Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable/Crisil A1+’ ratings on the outstanding debt instruments and bank facilities of Sundaram Home Finance Limited (Sundaram Home).

 

The rating factors in strong support from the parent, Sundaram Finance Ltd (Sundaram Finance; rated ‘Crisil AAA/Stable/Crisil A1+’), as well as in company’s demonstrated track record of steady and profitable growth across business cycles along with sequential improvement in asset quality performance.

 

Sundaram Home’s assets under management (AUM) rose to Rs 16,331 crore as on December 31, 2024, from Rs 13812 crore as on March 31, 2024, registering growth of 23% (Annualised) (Rs 11,181 crore as on March 31, 2023). Own book stood at Rs 14,577 as on December 31, 2024, up from Rs 13,036 crore as on March 31, 2024.

 

Gross stage 3 assets (GS3) as a % of own book improved to 1.2% as on March 31, 2024, from 2.2% as on March 31, 2023, and remained in the same range at 1.3% as on December 31, 2024. The company reported a profit after tax of Rs 173 crore in the nine months ended December 31, 2024, with a return on managed assets (RoMA) of around 1.5% (Rs 236 crore and 1.9%, respectively, for fiscal 2024).

 

Sundaram Finance is expected to strongly support Sundaram Home both on an ongoing basis, and in case of distress, given the majority ownership, shared brand name and importance of the mortgage finance business to Sundaram Finance. Sundaram Finance has also indicated its intent to maintain a controlling stake in Sundaram Home and provide assistance, if required, so as to ensure that Sundaram Home has adequate liquidity to meet its financial obligations.

 

The ratings continue to reflect the stable resource profile and adequate capitalisation of Sundaram Home. These strengths are partially offset by the modest market position and average, albeit, improving asset quality.

Analytical Approach

For arriving at the ratings, Crisil Ratings has assessed the standalone credit risk profile of Sundaram Home and has factored in strong managerial and financial support from the parent Sundaram Finance. Crisil Ratings believes Sundaram Home, will, in case of exigencies, receive distress support from its parent for timely repayment of debt obligations, considering the strategic importance of the entity and also high moral obligation on account of 100% shareholding and shared brand name.

Key Rating Drivers & Detailed Description

Strengths:

• Strong Support from the parent, Sundaram Finance: Sundaram Home is expected to receive strong operational and managerial support from Sundaram Finance. The entity remains strategically important, given the majority ownership held by Sundaram Finance, the shared brand name and importance of the mortgage finance business to the parent. Sundaram Finance has also indicated its intent to maintain a controlling stake in Sundaram Home and provide assistance, if required, so as to ensure that Sundaram Home has adequate liquidity to meet its financial obligations.

 

Sundaram Home uses the services of Sundaram Direct, a division of Sundaram Finance, to source a part of its business volume. It also has access to the retail customer base and branch network of the parent, and benefits from the parent’s brand equity and customer loyalty. Sundaram Finance is also expected to extend funding support for the growth requirements of Sundaram Home and/or in case of any distress situation. Healthy growth in the domestic housing sector will continue to enhance the strategic importance of Sundaram Home to Sundaram Finance.

 

Crisil Ratings believes that Sundaram Finance will continue to have shared brand name, majority ownership in, and management control of, Sundaram Home over the medium term.

 

• Stable and well-diversified resource profile: Sundaram Home has a stable and well-diversified resource profile, comprising term loans (21%), refinance from the National Housing Bank (15%), NCDs and bonds (40%), fixed deposits (17%) and commercial paper (7%) as on December 31, 2024. The company has successfully tapped the debt capital markets by consistently raising medium and long-term debt from several investors at competitive rates. Incrementally, Sundaram Home raised Rs 4,996 crore in the nine months of fiscal 2025. Average cost of borrowings remained competitive at 7.8% for 9MFY25.

