| Shubham Housing Development Finance Company Limited | ||
| Rating upgraded to 'CRISIL A/Stable' | ||
| 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 upgraded its rating on the non-convertible debentures of Shubham Housing Development Finance Company Limited (Shubham Housing) to ‘CRISIL A/Stable’ from ‘CRISIL A-/Stable’.
The upgrade is driven by strengthening in capital position of Shubham Housing, which would support growth in the medium term, coupled with improving steady state profitability, and controlled underlying asset quality. The rating also continues to factor the extensive experience of the promoters and senior management in retail finance businesses. These strengths are partially offset by the moderate, albeit improving, scale of operations and exposure to customers with limited financial flexibility.
Capitalization has strengthened after the equity infusion of Rs 600 crore in primary markets and Rs 270 crore in secondary markets in June 2022, doubling the networth of the company as on September 30, 2022
Gross NPA increased to 4.98% in December 2021, with implementation of RBI’s revised recognition norms. This has subsequently improved to 3.3% as of September 22 which was at 3.7% as on March 31, 2022 with a restructured book of 1.6% as on September 30, 2022. As per the previous norms, the Gross Stage 3 moved from 1.28%% in Dec 21 to 0.92% in Mar 22 and stood at 1.38% as on September 30, 2022. The improvement in asset quality was fueled by improvement in collection efficiency which was at 97% in H1 FY23 compared to 87% in December 2021. Any change in the payment discipline of borrowers will affect delinquency. Ability to maintain asset quality remains a key monitorable.
Profitability improved with PAT increasing from Rs. 24.9 crore in FY22 to Rs 40 crore in H1FY23 due to lower credit costs resulting in RoMA seeing an uptick from 1.0% in FY 22 to 2.7% in H1 FY23 |
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. |
Key Rating Drivers & Detailed Description Strengths:
The company has successfully raised capital five times in the past 10 years. with the most recent Rs 600 crore raise in June 2022 seeing participation form marquee impact investors CDC, ADB, and LeapFrog investments. Accordingly, networth was Rs 1183 crore and adjusted gearing was 1.6 times as on September 30, 2022, compared with Rs 550 crore and 3.5 times, respectively, as on March 31, 2022. The company is expected maintain its healthy capital position and continue to benefit from the presence of shareholders with strong financial flexibility, such as Premji Invest, which will continue to hold around 40% stake in the near term.
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.
Profitability has been historically weaker for this company given higher operating costs compared to traditional housing finance companies as well as higher credit costs due to weaker asset quality. Profitability as indicated by return on managed assets (RoMA) stood at 1.0% for the full year ended March 2022 (2.7% in fiscal 2021). There was substantial improvement in ROMA to 2.7% in first six months of fiscal 2023, mainly due to improved margins and lower credit costs. The credit costs for H1 FY23 were at significantly lower at 0.1% compared to 1.0% for FY22. The operating expenses remained range bound on the higher side between 5.1% to 5.4% between FY21 and H1 FY23.
The impact from the day-stamping guideline by the RBI are expected to be absorbed in fiscal 2023. With higher scale, normalized credit costs and better operating efficiency, profitability is expected to strengthen in the near term. Nevertheless, 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 2,671 crore as on September 30, 2022 (Rs 2,401 crore as on March 31, 2022). The AUM rose at a compound annual growth rate of 24% from fiscals 2017 to 2022, 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 64% of AUM as on September 30, 2022, with Maharashtra alone accounting for 36%. 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.
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, given limited seasoning of the portfolio on the back of strong AUM growth from 2017-22. |
Liquidity: Strong Given the long tenure of assets, the asset and liability management (ALM) profile as on September 30, 2022, had no mismatches. The company had adequate liquidity cushion aggregating to Rs 384 crore as on September 30, 2022, in the form of cash and equivalents (Rs 174 crore) and unutilised bank lines (Rs 210 crore), which will sufficiently cover debt obligation of Rs 340 crore till March 2023. |
Outlook: Stable Shubham Housing is expected to 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, 2022, its AUM was Rs 2,671 crore, of which housing loans (including home improvement and self-construction loans) accounted for 76% and loan against property for 24%. The company operates through 113 branches. 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 40 crore on a total income (net of interest expense) of Rs 129 crore in the half year ended September 30, 2022. Net profit was Rs 24.9 crore on total income (net of interest expense) of Rs 191.8 crore in the fiscal 2022. |
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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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