+). The rating further reflects the adequate capital position maintained by MHFCL. These strengths are partially offset by average asset quality, average but improving earnings profile and small scale of operations.
Assets under management (AUM) stood at Rs 1,520 crore as on March 31, 2023, up 14% over fiscal 2022. Disbursement also picked up in fiscal 2023 and stood at Rs 481 crore as compared to Rs 309 crore in fiscal 2022. As of H1 2024, the company has disbursed Rs 371 crore. From April 2023 till September 2023, the company has disbursed Rs 62 crore average per month as compared to Rs 40 crore average in the fiscal 2023. The growth in the portfolio can be attributed to relatively higher growth in the loans against property (LAP) portfolio. In terms of portfolio breakup, retail home loans accounted for about 75% in September 2023 as compared to 80% in March 2022 with rest being LAP at 25% in September 2023 as compared to 20% in March 2022. This portfolio mix is expected to remain stable over the medium term.
As far as asset quality is concerned, GNPA improved to 0.8% as of March 2023 as compared to 3.8% as of March 2022. Company has sold stress book of Rs 41 crore to an ARC which has led to reduction in the GNPA in fiscal 2023. NNPA stood at 0.3% as of March 2023. Additionally, a new book which has generated post covid is performing well with overall collection efficiency remained at around 99% over the last 12 months. Nevertheless, given the majority of the loans are towards affordable segment, any change in the payment discipline of borrowers may have impact on delinquency level. Therefore, MHFCL’s ability to manage asset quality while growing its portfolio and maintain healthy collections will remain a monitorable. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has assessed the standalone financial and business risk profiles of MHFCL. In addition, the rating factors in the company’s strategic importance to, and strong financial support from, its parent, Muthoot Fincorp Ltd. |
Key Rating Drivers & Detailed Description Strengths:
The rating on the debt instruments of MHFCL centrally factors in the expectation of support from MFL which, along with its promoters, jointly owns 100% stake in MHFCL. Given the majority ownership, shared name, and common branding and corporate identity, MFL has a strong moral obligation to continue supporting MHFCL. In addition, the latter enables the Muthoot Pappachan group's diversification into the strategically important and growing affordable housing finance segment. Most of the group's promoters serve as directors on the board of MHFCL and Mr. Thomas Muthoot, executive director of MFL, is the managing director of MHFCL. The Muthoot Pappachan group's brand equity helps MHFCL raise bank loans at competitive cost despite a short track record. Moreover, the promoters will provide funding support when needed.
MHFCL is comfortably capitalised as reflected in its networth of Rs 263 crore as on March 31, 2023 (Rs 237 crore as on March 31, 2022), supported by internal accruals and MFL’s ability to infuse capital. The parent infused equity of Rs 25 crore in MHFCL in fiscal 2019 and Rs 31 crore in fiscal 2020. Further parent has infused Rs 25 crore in H1 2024 and expected to infuse further in H2 2024. As of March 31, 2023 adjusted gearing stood at 4.9 times as compared to 5.0 times as on March 31, 2022. As of June 2023, networth stood at Rs 271 crore and gearing stood at 5.1 times. CET 1 and overall capital adequacy ratios (CAR) were 30.1% and 31.2%, respectively as of March 31, 2023. Given the expectation of financial support from the parent, capitalisation should remain adequate over the medium term, with gearing unlikely to exceed 6 times and CAR expected above 20%.
Weaknesses:
MHFCL operates in the affordable housing segment and caters to borrowers with relatively weak credit risk profiles. The company finances customers engaged in small businesses such as provision store owners, vegetable and food vendors, drivers, contractors, fabricators and plumbers as well as salaried customers working in organised and unorganised sector. It also finances customers who avail of housing under various government-supported schemes, such as Housing for All and Pradhan Mantri Awas Yojana. These borrowers have weak credit risk profiles because of their volatile incomes and employment in unorganised segments. Also, borrowers generally have limited or nil access to formal housing finance in the absence of proper documentation evidencing income, limited documentation regarding property, particularly in semi urban or rural areas, and lack of credit history.
