| Hero Housing Finance Limited | ||||||||
| 'CRISIL AA+/Stable' assigned to Non Convertible Debentures | ||||||||
| Rating Action | ||||||||
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| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL AA+/Stable' ratings to the Rs 250 crore non-convertible debentures (NCDs) of Hero Housing Finance Limited (HHFL), a 100% subsidiary of Hero FinCorp Ltd (HFCL; rated 'CRISIL AA+/CRISIL PP-MLD AA+r/Stable/CRISIL A1+') and reaffirmed the ratings on existing debt instruments and bank facilities at 'CRISIL AA+/Stable/CRISIL A1+'.
The rating centrally factors in the expectation of strong financial, operational, and management support from the parent, both on an ongoing basis and in the event of any distress. HHFL is also expected to benefit from the Hero group's ecosystem, which the company plans to tap for business growth. However, operations are in an early stage and the ability to maintain adequate asset quality and profitability while scaling up business needs to be demonstrated.
The nationwide lockdown to contain the spread of Covid-19 impacted disbursements and collections of financial institutions. Delay in return to normalcy will continue to constrain collections and asset quality of financial institutions. Additionally, any change in the payment discipline of borrowers can affect delinquencies. While the one-time restructuring scheme announced by the Reserve Bank of India (RBI) has provided the necessary support to borrowers affected by Covid-19.. As of December 31, 2020, the company has invoked restructuring for 1.3% of the loan book which is better than the Industry average…..
Housing finance particularly in the affordable housing finance segment, could witness challenges in the cash salaried and self-employed segment, whose income streams have been affected. The company has taken measures to improve its collections by engaging and reaching out to the borrowers. In terms of reported metrics, gross stage 3 assets stood at 0.2% as on December 31, 2020 (0.1% as on March 31, 2020), however, on a proforma basis (excluding the impact of the SC order on standstill in asset classification), gross NPAs stood at 1.35% as on the same date.
Given the challenging macro environment, performance of asset quality and its impact on earnings profile will remain a key monitorable. |
Analytical Approach For arriving at the ratings, CRISIL has analysed the standalone business and financial risk profile of HHFL and factored in support from HFCL, both on an ongoing basis and in the event of distress. |
Key Rating Drivers & Detailed Description Strengths: * Strong support from the parent Strong support from HFCL is expected given the strategic importance of HHFL as a critical business growth driver for the lending business. HHFL, the housing finance arm, is an important piece added to move closer to complete the offerings of HFCL for its customers’ credit life-cycle. The housing arm is expected to add scale and granularity to HFCL’s current lending book. There is also a strong moral obligation for HFCL to support HHFL given that it holds 100% shareholding in the company, along with two common board of directors, a shared name and brand, as well as operational synergies (including common treasury) between the two. HFCL has infused equity capital of Rs 500 crore in HHFL till date including Rs 100 crore infused in March 2021 and is expected to infuse additional capital, on an ongoing basis and in the event of distress. Also, the strong parentage along with common treasury is expected to benefit HHFL in raising funds at competitive rates.
* Adequate capitalisation The total net-worth was around Rs 323 crore with a gearing of 6.3 times as of December 31, 2020 (Rs 344 crore and 4.6 times, respectively, as on March 31, 2020). In fiscal 2020, the company raised Rs 150 crore capital from the parent, HFCL, and further raised Rs 100 crore in March 2021. The company is expected to receive additional capital, as and when required. The gearing is expected to remain comfortable at 5-6 times over the medium term, but is expected to increase thereafter as operations are scaled up.
Weakness: *Early stage of operations Operations commenced only from April 2018 and the loan book was small at Rs 2,224 crore as on December 31, 2020 (Rs 1,793 crore as on March 31, 2020). In terms of segmental composition, home loans formed around 73% of the loan book as on December 31, 2020, followed by loan against property at 27% and construction finance at 1%. The company plans to grow its loan portfolio sizeably over the medium to long term. While housing finance will remain the key focus area, products such as loans against property, construction finance, and non-residential property loans will also be offered. Within housing finance also, the company intends to have offerings across affordable, mid-market, and prime segments. Currently, the company operates from 31 branches in 5 states, but operations are expected to gradually expand across geographies. However, ability of the management to maintain adequate asset quality and profitability as the business scales up will remain a key monitorable. Nonetheless, the company already has a dedicated and experienced team in place, backed by adequate risk management systems and processes, which will help the team grow the loan book responsibly. |
Liquidity: Strong Liquidity position of the company is strong. As on February 28, 2021, HHFL had liquidity of Rs 426 crore (Rs 361crore of liquid investments & Rs 65 crore of unutilized bank lines). Also, the liquidity has further bolstered by the recent capital infusion of Rs 100 crore by the parentage of HHFL.
