| Shubham Housing Development Finance Company Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its rating on the non-convertible debentures of Shubham Housing Development Finance Company Limited (Shubham Housing) at 'CRISIL A-/Stable'. |
| Analytical Approach |
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For arriving at the rating, CRISIL has assessed the standalone business, financial, and management risk profiles of Shubham Housing. CRISIL has also 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 |
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Strengths * Strong capital position, supported by demonstrated ability to raise capital at regular intervals Networth stood at Rs 452 crore as on September 30, 2019 (Rs 179 crore as on September 30, 2017), with Premji Invest infusing Rs 215 crore in primary and Rs 70 crore in secondary in January 2018 for a 43.91% stake in the company. Gearing, as a result, improved and currently stands at 2.2 times as on September 30, 2019 from 4.4 times as on September 30, 2017. Shubham Housing has a demonstrated track record of raising capital at regular intervals (four times in the past nine years). It will continue to benefit from the presence of shareholders with strong financial flexibility, such as Premji Invest, and should maintain its robust capital position by raising capital at regular intervals. * Extensive experience of the founders and senior management in retail finance businesses The promoters, Mr Sanjay Chaturvedi and Ms Rupa Basu, have extensive experience in retail finance businesses across asset classes. At Shubham Housing, they have been instrumental in continuously strengthening people, processes, and systems to support the increasing scale of operations. Senior management team has also been strengthened in the last few years. Experienced professionals have been hired to manage operations, finance, sales, data analytics, credit and human resources functions. A dedicated collections team has also been set up, split into soft (upto 90 dpd) buckets and hard (>90 dpd) buckets focus with clearly defined responsibilities and targets. The management is also well-versed in using and implementing advanced technology platforms to build and fast-track sourcing, credit underwriting, portfolio analytics and client servicing abilities. These measures are expected to help the company manage its operations seamlessly over the medium term while significantly scaling up the portfolio. * Improvement in the earnings profile While profitability has been constrained in the past because of a high operating expense ratio and credit costs, earnings metrics have improved in fiscal 2019 and are expected to improve further. RoMA stood at 2.0% (annualised) compared to 1.2% in fiscal 2019 and 0.4% in fiscal 2018. Better operating efficiencies and relatively lower credit costs should support improvement in RoMA going ahead, even though this could be partly offset by lower yields in line with the changing customer mix. With improvement in branch profitability and growth bringing in economies of scale, operating costs are expected to reduce significantly over the medium term - while the costs will remain higher than traditional housing finance companies, so will the net interest margins, given the higher rate of interest (as well as processing fees). With better incremental asset quality, credit costs are also expected to stabilise at lower levels and support profitability going ahead. * Better early delinquency trends exhibited by newer loans Shubham Housing, in 2016, significantly strengthened its systems and processes through measures such as setting up of an independent risk containment unit, investing in a technology platform, ensuring greater usage of data analytics, and shifting to a centralised underwriting model from a branch-based model. The impact of these steps can be seen in better performance of loans originated post the second half of fiscal 2017. The 30+ delinquencies at 18 months on book for loans disbursed in fiscal 2017 and fiscal 2018 was around 6% and 3%, respectively, this was significantly lower compared to the same observed in fiscal 2014, fiscals 2015 and 2016. A similar trend is witnessed in 90+ delinquencies across vintages post fiscal 2016. Consequently, asset quality metrics should show significant improvement going ahead as the proportion of the newer portfolio increases (now ~85% of the total book). Sustainability of this improvement as the portfolio seasons will be a key monitorable. Weaknesses *Small, albeit increasing, scale of operations Shubham Housing continues to be a relatively small player among overall housing finance entities, however, it is well placed amongst the newer entrants in the affordable housing segment. The portfolio was Rs 1528 crore as on September 30, 2019. While the growth in portfolio is expected to be healthy, supported by comfortable capital and strengthened risk management policies, scale is likely to remain modest over the medium term. However, Shubham has focussed on growing its share of business by increasing branch and people penetration in focussed 9 states and continues to grow its disbursements month on month in the challenging external environment. * Exposure to inherent risks in the affordable housing finance business The company operates in affordable housing finance and predominantly caters to middle to low income group workers in the salaried segment and small scale businessmen in the self-employed segment. These borrowers, especially in the self-employed segment, have relatively weak credit risk profiles because of the volatile nature of their income and employment in unorganised segments, and have limited or no access to formal housing finance in the absence of proper documentation evidencing income and an established credit history, and are more susceptible to economic downturns. Hence, the segment's performance across economic cycles is yet to be demonstrated. However, the company has recovered about 90% of principal from repossessed assets, through security enforcement actions till Sep 2019. * High operating expenses Operating expenses continues to remain high with opex as % of average RoMA at 6.7% in first half fiscal 2020 (6.4% and 6.3% in fiscal 2019 and fiscal 2018, respectively). Given the company's business model of sourcing customers via banner/leaflet campaigns, branch walk-ins, and referrals, rather than forming tie-ups with builders and direct sales agents, sourcing costs have been higher than peers. Furthermore, the company has been in investment mode and has opened 85 branches as on date, along with incurring costs on installing new technology. In the current year, the company has also invested in strengthening its senior leadership team. While operating expenses are expected to reduce from current levels with economies of scale, they will remain higher than most peers given the higher cost sourcing model. Higher operating expenses is partially offset by high yields given its customer segment. |
| Liquidity Adequate |
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Asset liability maturity profile is adequate with cumulative positive mismatches across all buckets as of September 30, 2019. Lender base is diversified, with relationships with over 20 banks and 10 non-banks. The company has no commercial paper borrowings as on date. As on December 31, 2019, against total debt of Rs 76 crore maturing up to April 2020, Shubham Housing had cash and cash equivalents of Rs 124 crore and sanctioned, but unutilised, bank lines of Rs 203 crore. Planned monthly disbursements are Rs 80-90 crore, and collections (including prepayments) are expected to be Rs 30-40 crore. |
| Outlook: Stable |
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CRISIL believes Shubham Housing will continue to benefit from its strong capital position and demonstrated ability to raise capital, better quality of loan book origination, improving profitability and the experienced management team. |
| About the Company |
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Shubham Housing was incorporated in 2010 to provide housing loans to low-income groups in metros and urban areas. The company, based in Gurgaon (Haryana) has presence in 9 states, covering most of the states in the north, west, and central India. Shubham Housing is primarily engaged in affordable housing segment with average ticket size of Rs 7-8 lakh. Housing loans (including home improvement and self-construction loans) are expected to account for about 81% of the loan book, with remaining being non-housing loans (mainly loan against property) over the medium term. As of September 30, 2019, loan portfolio was Rs 1515 crore. |
| 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) | |||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Links to related criteria |
| CRISILs Bank Loan Ratings - process, scale and default recognition |
| Rating Criteria for Finance Companies |
| For further information contact: | ||||||
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