| Vastu Housing Finance Corporation Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| The common independent director on CRISIL Ratings Limited and Vastu Housing Finance Corporation Limited boards did not participate in the rating process or in the meeting of the rating committee, when the rating for securities of Vastu Housing Finance Corporation Limited was discussed. This rating was also not discussed in the meeting of CRISIL Ratings’ Board of Directors. | ||||
| 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 reaffirmed its ‘CRISIL A+/Stable’ rating on the long-term bank facilities and non-convertible debentures of Vastu Housing Finance Corporation Limited (Vastu Housing).
CRISIL Ratings has also withdrawn its rating on the Rs 50 crore non-convertible debentures after receiving the request for the same from Vastu Housing and third-party confirmation for the redemption of the debentures. The withdrawal is in line with the withdrawal policy of CRISIL Ratings.
The rating on the debt instruments and bank loan facilities of Vastu Housing continue to factor in healthy capitalisation with demonstrated ability to raise capital, robust risk management systems and technology driven processes, supporting asset quality metrics and earnings profile.
These strengths are partially offset by the company’s modest scale of operations. While assets under management (AUM) remain small in the mortgage finance industry, the company remains a sizeable player in the overall pure-play affordable housing industry.
Vastu Housing has been able to manage its asset quality well even during challenging times. Its gross non-performing assets (NPAs) and 2-year lagged gross NPAs remained low at 1.25% and ~2.5%, respectively, as on September 30, 2022. While gross NPAs has increased from 1.14% as on March 31, 2022 and 0.45% as on March 31, 2021, mainly on account of November 12, 2021 circular of RBI, it remains better than the peers in the affordable housing finance industry.
As part of RBI’s Resolution Framework 1.0 and 2.0 for Covid-19-related stress, the standard restructured accounts for Vastu Housing stood at ~0.9% of the AUM as on December 31, 2022. Ability to maintain asset quality while scaling up operations and given the challenging environment will remain a key rating sensitivity factor.
Vastu Housing has maintained comfortable earnings profile. The company reported a profit of Rs 111 crore (including a gain on assignment transactions of Rs 13 crore) with a Return on Managed Assets (RoMa) of 4.8% during the half year ended September 30, 2022 [profit of Rs 176 crore (including a gain on assignment transactions of Rs 67 crore) with a RoMa of 4.8% for fiscal 2022]. Further, over the last few years, the company has been able to gradually diversify its funding mix across instruments and investors. It raised resources to the tune of Rs 634 crore in first half of fiscal 2023 with a weighted average interest rate of 7.9% due to diversified borrowing from capital and debt markets.
AUM remains modest albeit the growth has been healthy at 57% YoY and stood at Rs 5,026 crore as on December 31, 2022 from Rs 4,412 crore as on September 30, 2022 on a consolidated basis. The monthly disbursement for the company as at end December 2022 was ~Rs 310 crores on a standalone basis and ~Rs 380 crores on a consolidated basis. |
Analytical Approach For arriving at the rating, CRISIL Ratings has assessed the consolidated business and financial risk profiles of Vastu Housing and its wholly-owned subsidiary, Vastu Finserve India Pvt Ltd (Vastu Finserve). This is because they have significant operational, financial, and managerial integration and operate under a common brand.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Capital position is healthy, with frequent capital raises by the company. The company has raised a total of ~Rs 1,658 crore from well-known investors since inception, out of which Rs 925 crore has been raised in fiscal 2022, Rs 378 crore in fiscal 2020, Rs 225 crore in fiscal 2018, and Rs 130 crore over fiscal 2016 and 2017. The same also indicates the strong investor interest in the company and the ability of the management to raise additional capital for growth even through market conditions.
The company’s latest raise of capital of Rs 925 crore (in October 2021 and September 2021) was from marquee investors including Norwest Venture Partners, Creation Investments and IIFL Asset Management Company. Post the capital infusion (on a fully diluted basis), Norwest Venture Partners, Creation Investments and IIFL Asset Management hold 10.1%, 10.1% and 5.6%, respectively, of the total shareholding of Vastu Housing.