The company’s asset quality moderated in fiscal 2022 as indicated by GNPAs of 3.8% compared with 3.3% a year earlier owing to covid. However, in fiscal 2023, the company sold Rs 41 crore of the portfolio to an ARC which helped in reducing the GNPA to 0.8%. As of June 2023, GNPA stood at 0.9%. The company is now focusing on the self-construction home loan segment targeting salaried (formal or informal) customers. It has significantly reduced its disbursements in the builder-led retail housing loan segment. Nevertheless, collection efficiency has remained at around 99% over the last 12 months. As the company is expanding its portfolio, ability to maintain adequate asset quality will be a key monitorable.
MHFCL reported return on managed assets (RoMA) of 1.7% in fiscal 2023 as compared to 1.2% in fiscal 2022. Profitability was impacted in fiscal 2022 owing to higher operating expenses and provisioning due to the pandemic. However, it improved in fiscal 2023. In Q1 2024, the company reported a ROMA of 1.9% (annualized). With focus on the self-construction segment, the yield is expected to increase marginally. Also, with an increase in benchmark rates, borrowing cost is expected to remain elevated in fiscal 2024. However, the company is able to pass on the rise in interest rate to the customers. CRISIL Ratings believes profitability will improve with increasing scale over the medium term.
AUM, though growing, remained modest at Rs 1,520 crore as on March 31, 2023, as against Rs 1,335 crore as of March 2022. Further, it improved to Rs 1,605 crore in Q1 2024. Moreover, despite presence in 11 states (Maharashtra, Gujarat, Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Rajasthan Madhya Pradesh, Chhattisgarh, Puducherry and Uttar Pradesh), operations are geographically concentrated with the top 4 states accounting for 67% of the portfolio as on June 30, 2023. The company plans to deepen its geographical presence for which it is crucial to understand local business requirements. Performance across economic cycles is yet to be seen as the business scales up further even while the company remained resilient in the past during demonetisation, GST implementation, NBFC liquidity crisis and Covid. |
Liquidity: Adequate As per the asset liability maturity profile as on March 31, 2023, the company had no negative cumulative mismatch across all buckets even without considering the unutilised lines of credit. Cash and equivalent, including liquid investments and unutilised cash credit/working capital demand loan lines, were Rs 99.4 crore (excluding term loans and securitisation lines) as on September 30, 2022. Total debt obligation (including operating expenses) was around Rs 70.7 crore between October 2023 and November 2023. The company has adequate liquidity to cover debt obligations and operating expenses for the next two months. Liquidity is enhanced by monthly collection of around Rs 22.9 crore (excluding prepayments) in April-September 2023. As on September 30, 2023, the company has drawdown Rs 295 crore of funds since April 2023 and has Rs 300 crore in pipeline as on the same date. CRISIL Ratings believes MHFCL will receive timely financial support from MFL when needed |
Outlook: Stable CRISIL Ratings believes MHFCL will continue to receive strong support from MFL and will maintain adequate capitalisation over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company MHFCL is part of the Muthoot Pappachan group and a subsidiary of the group's flagship company, MFL. The group has a presence in diverse businesses such as loans against gold, vehicle finance, microfinance, money transfer, mutual fund distribution, hospitality, real estate and power generation. MHFCL was incorporated in March 2010 and commenced operations in July 2011. It operates in the affordable housing finance segment and provides loans of up to Rs 25 lakh to people with income of Rs 15,000-30,000 per month for purchase, construction, extension of house and other mortgage loans. MHFCL has presence in Maharashtra, Gujarat, Tamil Nadu, Kerala, Madhya Pradesh, Rajasthan, Uttar Pradesh, Karnataka, Andhra Pradesh, Chhattisgarh and Puducherry. As on June 30, 2023, networth was Rs 271 crore and AUM was Rs 1,605 crore. |
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)
^yet to be availed *Yet to be issued
Annexure: Details of Rating Withdrawn
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