Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB/Stable’ rating to the Rs 62 crore non-convertible debentures of AVIOM India Housing Finance Pvt Ltd (AVIOM) and reaffirmed the ‘CRISIL BBB/Stable’ rating on the Rs 25 crore proposed long-term bank loan.

 

The rating reflects the comfortable capitalisation metrics and fairly diversified resource profile of AVIOM. These strengths are partially offset by limited seasoning of the portfolio and the modest track record of operations.

 

AVIOM extends home loans and loans against property (LAP) to low-income women borrowers in tier II and tier III towns. Home loans and LAP form 65% and 35% of the portfolio. Having commenced operations in August 2016, the housing finance company (HFC) has substantially grown its assets under management (AUM) to Rs 725 crore as on March 31, 2022, from Rs 461 crore as on March 31, 2021, and Rs 249 crore as on March 31, 2020.

 

Since its inception, the company has raised Rs 135.6 crore cumulatively from its promoters and impact investors such as Gojo and Company Inc, SABRE Partners AIF Trust, Capital 4 Development Asia Fund Cooperative U.A, among others. Capital infusion of Rs 150 crore, expected in the first quarter of fiscal 2023, will support growth plans. The borrowing profile is diversified across non-banking financial companies (NBFCs), HFCs, private and public sector banks, development financial institutions/impact investors, and the National Housing Bank. The company raised resources worth Rs 439 crore in fiscal 2022, against Rs 250 crore in fiscal 2021, with weighted average cost of funds at 12.5%.

Analytical Approach

To arrive at the rating, CRISIL Ratings has analysed the standalone business and financial risk profiles of AVIOM.

Key Rating Drivers & Detailed Description

Strengths:

• Capitalisation supported by steady infusion:

Capitalisation is marked by a large networth of Rs 153 crore as on March 31, 2022 (Rs 84 crore as on March 31, 2021) and leverage of 4.4 times (4.9 times). Since inception, the company has raised Rs 135.6 crore via equity and compulsory convertible preference shares, with Rs 57 crore infused in fiscal 2022. As on March 31, 2022, Ms Kajal Ilmi (30%), Gojo and Company Inc (41%), SABRE Partners AIF Trust (13%) and Capital 4 Development Asia Fund Cooperative U.A (8%) are the key shareholders. The balance stake is held by the friends and family members of the promoter.

 

Capitalisation should improve further as AVIOM is in advanced stages of raising around Rs 150 crore in the first quarter of fiscal 2023 and another Rs 250 crore in the third quarter. These funds should cover growth plans and help the company maintain moderate leverage of below 6 times over the medium term.

 

• Fairly diversified resource profile:

AVIOM has mobilised funds from 54 financiers, including NBFCs/HFCs (44% of borrowings), private/public sector banks and small finance banks (31%), development financial institutions/impact financiers (18%), NHB (5%) and others. The company has relationships with some large private and public sector banks. Considering the scale of operations, the number of lending relations is fairly diversified. The company is also exploring direct assignment avenues, which could serve as an additional route for fund raising.

 

Weakness:

• Lending to marginal borrowers; asset quality yet to reach steady state

For the first time since inception, AVIOM reported GNPA (gross non-performing assets) of 0.33% as on March 31, 2022 (nil as on March 31, 2021), mainly due to stress induced by the Covid 19 pandemic. On a two-year lagged basis, GNPA stood at 0.9%, and the company has not offered any restructuring to its borrowers as on date.

 

Significant portion of loan growth (75% of the portfolio as on March 31, 2022) took place in the last two fiscals. There has also been some uptick in roll-forwards in recent quarters. Therefore, GNPA could increase as the portfolio seasons over the medium term. The ability of the company to successfully collect and recover loans in the segment needs to be seen.

 

This borrower segment is relatively new for an HFC as AVIOM mainly provides secured loans to microfinance borrowers. These are self-employed or informal salaried borrowers with incomes ranging from Rs 20,000-50,000. They remain vulnerable to cash flow fluctuations and have limited access to liquidity, in case of an exigency.