Multiples, after the recent capital raise, remains the largest shareholder with 70.2% on a diluted basis stake in Vastu Housing as on September 30, 2022 (94.13% as on March 31, 2021).
Consequent to the capital raise and supported by healthy internal accruals, the company’s networth has doubled to Rs 2228 crore as on September 30, 2022 from Rs 995 crore as on March 31, 2021. Resultantly, adjusted gearing of the company has also improved to 0.9 time as of September 2022 from 1.7 times as of March 2021. However, with the scale-up of operations, the same is expected to increase gradually over the next few years. On a steady state basis, gearing of 5-6 times is likely to be maintained at a consolidated level.
Vastu Housing has infused Rs 200 crore in its subsidiary, Vastu Finserve, out of which Rs 75 crore, Rs 25 crore, Rs 47.50 crore, Rs 50 crore and Rs 2.50 crore was infused in first half of fiscal 2023, first half of fiscal 2022, fiscals 2021, 2020 and 2019, respectively.
The management has laid down prudent underwriting practices and adequate risk management systems to manage asset quality. As on September 30, 2022, around 80% of the AUM has borrowers with 700+ bureau score, and a bureau vintage of 7.3 years with around 3 unique trade lines. Over 92% of the loans extended are against security of fully completed properties and majority of them being backed by independent properties. The borrowers have, on average, age of 42 years and about 13 years of residency at the same location.
The company has a dedicated team to develop a robust technology platform to strengthen credit processes, risk management capabilities and analytics. As a result, its gross non-performing assets (NPAs) were relatively low at 1.25% as on September 30, 2022. However, on account of RBI’s November 12, 2021 circular, the same has increased marginally from 1.14% as on March 31, 2022 and 0.45% as on March 31, 2021. Its two-year lagged gross NPAs also remained low at ~2.5% as on September 30, 2022 (2.2% as on March 31, 2022, 0.8% as on March 31, 2021). The company reported standard restructured accounts of ~0.9% of the AUM as on December 31, 2022.
The company’s ability to maintain healthy asset quality while scaling up operations will remain a monitorable.
Furthermore, the management has diversified its product offering to vehicle financing through its subsidiary, Vastu Finserve. The company’s ability to successfully scale up these businesses while maintaining good risk metrics will also be a monitorable.
Sandeep Menon, founder along with Sujay Patil, shareholders and senior management have extensive experience and strong track record in building, successfully scaling up, and running retail finance businesses across asset classes. Their longstanding presence should help build a strong asset base, and their institutional relationships should continue to help raise resources through diverse routes. The company over the last few quarters has expanded its management team with key hires across different leadership positions. The management also centrally uses technology.
Given the high operating expenses incurred, as expected in the early years of establishing the business, earnings were subdued. However, with economies of scale and operating efficiency on the back of growth in business, earnings profile has improved.
Profit after tax (PAT) was Rs 176 crore (including a gain Rs 67 crore on the assignment of portfolio) for fiscal 2022 with RoMa of 4.8% against PAT of Rs 100 crore (including a gain of Rs 32 crore on the assignment of portfolio) in fiscal 2021, with RoMa of 3.8%. Further, the company reported a PAT of Rs 111 crore (including Rs 13 crore of gain on assignment of portfolio) with a RoMa of 4.8%. After removing the gain on assignment of portfolio, its RoMa remains comfortable at ~4% for the first of fiscal 2023 (H1FY23) as against ~3% for fiscal 2022.
The company’s profitability is supported by higher net interest margins (NIMs) and lower credit costs managed by the company. Its NIMs (as a % of total managed assets) improved to 8.2% for H1FY22 as against 6.9% for fiscal 2022. Credit costs also improved to 0.3% for H1FY23 from 0.5% for fiscal 2022. However, operating expense (as a percentage of average total managed assets) increased to 3.6% for H1FY23 from 3.1% in fiscal 2022.
