Rating Rationale
December 24, 2020 | Mumbai
Sundaram Home Finance Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.850 Crore
Long Term Rating CRISIL AA+/Stable (Reaffirmed)
 
Non Convertible Debentures Aggregating Rs.1000 Crore CRISIL AA+/Stable (Reaffirmed)
Fixed Deposits FAAA/Stable (Reaffirmed)
Rs.1500 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA+/FAAA/Stable/CRISIL A1+' ratings on the bank facilities and debt instruments of Sundaram Home Finance Limited (Sundaram Home).

The ratings continue to reflect strong support on an ongoing basis, and in case of distress, from the promoter-shareholder, Sundaram Finance Ltd (SFL). The ratings also factor in a stable resource profile and adequate capitalisation of Sundaram Home. These strengths are partially offset by a modest market position and below average asset quality of the company.
 
Sundaram Home is now a wholly-owned subsidiary of SFL post its acquisition of 49.9% stake in Sundaram BNP Paribas Home Finance Limited from BNP Paribas Home Finance Ltd.
 
With nationwide lockdown restrictions being lifted steadily in a phased manner, the degree of relaxations vary across regions and depends on the severity of Covid-19. Intermittent lockdowns and localised restrictions could delay the return of collections to normalcy and put pressure on asset quality metrics. Sundaram Home's ability to manage asset quality and collections will remain a key monitorable. Nevertheless, the one-time restructuring scheme announced by the Reserve Bank of India (RBI) will provide necessary support to affected borrowers.
 
As part of the measures for containing the pandemic, RBI had allowed lenders to grant moratorium to borrowers; around 52% of loan book in terms of value was under moratorium as on August 31, 2020. While the collections were impacted in April, CRISIL understands that these have inched up since then (till November). Furthermore, CRISIL understands that Sundaram Home has not opted for any moratorium from lenders and continues to service the debt as per schedule.

Analytical Approach
For arriving at the ratings, CRISIL has assessed the standalone credit risk profile of Sundaram Home and has factored in strong managerial and financial support from the parent SFL. CRISIL 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 continues to receive strong operational and managerial support from its parent. Sundaram Home shall benefit over the medium term from the acquisition of stake by SFL as it will provide stronger operational linkages with SFL.  
 
The company 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 parent's retail customer base and branch network, and benefits from the parent's brand equity and customer loyalty. Sundaram Finance and BNP Paribas Home Finance has been infusing equity in the past and now the Parent, Sundaram Finance is expected to support going forward. Robust growth in India's housing sector and the increasing size of Sundaram Home's mortgage loan portfolio will continue to enhance the company's strategic importance to Sundaram Finance.
 
* Stable and well-diversified resource profile
Resource profile of Sundaram Home is stable and well-diversified, with bank funds (24%), refinance from NHB (24%), NCDs and bonds (24%), fixed deposits (20%) and commercial papers (8%) as on September 30, 2020. The company has successfully tapped into the debt capital markets by raising medium-and long-term debt from several investors at competitive rates. Incrementally, Sundaram Home raised Rs 2,502 crore in H1FY21.
 
* Adequate Capitalisation
Tier I and total capital adequacy ratios of the company were comfortable at 20.96% and 22.5%, respectively, as on September 30, 2020 (21.3% and 23.0%, respectively, as on March 31, 2020). The gearing at 5.9 times as on September 30, 2020 (6.0 times as of March 31, 2020), was in line with industry standards. Net worth coverage for net non-performing assets (NPAs) stood comfortable at 10.7 times as on September 30, 2020 (9.5 times as on March 31, 2020).
 
Weaknesses
* Modest market position
Sundaram Home remains a modest player in the housing finance segment, with operations largely restricted to South India, and an Assets Under Management (AUM) of Rs 9294 crore as on September 30, 2020 (Rs 9456 crore as on March 31, 2020). Overall loan disbursements decreased by ~68% to Rs 378 crore for the six months ended September 30, 2020 from Rs 1187 crore in the corresponding period previous fiscal, due to weak macro environment given Covid-19. Housing loans are expected to remain the key focus segment of Sundaram Home over the near to medium term. 

* Below average asset quality
Asset quality continues to be below average with gross non-performing assets (NPAs) at 3.7% of total loans as on September 30, 2020 (3.8% as on March 31, 2020, largely due to stress seen in loans-against-property [LAP] segment). The LAP portfolio, which stood at Rs 2,804 crore as on September 30, 2020, has witnessed major asset quality issues (gross NPAs of 7.2% as on September 30, 2020) over the past few years. However the size of this asset class remains small and stable (around 30% of total loan book) over the last few years. Centralisation of loan appraisals and strengthening of recovery verticals have helped improve credit practices and asset quality of contracts originated over the last couple of years.
Liquidity Strong

The asset liability management profile as on September 30, 2020 had positive cumulative gaps till the six months bucket. Further, Liquidity is also comfortable with adequate cash & cash equivalents of Rs 878 crores, and further cushion available through unutilised bank lines of Rs 855 crore as on Nov 30, 2020. This is sufficient to cover the upcoming repayments of Rs 1,140 crore for the next three months till Feb 2021. Liquidity is further cushioned by support from Sundaram Finance ltd.

