Ratings Facilities Shriram Housing Finance Limited September 10, 2018 Amount Rs. Cr Non- I 100.00 Non- II 14.00 Non- III 100.00 Non- IV 20.00 Non- V 50.00 Non- VI 30.00 Non- VII 500.00 Commercial Paper 300.00 1114.00 (Rupees one thousand one Total Instruments hundred and fourteen crores only) Details of instruments/facilities in Annexure-1 Ratings 1 (Double A Plus; Outlook: ) (Double A Plus; Outlook: ) (Double A Plus; Outlook: ) (Double A Plus; Outlook: ) (Double A Plus; Outlook: ) (Double A Plus; Outlook: ) (Double A Plus; Outlook: ) CARE A1+ (A One Plus) Rating Action Detailed Rationale & Key Rating Drivers The rating assigned to the debt instruments of Shriram Housing Finance Limited (SHFL) factors in the strong parentage of Shriram City Union Finance Limited (SCUF; rated CARE AA+ (stable), CARE A1+ ), strong business synergies with Shriram group, common brand image and access to branch network of Shriram group. By virtue of strong parentage, SHFL also stands to benefit from the strong resource raising capabilities of the group and established track record of the group in South India in lending to the self-employed segment in Tier-II and smaller towns which is the customer profile for SHFL as well. The ratings take note of comfortable capital adequacy levels of SHFL. The ratings continue to be constrained by the limited track record in housing finance business, low seasoning of portfolio, regional concentration of portfolio to an extent and moderate asset quality. Going forward, the ability of SHFL to expand operations while protecting its spreads, improve the asset quality, and maintain its liquidity profile effectively will be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Strong Parentage and business synergies with Shriram group SHFL is promoted by Shriram City Union Finance Limited which holds around 77.25% share of the company as on March 31, 2018. SHFL receives support in the form of capital, management support and operational support in terms of usage of branch network of SCUF. The company shares common brand image & shared logo and access to branch network and customer base with SCUF. Apart from this SHFL also has sanctioned limits from SCUF to be given as bridge finance to SHFL in times of need. SHFL also gets managerial support from the group since the company s board contains representatives from Shriram Group. Comfortable capitalization profile The tangible net worth of the company stood at Rs.441 Cr as on March 31, 2018 as against Rs.418 Cr as on March 31, 2017. The current capital levels of SHFL are comfortable with CAR at 32.53% as on March 31, 2018 (PY: 29.95%) and Tier-I CAR stood at 31.96% (PY: 29.31%) While Tier-II CAR stood at 0.57% (PY: 0.64%) as on March 31, 2018, indicating significant 2 Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited
available cushion to raise Tier-II funds in case of requirement. Shriram group has demonstrated capital raising ability from various institutional investors in the past. The overall gearing of the company stood at 3.28x as on March 31, 2018 as against 3.42x as on March 31, 2017. Diversified Resource Profile SHFL has fairly diversified resource profile with access towards low cost funding from banks and market instruments like NCDs and Commercial paper. As on March 31, 2018, the company s funding profile is comprised of bank loans occupying 48.12% of overall funding, followed by NCDs with 44.18% and Commercial paper 6.82%. The average cost of borrowings 2 reduced to 7.96% during FY18 from 10.27% during FY17 due to increased borrowings from banks during Q4FY18. The mismatches in the ALM profile as on March 31, 2018 was within the limits of regulatory requirement. Key Rating Weaknesses Limited track record and Regionally Concentrated business profile SHFL commenced lending operations in December 2011 and has relatively limited track record and low seasoning of the loan portfolio. With average loan tenure ranges from 12-16 years, the company is yet to witness one complete cycle of the loan provided to the customers. Though SHFL s branch network is spread across 17 states with around 83 branches, the business is concentrated towards Southern (49.27% of the total AUM as on March 31, 2018) and Western regions (34.96% of the total AUM as on March 31, 2018). It is to be noted that the company is expanding its business in states like Maharashtra, Punjab, Haryana, West Bengal, Rajasthan etc. Muted Growth in loan portfolio however improvements witnessed from Q4FY18 SHFL witnessed muted growth during FY18 with the total loan portfolio was at Rs. 1,785 crore as on March 31, 2018 which grew by only 0.58% from Rs. 1,775 crore as on March 31, 2017 on account of pre-closures in builder loan segment and de-growth in Non HL segment. The loan portfolio in HL segment as on March 31, 2018 was Rs. 1,127 crore increased by 2.11% from Rs.1,103 crore as on March 31, 2017. The loan portfolio in Non- housing Loan was at 36.86% as on March 31, 2018 reduced by 1.93% from 37.80% as on March 31, 