 

AVIOM has framed comprehensive policies to act as a firewall and has capped key credit metrics such as LTV (loan-to-value), debt burden ratio, and maximum ticket size of the loan. As on March 31, 2022, the four states - Rajasthan, Madhya Pradesh, Uttar Pradesh and Karnataka - accounted for 80% of the loan portfolio. The company now plans to widen its reach to states other than the current top four (of the 13 it operates in) so as to curb the contagion risk. CRISIL Ratings expects the steady state asset quality to inch up once the portfolio seasons.

 

• Limited track record; earnings to stabilise with operating leverage:

AVIOM started operations in August 2016 and has grown its AUM to Rs 725 crore as on March 31, 2022, from Rs 461 crore as on March 31, 2021 (Rs 249 crore as on March 31, 2020 and Rs 132 crore as on March 31, 2019). The average ticket size of the loan is Rs 3.3 lakh and as loans are spread over a tenure of over five years, a complete cycle is yet to be witnessed. 

 

AVIOM has been able to risk-price its loans, given the marginal borrower base, which is reflected in healthy net interest margin of 7.2% and 6.7%, respectively, for fiscals 2022 and 2021. With planned growth in the loan portfolio only in existing geographies, operating profitability will benefit from economies of scale; operating expense to average asset ratio is also estimated to improve to 8.9% in fiscal 2022, from 11.3% in fiscal 2021. Asset quality is yet to reach steady-state levels and thus, credit cost may inch up. Return on average assets (ROAA) was 1.7% for fiscal 2022, against a negative 0.1% for fiscal 2021. Maintaining sustainable credit cost levels needs to be demonstrated over time.

Liquidity: Adequate

As on March 31, 2022, the asset liability maturity profile had positive cumulative mismatches for all the buckets. The company had liquidity of Rs 142 crore as cash and bank balance and unencumbered fixed deposits as on April 30, 2022, sufficient to cover the maturing debt obligation for more than six months. As a policy, the company maintains on-balance sheet liquidity to cover one month of debt and operating expenses.

Outlook Stable

The outlook may be revised to 'Positive' as the company scales up operations while maintaining adequate asset quality and earnings, as the loan book seasons. The outlook may be revised to 'Negative' in case of substantial weakening in asset quality.

Rating Sensitivity factors

Upward factors

• Substantial scale up while maintaining adequate asset quality
• Comfortable profitability with ROA above 2.5% on a sustained basis

 

Downward factors

• Profitability going below 1.5% on a sustained basis
• Significant and sustained weakening of asset quality

Risks associated with the provisional rating:

The 'Provisional' prefix indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take an appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on a case to case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio.

About the Company

Incorporated in February 2016, AVIOM is a Delhi-based HFC, which provides home loans and LAP. It began operations in August 2016 on receipt of its HFC license. The company had a wide network of 105 branches as on March 31, 2022.

 

AVIOM is led by Ms Kajal Ilmi (promoter), who has over two decades of expertise in real estate and housing. She holds a 30% stake in the company on a fully diluted basis. Gojo and Company Inc, SABRE Partners AIF Trust, and Capital 4 Development Asia Fund Cooperative U.A are the other shareholders.

 

AUM rose to Rs 725 crore as on March 31, 2022, from Rs 461 crore as on March 31, 2021. The company reported a profit after tax (PAT) of Rs 12.2 crore (provisional) on total income (net of interest expense) of Rs 85.6 crore for fiscal 2022, against negative Rs 0.62 crore and Rs 47.03 crore, respectively, for fiscal 2021.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity levels	Rating outstanding with outlook
NA	Proposed long term bank loan	NA	NA	NA	25	NA	CRISIL BBB/Stable
NA	Non-convertible debentures *	NA	NA	NA	62	Simple	CRISIL BBB/Stable

*Yet to be issued