| Sewa Grih Rin Limited | ||||||
| 'CRISIL BBB+/Stable' assigned to Non Convertible Debentures; Rated amount enhanced for Bank Debt | ||||||
| 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 assigned its ‘CRISIL BBB+/Stable’ rating to the Rs.120 Crore Non-convertible debenture of Sewa Grih Rin Limited (SGRL) while reaffirming its ratings on the bank facilities at ‘CRISIL BBB+/Stable/CRISIL A2+’.
The ratings are driven by the company’s demonstrated ability to scale up its assets under management (AUM), backed by steady fund raising, while maintaining adequate capitalisation and asset quality. The company also continues to benefit from the presence of an experienced management team. These strengths are partially offset by limited seasoning in the loan book owing to low operational vintage.
As on March 31, 2023, AUM stood at Rs 653 crore, as compared to Rs 321 crore, a year ago and Rs 252 crore, as on March 31, 2021. Growth in AUM has been supported by the company’s ability to raise external funds from development financial institutions, banks and non-banking financial companies (NBFCs). Average cost of funds stood at 8.9% for fiscal 2023 as compared to nearly 13% in fiscal 2019.
Commensurate with growth in AUM, the capital position of SGRL remains adequate – supported by demonstrated ability to raise capital from marquee investors. As on March 31, 2023, the company reported networth of Rs 222 crore and moderate gearing of 2.4 times. Since inception, SGRL has raised Rs 292 crore as capital from its promoter and other impact investors. Of this, Rs 100 crore was raised in fiscal 2023 and around Rs 65 crore in fiscal 2024 (till August 2023). The company is also in advanced stages of raising around Rs 240 crore in the latter half of fiscal 2024 and this capital raise has been factored into the rating. In this context, the amount of capital raised and the timeline of infusion will be a key monitorable.
Having commenced operations in 2016, the company turned profitable since fiscal 2020. For fiscal 2023, SGRL reported a profit after tax (PAT) of around Rs 2.2 crore, which translates to a return on assets (RoA) of 0.4%.Correspondingly, PAT and RoA for fiscal 2022 were Rs 5.5 crore and 1.6%, respectively. Reported profit for fiscals 2023 and 2022 factors in a notional foreign exchange loss (forex loss) of Rs 4.7 crore and Rs 1 crore, respectively. Upon adjusting for this forex loss, adjusted RoA for fiscals 2023 and 2022 would stand at 1.2% and 1.9%, respectively.
In terms of asset quality, percentage of gross non-performing assets (GNPAs) reported on the total loan book stood at 0.7% as on March 31, 2023 (0.9%, a year ago). Correspondingly, net NPA stood at 0.5% as compared to 0.7% a year before. Over the medium to long term, the company’s ability to profitably scale its operations will remain a key rating sensitivity factor. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of SGRL. |
Key Rating Drivers & Detailed Description Strengths:
Over its operational history, the company has raised Rs 292 crore from marquee investors, which has bolstered its capitalisation alongside business growth. The shareholder base comprises high pedigree names such as Sewa Mutual Benefit Trust (SMBT), Women’s World Bank (WWB), Oikocredit Ecumenical Development Cooperative Society U. A. (Oikocredit), Omidyar Network Fund Inc. (Omidyar), HDFC Holdings, AHI Capital, Abler Nordic and HDFC Life. In the first half of fiscal 2024, the company has raised Rs 65 crore from existing investors under series E1 round and it is in advanced stages of raising around Rs 240 crore by the end of this fiscal. This capital raising plan has already been factored into the rating, and the quantum and timing are key monitorables.
The business model of SGRL focuses on lending for social impact and targets a niche market of informal housing tenure or incomplete property documentation - thereby assisting potential customers in making the property title legally executable. This element of the company’s business model would continue to attract support of its investors.