2017. The proportion of housing and non-housing portfolio was at 63.14% (retail: 53.61% and Builder Loan: 9.52%) and 36.86% as on March 31, 2018 as against 62.20% (retail: 47.53% and Builder Loan: 14.67%) and 37.80% respectively as on March 31, 2018. With recovery of overall business witnessed at the industry level from H2FY18 onwards, the company s business improved from Q4FY18 onwards due to which the Company s total loan portfolio improved to Rs. 1,785 crore as on March 31, 2018 from Rs. 1,604 crore as on December 31, 2017. The ability of the company to increase the scale of operations by expanding into various geographies remains critical for rating perspective. Moderate Asset Quality and Profitability The company s asset quality indicators witnessed further moderation during FY18. The GNPA & Net NPA increased to 5.01% & 3.70% as on March 31, 2018 as against 2.59% & 1.82% as on March 31, 2017 due to continued impact on demonetization and GST implementation which was predominant in the segments where the company operates. The Gross NPA in the Nonhousing segment increased to 6.70% as on March 31, 2018 as against 2% as on March 31, 2017 and Gross NPA in Housing Segment increased to 4.00% as on March 31, 2018 from 2.59% as on March 31, 2017. During FY18, The Company reported PAT of Rs. 29 crore on a total income of Rs. 273 crore as against PAT of Rs. 29 crore on a total income of Rs. 279 crore during FY17. NIM reduced to 7.24% in FY18 as against 8.58% in FY17 as the yield on advances reduced to 14.69% in FY18 from 16.42% in FY17 due to increase in Retail housing finance which has lower yield than the other loan segments. ROTA stood at 1.48% in FY18 as against 1.75% in FY17. Analytical approach: Factoring in the linkages with parent, Shriram City Union Finance Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition Financial Ratios-Financial Sector Rating Methodology for Housing Finance Companies (HFCs) Rating Methodology for Short Term Instruments Factoring Linkages in Ratings About the company Shriram Housing Finance Limited (SHFL) is registered as a Non Deposit Taking-Housing Finance Company with National Housing Bank (NHB). The company received its Certificate of Registration in August 2011 and commenced its operations since December 2011. SHFL, part of Shriram group is a subsidiary of Shriram City Union Finance Ltd. (SCUF) which holds 2 2 Cost of borrowing= Interest expenses/ Annual Average of total borrowings 2 CARE Ratings Limited
77.25% shareholding. The balance 22.75% is held by Valiant Marutius Partners FDI Ltd (VMPL) as on March 31, 2018. SHFL essentially caters to the housing finance needs of self-employed, belonging to middle income group, primarily from Tier-2 and Tier-3 cities. The company also offers builder loans only for construction of residential property. The Non Housing loans mainly comprise of loan against property (LAP). Housing and non-housing loans constituted 63.14% and 36.86% respectively of the total portfolio outstanding as on March 31, 2018. The average tenure of the housing loan is 12-16 years and the average ticket size is about Rs.15-25 lakhs. As on March 31, 2018, SHFL had a network of 83 independent branches and 35 sales offices. Brief Financials (Rs. Cr) FY17 (A) FY18 (A) Total Income 279 273 PAT 28 28.9 Interest Coverage(times) 29.31 31.96 Total Assets 1924 1969 Net NPA (%) 1.82 3.70 ROTA (%) 1.75 1.48 A-Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Mr P Sudhakar Tel: 044-2850 1003 Mobile: 9442228580 Email: p.sudhakar@careratings.com **For detailed Rationale Report and subscription information, please contact us at www.careratings.com About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 3 CARE Ratings Limited
Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Instrument Issuance Rate Date Debentures I Debentures II Debentures III Debentures IV Debentures V Debentures VI Debentures VII Commercial Paper-Commercial Paper (Standalone) Size of the Issue (Rs. crore) October 13, 2014 10.25% 13-10-2024 100 November 25, 2016 8.45% 25-11-2019 14 December 26, 2014 9.25% 26-12-2019 100 October 06, 2015 0% 08-10-2018 20 October 27, 2015 9% 27-10-2020 50 May 02, 2016 9% 02-05-2023 30 February 14, 2018 9% 12-08-2021 500 August 09, 2018 7.70% 7 days 1 year Rating assigned along with Rating Outlook 300 CARE A1+ Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities Type Current Ratings Amount Outstanding (Rs. crore) 1. Debentures-Non 2. Debentures-Non 3. Commercial Paper- Commercial Paper (Standalone) 4. Debentures-Non 5. Debentures-Non Rating LT 100.00 CARE LT 14.00 CARE ST 300.00 CARE A1+ LT 100.00 CARE LT 20.00 CARE 2018-2019 Rating history 2017-2018 2016-2017 - ; - ; 1)CARE A1+ (07-Aug-18) 1)CARE A1+ 2015-2016 1)CARE A1+ 1)CARE A1+ (05-Aug-16) 2)CARE A1+ - ; - ; (06-Oct-15) 6. Debentures-Non 7. Debentures-Non 8. Debentures-Non LT 50.00 CARE LT 30.00 CARE LT 500.00 CARE - ; - ; - ; 2)CARE AA+ (26-Apr-16) (21-Oct-15) - - 4 CARE Ratings Limited
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