Ability to limit credit costs and manage operating expenses, while scaling up operations will remain a key rating sensitivity factor.
Weaknesses:
Vastu Housing commenced disbursements in December 2015. AUM remains modest albeit the growth has been healthy at 57% YoY and stood at Rs 5,026 crore as on December 31, 2022 from Rs 4,412 crore as on September 30, 2022 on a consolidated basis (Rs 3,656 crore as on March 31, 2022 and Rs 2,559 crore as on March 31, 2021). While the company remains a small player in the overall mortgage finance industry, Vastu Housing remains a profitable and sizeable player in the pure-play affordable housing industry. The monthly disbursement for the company as at end December 2022 was ~Rs 310 crores on a standalone basis and ~Rs 380 crores on a consolidated basis. It has witnessed healthy three-year compound annual growth of 38%, albeit on a small base. In the housing business, management has forayed into the micro-housing segment, building its digital sourcing capability, and investing further in the technology platform.
As on September 30, 2022, lending to the housing segment contributed to 66% of the loan book, with LAP accounting for the rest. As of December 31, 2022, Vastu Housing has presence in 14 states through a network of 176 branches. The company has a pan-India presence and is geographically diversified across states with none of the states contributing more than 17% of AUM.
The management has diversified its product offerings to existing customers and is targeting new customer segments by rolling out products, including vehicle financing through its subsidiary, Vastu Finserve. However, the company has a short track record in the non-mortgage business, with an AUM of Rs 406 crore as on September 30, 2022 (Rs 284 crore as on March 31, 2022), out of which Rs 404 crore (Rs 283 crore) was towards vehicle finance. The ability of the company to scale up in a profitable manner while maintaining sound asset quality metrics needs to be demonstrated over the medium term. |
Liquidity: Strong As on September 30, 2022, Vastu Housing, at a consolidated level, had liquidity cushion aggregating to Rs 557 crore of (Rs 103 crore of cash and cash equivalent and liquid mutual fund investments for Vastu Finserve], unutilised bank lines aggregating to Rs 512 crore (Rs 72 crore for Vastu Finserve). Against this the company had total debt payment of ~Rs 223 crore (Rs 75 crore for Vastu Finserve) till March 31, 2023. |
Outlook: Stable CRISIL Ratings believes Vastu Housing will benefit from its healthy capital position and scale up its portfolio over the medium term while maintaining comfortable asset quality. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About the Company Vastu Housing is a housing finance company, with Multiples as its majority shareholder. It started its lending operations in December 2015. The company is primarily engaged in the affordable housing segment, with an average ticket size of Rs 11-12 lakh and caters to the self-employed segment, which accounted for nearly 82% of the book as on September 30, 2022. Housing loans (including home improvement and extension loans) accounted for around 66% of the loan, while the remaining were non-housing loans (mainly LAP). The company has a geographically diversified footprint with presence across 14 states and no state contributing more than 17% of the AUM – resulting in low concentration risks.
Vastu Housing has incorporated a subsidiary as part of its strategy to diversify its product offerings to existing customers and to target newer customer segments. The company plans to leverage the existing systems and processes of Vastu Housing and the expertise and experience of the management in retail asset classes. Vastu Finserve started its full-fledged operations with initial offerings of vehicle finance and LAP and had an AUM of Rs 406 crore as on September 30, 2022 (Rs 284 crore as on March 31, 2022).
As on September 30, 2022, total AUM was Rs 4,007 crore (Rs 3,372 crore as on March 31, 2022). For the half year ended fiscal 2023, the company reported a profit of Rs 111 crore on a total income (net of interest income) of Rs 228 crore. For fiscal 2022, PAT was Rs 176 crore on a total income (net of interest expenses) of Rs 359 crore, against Rs 100 crore and Rs 225 crore, respectively, in fiscal 2021. |
Key Financial Indicators: Vastu Housing (Standalone)
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued
Annexure - Details of rating withdrawn
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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