| Adani Housing Finance Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ rating on the debt instruments and bank facilities of Adani Housing Finance Private Limited (Adani Housing; a part of the Adani group).
The ratings on the debt instruments and bank loan facilities of Adani Housing continues to reflect strong support from the Adani group, both on an ongoing basis and in case of distress. This reflects the strategic importance of Adani Capital, a part of the financial services business of the group and commitment of the group to support the company given its majority shareholding and common brand. The rating also factors in the financial services businesses’ (consolidated for Adani Housing and Adani Capital Pvt Ltd (Adani Capital)) comfortable capitalization, improvement in earnings profile and experienced management. These strengths are partially offset by small scale of operations.
In line with the measures announced by the Reserve Bank of India (RBI) for Covid-19, Adani Capital and Adani Housing had given moratorium to its borrowers. Though collections declined during the initial months of the moratorium, they have improved since then. However, the second wave of the Covid-19 pandemic had resulted in intermittent lockdowns and localised restrictions, again impacting collections. Although the impact has been moderate compared to the past fiscal, any change in the payment discipline of borrowers may affect delinquency levels.
Adani Capital and Adani Housing witnessed an inch up in overall delinquencies in the retail asset classes during Q1 of fiscal 2022 owing to the 2nd wave induced lockdowns; it however improved to some extent in the subsequent quarter. The 90+ days past due (dpd) stood at 2.1% as on December 31, 2021, compared with 1.3% as on March 31, 2021. Considering the revised norms of the RBI on asset classification as part of the circular released on November 12, 2021, the gross non-performing assets (GNPAs) would be around 110 bps higher. Further, ~30% of the 90+ dpd is contributed by MSME portfolio acquired from Essel Finance Business Loans Ltd in fiscal 2020. This acquired portfolio stood at Rs 107 crore as of December 31, 2021, excluding which Adani Capital and Adani Housing had AUM and 90+ dpd of Rs 1898 crore and 1.6% respectively as on December 31, 2021, vis-à-vis Rs 1428 crore and 0.8%, respectively, as on March 31, 2021.
Under the RBI’s August 2020 Resolution Framework for COVID-19-related Stress, Adani Capital and Adani Housing have restructured around 2.7% of its portfolio, ~60% of the same is from the acquired book of Essel Finance Business Loans Ltd. Nevertheless, Adani Capital’s ability to manage collections and asset quality will remain a key monitorable. The impact of the third wave of the pandemic, if and when it comes in terms of its spread, intensity and duration will also be closely monitored. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the financial services business of the Adani group, which includes Adani Capital and Adani Housing, as there are strong linkages in terms of operation, management, infrastructure, and treasury. The ratings also factors in support from the Adani group. The group should support these entities, in business as usual and in distress situations, as and when required, considering the strategic importance of the financial services business to the group and high commitment owing to majority shareholding and shared 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:
The financial services businesses are an important avenue for the Adani group. The group, through its step-down subsidiaries, has 90% stake in both Adani Capital and Adani Housing and is expected to maintain this at a minimum 75% at all times. The group is one of the large conglomerates in India and has identified financial services as a key focus growth area for the long term. Moreover, Adani Capital's MSME lending business is expected to also tap into suitable business opportunities in the ecosystem of the Adani group entities
The financial services businesses will also benefit from the shared brand in raising resources and building relationship with banks, other lenders and investors. A common brand implies a strong commitment on the group to support the financial services businesses both, in business as usual and in distress situations, as and when required. There is also an oversight of operations by the group by representation on the board.
The Adani group is a diversified conglomerate and India’s one of the largest infrastructure and utilities platforms whose credit risk profile is strengthened by market leadership in the transport & logistics and energy & utilities segments. It has strong operating efficiencies and execution track record in most of its businesses. The promoter holding companies have strong financial flexibility, driven by the high market value of their holdings in the listed operating companies (around Rs 4.13 lakh crore as on March 31, 2021).
The rating is sensitive to the credit risk profile of the Adani group. Any material increase in the groups consolidated leverage levels or significant enhancement in debt in the promoter holding companies vis-a-vis the market value of their investments in the operating companies will remain key monitorables.
Adani Housing has comfortable capitalization as reflected in networth and adjusted gearing[1] of Rs 129 crore and 1.4 times as on September 30, 2021. The company also has adequate access to capital to scale up its business, with the Adani group having committed equity capital of Rs 600 crore to the combined financial services businesses over the medium term. Of this, Rs 459 crore was drawn down as of March 2021 by Adani Capital and Adani Housing. Gearing, at consolidated level for the financial services business, is expected to increase as business scales up but is not likely to exceed 4 times by fiscal 2022. Further, with the operations turning profitable, internal accruals are also expected to support the capital position of the businesses. Additionally, networth coverage for net NPAs remained high at around 14 times as on September 30, 2021.