Outlook: Stable

The ratings on Sundaram Home are closely linked to CRISIL's 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:
Upward factors:
* Sundaram Home improves its asset quality (<2%) on a sustained basis, while maintaining profitability.
* Significantly increases its scale of operations.

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 43% of its stake in Sundaram Home to BNP Paribas Personal Finance, a wholly owned subsidiary of BNP Paribas. With a 50.1% stake, Sundaram Finance were Sundaram Home's majority shareholder and the balance 49.9% were held by BNP Paribas Personal Finance. However, on 20th June 2019, Sundaram Finance Limited approved the acquisition of 49.9% Sundaram Home, from BNP Paribas Personal Finance. After this acquisition, Sundaram Finance's stake in Sundaram Home increased from 50.1% to 100% and Sundaram Home has become a wholly-owned subsidiary of Sundaram finance.
 
For the six months ended September 30, 2020, Sundaram Home reported a Profit after tax (PAT) of Rs 99 crore on total income of Rs 531 crore, against a PAT of Rs 95 crore on total income of Rs 536 crore for the corresponding period in the earlier fiscal.

Key Financial Indicators
For the six months ended September 30, Unit 2020
Ind AS		 2019
Ind AS
Total Assets Rs.Cr 10341 10393
Total income Rs.Cr 531 536
Profit after tax Rs.Cr 99 95
Gross NPA % 3.7 3.1
Return on average assets % 1.9 1.9
 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Level Rating Outstanding with Outlook
NA Term Loan^ NA NA NA 680.0 NA CRISIL AA+/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 170.0 NA CRISIL AA+/Stable
INE667F08145 Non-Convertible Debenture 7-Sep-18 8.93% 7-Sep-33 500.0 Simple CRISIL AA+/Stable
INE667F07HR3 Non-Convertible Debenture 13-Feb-20 7.7500% 13-Feb-23 100.00 Simple CRISIL AA+/Stable
INE667F07HS1 Non-Convertible Debenture 11-May-20 7.7500% 11-May-23 100.00 Simple CRISIL AA+/Stable
INE667F07HT9 Non-Convertible Debenture 22-Jul-20 5.9900% 24-Jun-22 100.00 Simple CRISIL AA+/Stable
INE667F07HU7 Non-Convertible Debenture 6-Aug-20 6.2000% 4-Aug-23 75.00 Simple CRISIL AA+/Stable
INE667F07HW3
 		 Non-Convertible Debenture 22-Sep-20  5.86% 22-Sep-22 25.00 Simple CRISIL AA+/Stable
NA Non-Convertible Debenture* NA NA NA 100.0 Simple CRISIL AA+/Stable
NA Commercial Paper NA NA 7-365 Days 1500.0 Simple CRISIL A1+
NA Fixed Deposit Programme NA NA NA NA Simple FAAA/Stable
^Not availed
*Yet to be issued
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  1500.00  CRISIL A1+  26-03-20  CRISIL A1+  11-07-19  CRISIL A1+  03-08-18  CRISIL A1+  19-12-17  CRISIL A1+  -- 
            09-07-19  CRISIL A1+  28-06-18  CRISIL A1+       
            01-07-19  CRISIL A1+  23-05-18  CRISIL A1+       
                30-04-18  CRISIL A1+       
Fixed Deposits  FD  0.00  FAAA/Stable  26-03-20  FAAA/Stable  11-07-19  FAAA/Stable  03-08-18  FAAA/Stable  19-12-17  FAAA/Stable  FAA+/Stable 
            09-07-19  FAAA/Stable  28-06-18  FAAA/Stable  06-09-17  FAA+/Stable   
            01-07-19  FAAA/Stable  23-05-18  FAAA/Stable  19-05-17  FAA+/Stable   
                30-04-18  FAAA/Stable       
Non Convertible Debentures  LT  900.00
24-12-20  		CRISIL AA+/Stable  26-03-20  CRISIL AA+/Stable  11-07-19  CRISIL AA+/Stable  03-08-18  CRISIL AA+/Stable    --  -- 
            09-07-19  CRISIL AA+/Stable           
            01-07-19  CRISIL AA+/Stable           
Short Term Debt (Including Commercial Paper)  ST                  06-09-17  CRISIL A1+  CRISIL A1+ 
                    19-05-17  CRISIL A1+   
Tier II Bond  LT                      CRISIL AA/Stable 
Fund-based Bank Facilities  LT/ST  850.00  CRISIL AA+/Stable  26-03-20  CRISIL AA+/Stable  11-07-19  CRISIL AA+/Stable  03-08-18  CRISIL AA+/Stable    --  -- 
            09-07-19  CRISIL AA+/Stable  28-06-18  CRISIL AA+/Stable       
            01-07-19  CRISIL AA+/Stable  23-05-18  CRISIL AA+/Stable       
                30-04-18  CRISIL AA+/Stable       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 170 CRISIL AA+/Stable Proposed Long Term Bank Loan Facility 20.83 CRISIL AA+/Stable
Term Loan 680 CRISIL AA+/Stable Term Loan 829.17 CRISIL AA+/Stable
Total 850 -- Total 850 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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