| Shubham Housing Development Finance Company Limited | ||
| Rating reaffirmed at 'CRISIL A- / Stable' | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable’ rating on the non-convertible debentures of Shubham Housing Development Finance Company Limited (Shubham Housing).
The rating continues to reflect the company’s strong capital position and improved profitability, and the extensive experience of the promoters and senior management in retail finance businesses. These strengths are partially offset by the small, albeit improving, scale of operations, and exposure to customers with limited financial flexibility.
The nationwide lockdown to contain the spread of the Covid-19 pandemic had impacted disbursements and collections of financial institutions. Intermittent lockdowns and localised restrictions could delay the return of collections to normalcy and put pressure on asset quality. Any change in the payment discipline of borrowers can affect delinquency levels. Therefore, the company’s ability to manage asset quality will remain a key monitorable.
Shubham Housing offered moratorium to its borrowers and 20.8% of the portfolio was under moratorium as on August 31, 2020. The company has received applications for one-time restructuring for around 1.3% of the loan book and had made additional Covid-19-related provisions and management overlay of Rs 9.7 crore as on December 31, 2020.
The Reserve Bank of India’s regulatory measures under the Covid-19 - Regulatory Package, allowed lenders to grant moratorium on bank loans from March to August 2020. Shubham Housing had availed the moratorium on around 30% of its borrowings. |
Analytical Approach CRISIL Ratings has assessed the standalone business, financial, and management risk profiles of Shubham Housing, and has factored in the company’s demonstrated ability to raise capital at regular intervals and the strong financial flexibility of its largest shareholder. |
Key Rating Drivers & Detailed Description Strengths:
Networth was Rs 487 crore and adjusted gearing was 3.0 times as on September 30, 2020, compared with Rs 461 crore and 2.9 times, respectively, as on March 31, 2020. The company has successfully raised capital four times in the past 10 years, and is in the preliminary stage of raising additional capital. It will likely maintain its healthy capital position and continue to benefit from the presence of shareholders with strong financial flexibility, such as Premji Invest, which held 43.9% stake as on December 31, 2020. Premji Invest had invested Rs 285 crore in January 2018, and is likely to maintain stake above 40%.
The promoters, Mr Sanjay Chaturvedi and Ms Rupa Basu, have extensive experience in retail finance businesses across asset classes. They have been instrumental in strengthening people, processes, and systems to support the growing scale of operations. The senior management comprises professionals with experience in finance, sales, data analytics, and credit. The company leverages technology to empower its sourcing, credit underwriting, collections, and client servicing teams. These measures should help manage operations seamlessly over the medium term while significantly scaling up the portfolio.
Return on managed assets (RoMA) improved to 2.5% for the half year ended September 30, 2020, from 2.0% in fiscal 2020, and 1.1% in fiscal 2019. The improvement was a result of better interest margin, lower operating expense ratio, and reduced credit costs. Increase in operating scale, rationalisation of branches, and focus on cost control enhanced operating efficiency. Nevertheless, the company’s operating expenses will remain higher that of traditional housing finance companies, given its client sourcing methods (through banner/leaflet campaigns, branch walk-ins, and referrals). Credit cost declined steadily to 0.3% for the half year ended September 30, 2020, from 0.5% in fiscal 2020 and 0.8% in fiscal 2019. Ability to maintain healthy profitability will remain a key monitorable.
Weaknesses:
The company remains a modest player in the housing finance industry with assets under management (AUM) of Rs 1,747 crore as on September 30, 2020 (Rs 1,682 crore as on March 31, 2020). The AUM rose at a compound annual growth rate of 27.1% from fiscals 2016 to 2020, albeit on a lower base. Nevertheless, the company has created a niche for itself in the affordable housing finance space catering to customers with informal or undocumented income source. Operations are concentrated with the top three states Maharashtra, Delhi and Uttar Pradesh, accounting for 61% of AUM as on September 30, 2020, with Maharashtra alone accounting for 34%. Nevertheless, the management plans to gradually expand and deepen presence in other states.
The company’s target customers predominantly include blue collar workers in the salaried segment and people dependent on daily wages in the self-employed segment. They generally have limited or no access to formal financiers because of their volatile income, employment in unorganised sectors and the absence of proper documentation of income and credit history. These customers are more susceptible to economic downturns such as the ongoing one.
Covid-19 has affected the company’s borrowers, with 20.8% of its loan book under moratorium as on August 31, 2020. Furthermore, 6-7% of the loan book was under moratorium for the entire period from March to August 2020. While collections have bounced back post moratorium, they remain 2-3 percentage points lower than the pre-Covid level. Delinquencies increased with gross non-performing assets (NPAs) at 2.07% as on September 30, 2020, after adjusting for the Supreme Court’s standstill ruling (reported gross NPAs at 1.4%), compared with 1.7% as on March 31, 2020.
Nevertheless, the management has made extensive effort to maintain portfolio quality and improve collections. Ability to scale up operations while maintaining asset quality will remain a key monitorable. |
Liquidity: Strong Given the long tenure of assets, the asset and liability management (ALM) profile as on September 30, 2020, had mismatches in a few buckets. Cumulative mismatch for one year was negative. Nevertheless, the company had adequate liquidity cushion aggregating Rs 429 crore as on December 31, 2020, in the form of cash and equivalents (Rs 80 crore) and unutilised bank lines (Rs 349 crore), which will sufficiently cover debt obligation of Rs 255 crore till June 2021. |
Outlook: Stable Shubham Housing will likely maintain strong capitalisation over the medium term and benefit from the support of Premji Invest. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Shubham Housing was incorporated in 2010 and received HFC licence from the National Housing Bank in January 2011. The company provides housing loans to the people in low-income segment largely in tier 2 cities and periphery of urban areas. It is primarily engaged in the affordable housing segment with average ticket size of Rs 7-8 lakh. As of September 30, 2020, its AUM was Rs 1,727 crore, of which housing loans (including home improvement and self-construction loans) accounted for 79% and loan against property for 21%. The company operates through 85 branches in 9 states, primarily covering north, west, and central India. It exited Bihar, Jharkhand, and Chhattisgarh in fiscal 2020, as part of its branch rationalisation process.
Net profit was Rs 24.6 crore on a total income (net of interest expense) of Rs 86.2 crore in the half year ended September 30, 2020. Net profit was Rs 34.6 crore on total income (net of interest expense) of Rs 164.2 crore in fiscal 2020, compared with Rs 15.6 crore and Rs 117.0 crore, respectively, in fiscal 2019. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
^Yet to be issued |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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