Against the same, HHFL have total debt obligations (principal and interest) of Rs 146 crore over the four months through June 2021. |
Outlook: Stable CRISIL Ratings believes HHFL will continue to benefit from strong financial, operational, and managerial support from HFCL. |
Rating Sensitivity Factors Upward Factor *Upward revision by one notch in CRISIL's credit view on the parent, HFCL *Significant improvement in market position
Downward Factor * Downward change in the credit risk profile of HFCL by one notch and/or material change in the shareholding or support philosophy of HFCL impacting the quantum and timing of support *Deterioration in asset quality with gross NPA increasing to above 5%, over an extended period, thereby also impacting profitability. |
About the Company HHFL, a wholly owned subsidiary of HFCL, was incorporated in June 2016, and received the licence from National Housing Bank for providing housing finance in August 2017. The company plans to leverage upon the extensive Hero ecosystem, which provides it with cross-selling opportunity and will allow it to build a pan-India presence. The company plans to have a diversified offering comprising of traditional home loans, loans against property, non-residential property, and construction finance.
In fiscal 2020, the company reported a loss of Rs 32 crore and total income of Rs 154 crore (Loss of Rs 23 crore and total income of Rs 26 crore for fiscal 2019). For the nine month ended December 31, 2020, the company reported a loss of Rs 22 crore and total income of Rs 175 crore (Loss of Rs 19 crore and total income of Rs 100 crore, in the corresponding period of the previous fiscal) |
Key Financial Indicators
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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 issued |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit & Working Capital Demand Loan | Axis Bank Limited | 25 | CRISIL AA+/Stable |
| Cash Credit & Working Capital Demand Loan | HDFC Bank Limited | 20 | CRISIL AA+/Stable |
| Cash Credit & Working Capital Demand Loan | ICICI Bank Limited | 20 | CRISIL AA+/Stable |
| Proposed Long Term Bank Loan Facility | Not Applicable | 900 | CRISIL AA+/Stable |
| Proposed Long Term Bank Loan Facility | Not Applicable | 74 | CRISIL AA+/Stable |
| Term Loan | Axis Bank Limited | 100 | CRISIL AA+/Stable |
| Term Loan | Axis Bank Limited | 100 | CRISIL AA+/Stable |
| Term Loan | CSB Bank Limited | 50 | CRISIL AA+/Stable |
| Term Loan | HDFC Bank Limited | 160 | CRISIL AA+/Stable |
| Term Loan | HDFC Bank Limited | 150 | CRISIL AA+/Stable |
| Term Loan | ICICI Bank Limited | 284 | CRISIL AA+/Stable |
| Term Loan | Indian Bank | 200 | CRISIL AA+/Stable |
| Term Loan | Kotak Mahindra Bank Limited | 42 | CRISIL AA+/Stable |
| Term Loan | Oriental Bank of Commerce | 50 | CRISIL AA+/Stable |
| Term Loan | The Federal Bank Limited | 25 | CRISIL AA+/Stable |
| Term Loan | The Hongkong and Shanghai Banking Corporation Limited | 200 | CRISIL AA+/Stable |
| Term Loan | The Hongkong and Shanghai Banking Corporation Limited | 50 | CRISIL AA+/Stable |
| Term Loan | The South Indian Bank Limited | 25 | CRISIL AA+/Stable |
| Term Loan | The South Indian Bank Limited | 25 | CRISIL AA+/Stable |
This Annexure has been updated on 2-Sep-2021 in line with the lender-wise facility details as on 19-Aug-2021 received from the rated entity.
Criteria Details
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