 

• Adequate Capitalisation: Tier I and total capital adequacy ratios of the company were comfortable at 18.8% and 19.3%, respectively, as on December 31, 2024 (19.7% and 20.3%, respectively, as on March 31, 2024). The gearing at 6.4 times as on December 31, 2024 (6.0 times as of March 31, 2024), was in line with industry standards. Net worth coverage for net stage 3 stood comfortable at 20 times as on December 31, 2024. Networth for the company stood at Rs 2052 crore as on December 31, 2024, vis-à-vis Rs 1880 crore as on March 31, 2024.

 

Weaknesses:

• Modest market position: Sundaram Home remains a modest player in the housing finance segment, with operations largely restricted to South India and an AUM of Rs 16,331 crore as on December 31, 2024 (Rs 13,812 crore as on March 31, 2024). Housing loans formed around 60% of the total loan book and the non-housing portfolio (mainly loans-against-property or LAP) accounted for the remaining 40%. Within the housing segment, 60% of the loans are extended to salaried class individuals and the remaining 40% to the self-employed. For housing loans the average ticket size and yield stood at Rs 40 lakhs and 7.4% respectively and for LAP the same stood at Rs 55 lakhs and 11.30% respectively as on December 31, 2024.  Housing loans should remain the key focus segment of Sundaram Home over the near to medium term. Overall loan disbursements grew by 28% year on year to Rs 4588 crore in the nine months period of fiscal 2025 as compared to Rs 3581 crore for the corresponding period previous fiscal. Additionally the company plans to expand its presence in affordable housing space. While growth should sustain over the medium term, the market position may remain relatively modest in the context of the overall housing finance industry.

 

• Average, albeit improving asset quality: Asset quality has seen an improving trend with GS3 at 1.3% of total loans as on December 31, 2024 (1.4% as on December 31, 2023) and 1.2% as on March 31, 2024. Sequential improvement in asset quality is supported both by healthy collections and write offs. Net Stage 3 assets were comfortable at 0.7% as on December 31, 2024 (0.5% as on March 31, 2024). Centralised loan appraisals and strengthening of recovery verticals have helped improve credit practices and asset quality of contracts that originated over the last couple of years

Liquidity: Superior

The asset liability management profile as on December 31, 2024, had positive cumulative across all buckets. As on February 28, 2025, Sundaram Home had cash & cash equivalents (incl. overnight MF) of Rs. 136 crore and unutilized bank lines of Rs 1348 crore. Incremental CP borrowings for current fiscal were Rs 1000 crore. The total debt maturing in 6 months till Aug-25 is Rs 2,130 crore as against expected collections of Rs 1230 crore.

Outlook: Stable

The ratings on Sundaram Home are closely linked to Crisil Ratings’ ratings on Sundaram Finance. Sundaram Home will continue to derive strong management and operational support from its parent and will maintain a stable resource profile and adequate capitalisation over the medium term.

Rating sensitivity factors

Downward factors:

• Downward change in the credit risk profile of Sundaram Finance by 1 notch could have a similar rating change on Sundaram Home; and/or diminution in expected support from Sundaram Finance, caused by a significant decline in the ownership, or in strategic importance of Sundaram Home.
• Significant increase in steady-state gearing over an extended period

About the Company

Sundaram Home was founded as Sundaram Home Finance Ltd in July 1999 by Sundaram Finance with equity participation from International Finance Corporation (IFC), Washington, and the Netherlands Development Finance Company (FMO). In fiscal 2007, Sundaram Finance acquired the equity stakes of IFC and FMO. In October 2007, Sundaram Finance sold 49.9% of its stake in Sundaram Home to BNP Paribas Personal Finance, a wholly owned subsidiary of BNP Paribas. However, in September 2019, Sundaram Finance acquired the 49.9% stake in Sundaram Home, from BNP Paribas Personal Finance and Sundaram Home became a wholly owned subsidiary of Sundaram Finance.

 

For the fiscal 2024, Sundaram Home reported a profit after tax (PAT) of Rs 236 crore on total income of Rs 1412 crore, against Rs 215 crore and Rs 1140 crore, respectively, for the earlier fiscal. PAT for the nine months period ended December 31, 2024, was Rs 173 crore on total income of Rs 1168 crore, as compared to Rs 179 crore and Rs 1023 crore as on December 31, 2023, respectively.

Any other information: Not Applicable