On the debt side, the US International Development Finance Corporation sanctioned a low-cost (all in rate of 9.3%), 15-year long credit line of USD 30 million (Rs ~245 crore) in August 2019. Additionally, the company received sanctions from large banks such as State Bank of India, LIC Housing Finance, Kotak Mahindra Bank and Indian Overseas Bank. his has supported asset side growth and should also complement the company’s business strategy and overall asset-liability profile for the medium term.
On a steady-state basis, capitalisation is expected to remain adequate with leverage levels below 4 times.
Weakness:
The company reported GNPAs of 0.7% as on March 31, 2023 (0.9% as on March 31, 2022). On a two-year lagged basis, GNPAs were at 1.8% as on March 31, 2023.
Furthermore, SGRL targets women from the low-income group and economically weaker sections, working in the informal sector and lacking formal property titles. The company has developed a niche in underwriting this particular segment of informal income and have demonstrated the ability to successfully scale with a focus on asset quality. Given that the target customer segment has limited financial flexibility in times of distress, on account of relatively high risk compared with traditional home finance companies, delinquencies could increase from current levels, as scale increases and the portfolio seasons. Nevertheless, asset quality should benefit from the granular and secure nature of the portfolio, with loan to value ratio less than 50% of the portfolio. However, significant portion of the loan book has originated since 2021. Therefore, as the portfolio seasons, asset quality will need to be monitored. Ability to successfully manage collections and recovery in this borrower segment will need to be seen over a sustained period.
Also, sustenance of improvement in profitability remains to be demonstrated. SGRL broke even in fiscal 2020, with net profit of Rs 1.0 crore, compared with loss of Rs 3.8 crore in fiscal 2019, as economies of scale were achieved. Net profit for fiscal 2023 was Rs 2.2 crore, as compared with Rs 5.5 crore in fiscal 2022. Decline in absolute profit was due to higher operating expenditure and notional forex losses on the USD denominated borrowings. Considering the credit line from USIDFC is entirely hedged now, the company is unlikely to incur any forex losses over the medium term. Yields remain high in the target segment, but the ability to control credit cost and operating expenses will be key determinants of profitability over the medium term. At the same time, access to relatively low-cost funding line should support profitability metrics.
SGRL has comprehensive policies to safeguard its portfolio and has capped key credit metrics such as LTV (loan-to-value), debt burden ratio, and loan ticket size. CRISIL Ratings expects the steady state asset quality to improve as the portfolio seasons and this will remain a key monitorable. |
Liquidity: Adequate The structural liquidity statement of SGRL had positive cumulative mismatches in upto one year time buckets as on June 30, 2023. The company had overall liquidity cushion of Rs 270 crore, including cash and cash equivalents and unutilized bank lines as on June 30, 2023. This should suffice to meet the scheduled debt obligation of Rs 72 crore until December 31, 2023. |
Outlook: Stable SGRL is expected to maintain adequate capitalisation over the medium term. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company SGRL was incorporated in July 2011, and received its housing finance company license in January 2015.
The company operates in the affordable segment and has an average ticket size of Rs 2.65 lakh. It caters to requirements of borrowers from the lower-income group and economically weaker sections. These borrowers, mainly women, have informal property titles and live in urban and peripheral-urban areas. The New Delhi-based company operates via 58 branches across nine states as on June 30,2023. It operates under the brand ‘Sitara, a SEWA initiative’.
SGRL is embedded within the Gujarat-based trade union - SEWA network (Self Employed Women Association). SEWA was established in 1972 and aims to organise women employed in the informal sector so as to provide them with security of work, income, social equality and food. The company promotes women’s ownership of assets, in line with the philosophy of its promoter.
As on June 30, 2023, SMBT (90% of which is held by RNT Associates) owns 22.38% and is the promoter of the company. Other major shareholders include WWB (12.9%), Oikocredit (19.21%), Omidyar (11.96%), HDFC Holdings (6.41%), AHI Capital (4.72%), Abler Nordic (15.27%) and HDFC Life Insurance (3.31%). |
Key Financial Indicators
*annualised |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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