Detailed Rationale

CRISIL Ratings has revised its rating on the guarantee-backed working capital bank facilities amounting to Rs 9 crore of Roha Housing Finance Pvt Ltd (Roha Housing) to ‘CRISIL BBB/Stable’ from ‘CRISIL A(CE)/Watch Developing’ and converted its provisional rating on Rs 36.11 crore of bank facilities of Roha Housing to a final rating of ‘CRISIL BBB/Stable’. Also, CRISIL Ratings has revised its rating outlook on the guarantee-backed long-term bank facilities amounting Rs 63.89  to ‘Positive’ from 'Stable' while reaffirming the rating at ‘CRISIL A(CE)’ on account of revision in outlook of Roha Dyechem Pvt Ltd (RDPL; 'CRISIL A/Positive/CRISIL A1'). 

 

The CE (credit enhanced) ratings are based on the strength of the unconditional and irrevocable corporate guarantee by the group entity, RDPL. CRISIL Ratings has reaffirmed its ‘CRISIL A (CE)/CRISIL BBB/Stable’ ratings on the bank facilities of Roha Housing.

 

CRISIL Ratings has revised its approach towards the credit enhancement provided by the guarantee. The revised approach is based on the guidance from the Reserve Bank of India (RBI) on factoring in credit enhancement in the ratings of bank loan facilities.

 

CRISIL Ratings has assessed the guarantee as legally enforceable, irrevocable and unconditional, covering the entire amount and tenure of the rated facility and given it due consideration while assigning the rating with the suffix CE.

 

Working capital facilities do not have a defined tenure and are reviewed and renewed by the bank on an annual basis. In this context, CRISIL Ratings is reviewing the rating approach of working capital facilities backed by guarantee to the new framework.

 

Based on the new regulatory guidance, the existing guarantees cannot be considered as a valid credit enhancing support structure for assigning the suffix CE because the company does not have a defined payment mechanism.

 

The migration in ratings of guarantee-backed working capital bank facilities to unsupported ratings is on account of guarantee deed not adhering to the new RBI framework.

 

For the guaranteed term loans, the rating is being reaffirmed as the RBI has permitted the previous approach of factoring in the guarantee, without a defined payment mechanism, till the residual tenure of the term loan.

 

The rating on the remaining non-guaranteed bank facilities of Roha Housing reflects the company’s adequate capitalisation, supported by regular capital infusion by the Roha group (JJT Trust held 74.23% in Roha Housing as on December 31, 2022) and the experienced management team. These strengths are partially offset by the nascent stage of operations of the company.

Analytical Approach

For the guarantee-backed bank facility, CRISIL Ratings has applied its criteria for rating instruments backed by guarantees. The suffix CE (credit enhanced) reflects the payment structure, which is designed to ensure full and timely payment to lenders on account of the corporate guarantee by RDPL.

 

For arriving at the rating on the non-guaranteed instruments, CRISIL Ratings has considered the standalone business and financial risk profiles of Roha Housing.

Key Rating Drivers & Detailed Description

Strengths:

• Unconditional and irrevocable corporate guarantee by RDPL

For Rs 63.89 crore bank facilities

The credit-enhanced rating is based on the strength of the continuing unconditional and irrevocable guarantee provided by the guarantor, RDPL. The credit quality of the rated facility thus reflects the credit quality of the guarantor. CRISIL Ratings understands that RDPL has taken measures to monitor the cash flow of Roha Housing to ensure timely servicing of debt.

 

Weakness:

• Nascent stage of operations

The company commenced operations in April 2018 and is a small player in the affordable housing finance industry with a loan book of Rs 518 crore as on March 31, 2023, as against Rs 347.1 crore as on March 31, 2022. Asset quality metrics were stable with gross non-performing assets (GNPAs) of 0.5% as on March 31, 2023 (1.4% as on March 31, 2022, and 0.3% as on March 31, 2021). However, the loan book is unseasoned (with 76% of the book disbursed in the past two fiscals), and thus, ability to manage asset quality will remain a key monitorable. Roha Housing had restructured accounts outstanding at 1.5% of gross advances as on December 31, 2022. Moreover, asset quality is susceptible to sudden upticks in delinquencies during periods of stress, given the inherently risky borrower profile (low-to-middle income group). Pressure on asset quality will be limited given the granular and secured nature of the portfolio, with average loan-to-value ratio of around 57% as on March 31, 2023.

 

Given the initial stage of operations, earnings remain constrained owing to high operating expenses because of heavy investments in setting up technology and branch infrastructure and higher provision cost. The company broke even in fiscal 2020 with profit after tax (PAT) of Rs 1.37 crore (primarily on account of deferred tax benefit) against loss of Rs 8.5 crore in fiscal 2019. It reported PAT of Rs 2.9 crore and return on assets (RoA) of 0.8% in fiscal 2022 (PAT of Rs 2.8 crore with RoA of 1.1% in fiscal 2021). For the nine months through December 2022, the company reported profit of Rs 2.7 crore, compared with loss of Rs 1.1 crore for the corresponding period of the previous fiscal. Ability to successfully scale up the business will be a key monitorable.

Liquidity : Adequate

The structural liquidity statement as on December 31, 2022, had positive cumulative gaps across all buckets. The company has adequate liquidity cushion, comprising Rs 25.92 crore in the form of cash and equivalent (including fixed deposits) and unutilised bank lines of Rs 20 crore as on March 31, 2023, against debt obligation of Rs 26.1 crore from April 2023 to June 2023.

