| Navarathna Housing Finance Limited. | ||||
| Rating migrated to 'CRISIL BB-'; Rating placed on 'Watch Developing' | ||||
| Rating Action | ||||
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| & Issuer did not cooperate; based on best-available information | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Due to inadequate information and CRISIL Ratings, in line with SEBI guidelines, had migrated the rating on the long-term bank facilities of Navarathna Housing Finance Limited (NHFL) to ‘CRISIL BB-/Stable/Issuer not cooperating'. However, the management has subsequently started sharing the requisite information necessary for carrying out a comprehensive review of the rating. Consequently, CRISIL Ratings has migrated the rating to 'CRISIL BB-' and placed the rating on ‘Rating Watch with Developing Implications’.
The rating action factors in information provided by NHFL’s management regarding amalgamation of Navarathna Financial Services Limited (NFSL) with NHFL. The company is awaiting approval from the National Company Law Tribunal (NCLT). Once the approval is in place, NHFL will surrender the license to the Reserve Bank of India. CRISIL Ratings understands that the consolidation process is expected to take about 45 days to 2 months, post receipt of NCLT’s order.
CRISIL Ratings will continue to engage with the management to understand the future strategy of NHFL post completion of consolidation with NFSL. NFSL is a non-deposit taking, non-banking finance company engaged in providing loans against gold and business loans, with loan portfolio of Rs 14.4 crore as on September 30, 2021. NFSL’s networth (standalone basis) stood at Rs 10.0 crore with gearing of 0.5 time as on September 30, 2021. In terms of asset quality, its position deteriorated due to challenges faced during the second wave of the Covid-19 pandemic. The company reported 90+ days past due (dpd) of 12.6% as on September 30, 2021 (11.5% as on March 31, 2021). NFSL has made 100% provision against overdue accounts for the period ended March 31, 2021 and September 30, 2021. Considering these factors, CRISIL Ratings will resolve its watch after analysing any impact of the amalgamation on the overall credit profile of NHFL.
The rating on the bank loan facilities of NHFL continues to reflect its adequate capital position for current and planned scale of operations. Networth was Rs 18.0 crore as on September 30, 2021. The capital position is supported by steady accretion to reserves that accumulated during the last three years. Furthermore, gearing has been negligible at 0.12 time for the same period. The rating also factors in the extensive experience of the promoter for more than 25 years in the financing business. The promoter has been operating in Tamil Nadu which has helped him to have in-depth understanding of the local areas.
These strengths are partially offset by the small scale of NHFL’s operations with geographical concentration risk and average asset quality. |
Analytical Approach For arriving at its rating on NHFL, CRISIL Ratings has evaluated the standalone business and financial risk profiles of NHFL. With the completion of the amalgamation, the credit profile will reflect the combined business and financial risk profiles of NHFL and NFSL. |
Key Rating Drivers & Detailed Description Strengths:
Networth was Rs 18.0 crore as on September 30, 2021 (Rs 15.7 crore as on March 31, 2020), which is adequate for the current scale of operations. The capital position is supported by steady accretion to reserves. The company has reported cumulative profit of Rs 4.2 crore during the last three and half years, thereby improving networth. Currently, the portfolio of NHFL is majorly funded through networth, given there is very limited external borrowing on the balance sheet till end of fiscal 2021. In first half of fiscal 2022, the company received funding of Rs 3 crore from the bank. However, gearing remained low at 0.12 time as on September 30, 2021. Nevertheless, low gearing provides sufficient headroom for growing the portfolio through external debt. Capitalisation is expected to remain comfortable, with gearing less than 2 times over the medium term.
The promoter, Mr Chokkalingam Palaniappan, has more than 25 years of experience in the finance industry in Tamil Nadu. Benefits from his experience and his in-depth understanding of the local market dynamics should continue to support the business. Along with the promoter, other directors were also earlier working with various banks and financial institutions and their extensive experience in handling various functions in similar businesses, including administration, industrial relations, business development, underwriting, audit, collections and legal, has helped NHFL to establish good systems and processes.
At the senior management level, the company has appointed a team of professionals with ample experience, especially in housing finance segment. CRISIL Ratings believes the experience of the promoter and senior management will stand NHFL in good stead as it scales up its portfolio.
Weaknesses:
NHFL was incorporated in April 2015 but commenced actual operations only in May 2017 after receiving certificate of registration from the National Housing Bank. NHFL extends loans to customers with low income in urban, semi-urban and rural areas of South India. The company started lending only in fiscal 2018 and, therefore, has only three years of operations. However, the loan portfolio grew 17% during fiscal 2021 and 7% in the first half of fiscal 2022, despite the impact of the Covid-19 pandemic. The loan portfolio is small at Rs 19.6 crore as on September 30, 2021, against Rs 15.5 crore as on March 31, 2020. In terms of portfolio breakup, about 69% is made up of home loans and remaining 39% is loan against property. Given its low operational vintage, the overall scale of operations remained concentrated within Chennai and nearby regions. Operations are presently spread across eight districts in Tamil Nadu.
The proportion of delinquencies in the 90+ dpd bucket increased to 16.2% as on June 30, 2021 from 0.6% as on March 31, 2021. This was mainly due to the second wave of the pandemic. NHFL has provided restructuring facility to its borrowers on case-to-case basis, amidst the second wave. The 90+ dpd subsequently improved to 4.4% as on September 30, 2021. NHFL has made sufficient provision against overdue accounts for period ended September 30, 2021. NHFL’s focus is to grow affordable housing and the loan against property segment. Its ability to maintain asset quality with 90+ dpd below 2% with growth in loan portfolio and diversification in new geographies will remain a key monitorable. |
Liquidity: Adequate NHFL’s liquidity buffer to cover total debt repayment and operating expenses till March 2022 is above 1 time. The company has cash and bank balance of Rs 1.23 crore as on November 30, 2021, while debt obligation for the four months through March 2022 is Rs 0.58 crore, including operating expenses. The liquidity risk is also mitigated by funding support from board members in the form of unsecured loans, which stood at Rs 1.7 crore as on September 30, 2021. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Incorporated in 2015, NHFL is a Chennai-based housing finance company (HFC) promoted by Mr Chokkalingam Palaniappan. The company started its operations after receiving the HFC licence from National Housing Bank in May 2017. NHFL operates through eight branches in Chennai. However, it uses the branch network of its group company, NFSL, to reach customers. Another group company, M/S Prakala Wealth Management Pvt Ltd, promoted by Mr Chokkalingam Palaniappan manages more than Rs 200 crore of assets under management (AUM) for customers predominantly in equity mutual funds. The AUM currently stands at around Rs 240 crore. |
Key Financial Indicators (Standalone – NHFL)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | |||||||||
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Criteria Details
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