Adani capital had incurred high operating expenses for setting up the requisite infrastructure in the initial years of business. While Adani Capital remained profitable over the last 4 years, Adani Housing reported losses in fiscal 2019 and fiscal 2020, resulting in losses at a consolidated level. With gradual scale-up in loan book of the businesses, earnings profile has improved and businesses reported a profit of Rs 23.3 crore in fiscal 2021; with Adani Capital and Adani Housing reporting a profit of Rs 16.1 crore and Rs. 6.9 crore, respectively. The profit includes gains of Rs 12.7 crore for Adani Capital and Rs 7.2 crore for Adani Housing on direct assignment transactions. However, during H1 of fiscal 2022, Adani Capital has expanded its presence by setting up new branches and hiring manpower, resulting in high operating expenses in turn impacting its earnings profile; Adani Capital and Adani Housing reported profit of Rs 1.8 crore and Rs 0.2 crore respectively. Provisioning coverage ratio (PCR) was reported at 26% as of September 30, 2021 with PCR of Adani Capital at 27% and Adani Housing at 16%.
The ability of the management to improve profitability from current levels will be a monitorable.
The financial services businesses have experienced management teams to run operations and scale up business in both the housing finance and non-housing finance businesses. Long track record and extensive experience of the management team in the financial services space has helped establish the group’s track record in the lending business in the four plus years since inception. In the existing set up, the management has scaled up the businesses to an AUM of Rs 1755 crore as on September 30, 2021, while maintaining adequate asset quality in the challenging macro-environment.
Weakness:
Adani Capital commenced operations in 2017 and the housing finance business commenced operations in 2018 and the company witnessed a healthy three-year compound annual growth of ~86%, the overall assets under management (AUM) is at Rs 1755 crore as on September 30, 2021 (Rs 1537 crore as on March 31, 2021 and Rs 1191 crore as on March 31, 2020). The growth during Q1 of fiscal 2022 was impacted by the 2nd wave of the Covid-19 pandemic, it has improved in the subsequent quarter.
The lending business is well diversified across asset classes with 99.6% of the portfolio, being towards retail assets classes. As on September 30, 2021, the company operated in 6 verticals – tractor loans contributed 27% of the AUM, followed by business loans (26%), commercial vehicle loans (16%), supply chain finance (13%), home loans (15%) and loan against property (2%). Geographically, the portfolio is diversified across states such as Gujarat, Maharashtra, Rajasthan, Karnataka, UP and Tamil Nadu, with no state contributing to more than 28% to the portfolio, resulting in low concentration risks.
However, given the small scale of operations, ability of the management to scale up the business and manage asset quality risks across business cycles will remain a monitorable. [1] Adjusted gearing is the ratio of adjusted borrowing and networth, wherein adjusted borrowing includes the off-book AUM |
Liquidity: Strong Liquidity for the financial services business is comfortable. Adani Capital and Adani Housing has adequate cash and cash equivalents (Rs 65 crore) and , unutilised bank lines (Rs 110 crore) as on January 31, 2022. As on January 31, 2022, total debt obligation of the company till April 30, 2022 is Rs 141 crore. |
Outlook: Stable CRISIL Ratings believes Adani Housing, along with Adani Capital, will continue to derive financial, managerial, and operational support from the Adani group and its promoter family, and will maintain comfortable capitalisation. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company The Adani group is a diversified conglomerate and India’s one of the largest infrastructure and utilities platforms with operations ranging from an incubator company in form of Adani Enterprises Ltd, Transport & Logistics platform in Adani Ports and SEZ Ltd and Energy & Utilities platform covered by Adani Green Energy Ltd, Adani Power Ltd, Adani Transmission Ltd and Adani Total Gas Ltd. The group has more than 11,000 employees in India and abroad.
Adani Housing received the housing finance licence in June 2018 from the National Housing Bank. The company is primarily engaged in the affordable housing segment and offers two products: home loans and LAP. Total AUM as on December 31, 2021, was Rs 348 crore for Adani Housing, and Rs 2005 crore at the consolidated level for the financial services businesses. The company is currently focusing on home loans and LAP and may start developer loans based on market conditions. It currently operates in Gujarat, Maharashtra and Rajasthan through a network of 33 branches.
For H1 of fiscal 2022, Adani Capital and Adani Housing reported a PAT of Rs 2.0 crore on a total income of Rs 127 crore. During fiscal 2021 the businesses reported a PAT of Rs 23.2 crore (including a gain on assignment transaction of Rs 19.9 crore) on a total income of Rs 226 crore as against a loss of Rs 4.7 crore on a total income of Rs 146 crore in fiscal 2020.
Adani Capital reported a PAT of Rs 2.9 crore on a total income of Rs 170 crore for the nine months ended fiscal 2022 as against a PAT of Rs 6.5 crore on a total income of Rs 130 crore for the corresponding period previous fiscal. |
Key Financial Indicator (Adani Capital & Adani Housing)
*managed assets includes the off-book AUM
Adani Housing (standalone)
*managed assets includes the off-book AUM |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
#Yet to be issues *Interchangeable with short term bank facilities |
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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