Outlook Stable

CRISIL Ratings believes that Roha Housing will benefit from its experienced management and comfortable capitalisation metrics which will support growth in near to medium term.

 

Outlook for guaranteed facilities: Positive

The outlook is based on the 'Positive' outlook on the guarantor's debt instruments. The rating will remain sensitive to changes in the rating on RDPL.

Rating Sensitivity factors

Upward factors: 

• Improvement in market position while maintaining asset quality
• Increase in earnings, with RoA above 2% on steady state basis

 

Downward factors:

• Deterioration in asset quality (GNPAs above 3%) on sustained basis weakening profitability
• Earnings constrained by higher operating expenses or credit costs

 

Rating sensitivity factors for guaranteed facilities
Upward factor: 

• Upgrade in the rating on the guarantor

 

Downward factors:

• Downgrade in the rating on the guarantor
• Non-adherence to the terms of transaction structure/payment mechanism

Adequacy of credit enhancement structure

The rating reflects the unconditional and irrevocable guarantee from RDPL. CRISIL Ratings understands that the guarantor has taken measures to monitor the cash flow of Roha Housing to ensure timely servicing of debt (principal, interest and other monies payable on the guaranteed bank facility).

 

CRISIL Ratings has introduced the suffix CE for instruments having an explicit credit enhancement feature, in compliance with the Securities and Exchange Board of India circular dated June 13, 2019.

Unsupported ratings  -‘CRISIL BBB

CRISIL Ratings has introduced the 'CE' suffix for instruments having explicit credit enhancement feature in compliance with the Securities and Exchange Board of India's circular dated June 13, 2019.

Key drivers for unsupported ratings

Adequate capitalisation supported by regular capital infusion by JJT Trust

Capital position is adequate, as indicated by tier 1 and overall capital adequacy ratio of 53.02% and 53.65%, respectively, as on December 31, 2022 (69.65% and 70.08%, respectively, as on March 31, 2022). The promoters have infused Rs 171.5 crore (including premium) and additional capital support of Rs ~150 crore is expected in the next 2-3 years. Networth was Rs 175 crore on a modest portfolio, resulting in gearing of 1.9 times as on December 31, 2022 (Rs 142 crore and 1.5 times, respectively, as on March 31, 2022). Gearing will increase as the portfolio scales up but will not exceed 5 times as per the management philosophy.

 

Roha Housing benefits from being a part of the Roha group, with JJT Trust, the holding entity of RDPL, being the largest shareholder (over 74% stake as on December 31, 2022). The housing finance business has been identified as one of the focus areas for diversification.

 

Experienced management team

The company has an experienced management team headed by Mr. Sunil Kapoor, who has a track record of setting up new products as well as distribution channels in the lending business. He is a Chartered Accountant with experience of more than 27 years in retail asset products including loans, cards, finance, mortgages and insurance. He has worked across functions including sales and distribution, operations, risk and credit (underwriting), collections and finance. The leadership team across critical functions such as sales, risk, strategy, finance, technology and operations is qualified and professional, with each member having two decades of experience.

 

The management had put in place adequate systems and processes, including a robust technology platform, for scaling up the business prior to commencing disbursements. This should hold the company in good stead as business grows.

About the Company

Roha Housing is a housing finance company that received its license from National Housing Board in December 2017 and began commercial operations in April 2018. The company has two main products: housing loans (67% of the portfolio as on March 31, 2022) and loans against property (LAP). Average ticket size of housing loans and LAP was Rs 8 lakh and Rs 9 lakh, respectively. The company has 30 branches across 6 states (Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Chhattisgarh and the National Capital Region) and had a loan book of Rs 347 crore as on March 31, 2022.

 

In fiscal 2022, the company reported PAT of Rs 2.9 crore on total income of Rs 46.8 crore (Rs 2.8 crore on total income of Rs 34.7 crore in fiscal 2021).

 

For the nine months through December 2022, the company reported profit of Rs 2.7 crore, compared with net loss of Rs 1.1 crore for the corresponding period of the previous fiscal.

About the guarantor- RDPL

Set up in 1972 and promoted by Mr Ramakant Tibrewala, RDPL manufactures dyes and colours that are used in food and beverages, drugs and cosmetics. It has a wide global network with group companies across 20 countries. The company owns and operates solar energy projects of 63.5 MW in Gujarat, Rajasthan and Maharashtra; and wind energy projects of 31.5 MW in Maharashtra, Madhya Pradesh and Rajasthan. The energy generated from the solar plant in Maharashtra shall be used for captive purposes.

 

In fiscal 2022, at standalone level, revenue increased by 20% and PAT margin dropped to 12.6% from 14.6%. At consolidated level, revenue was around Rs 2,005 crore in fiscal 2022 with operating margin of around 17.5%.

List of covenants

The material covenants of the instruments pertain to, among others:

 

• Declaring dividends for any year except out of profits relating to that year after making all due and necessary provisions and provided there is no default on any obligation to the bank
• Downgrade in the rating on RDPL
• Roha Housing cannot undertake any guarantee or letter of comfort in nature of guarantee on behalf of any other company (including group companies) other than the normal course of business
• Maintaining minimum capital adequacy ratio of 25% till March 31, 2021, and compliance with regulatory norms thereafter
• Maintaining capital of at least Rs 90 crore during currency of the loan

Any other information: Not applicable