| Hiranandani Financial Services Private Limited | ||||
| 'CRISIL A/Stable' assigned to Bank Debt | ||||
| 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 A/Stable’ rating to the long-term bank facility of Hiranandani Financial Services Private Limited (HFS).
The rating reflects expectation of strong support from the House of Hiranandani (HoH) group on an ongoing basis and in case of distress. This reflects the strategic importance of HFS, the primary vehicle for the financial services business of the group, and the commitment of the group to support the company given 100% shareholding by the promoters and the common brand. The rating also factors in a comfortable capital position and experienced management of HFS. These strengths are partially offset by the early stage of operations of the company.
HFS is a non-banking finance company (NBFC) engaged in financing of micro, small and medium enterprises (MSME). HFS is a part of the HoH group, which is one of the established real estate developers in India. Mr Surendra Hiranandani and his family members (the SLH family) are the promoters of the group, and HFS is the first diversification of the group outside the real estate segment. HFS started lending operations with institutional financing while setting up the retail branch network and processes. Since then, it has steadily expanded its presence in MSME financing over the past two years, and MSME loans now constitute the key growth driver.
The share of MSME loans in the overall portfolio increased to 95% of assets under management (AUM) as on March 31, 2022, from 25% as on March 31, 2020, driven by growth in the MSME book and de-focus of the institutional loan portfolio. Overall loan book stood at Rs 420 crore as on March 31, 2022, compared with Rs 43 crore as on March 31, 2019. |
Analytical Approach CRISIL Ratings has analysed the standalone business and financial risk profiles of HFS. The rating factors in expectation of strong support from the HoH group given the company’s high strategic importance to, and strong operational and financial linkages with, the group. |
Key Rating Drivers & Detailed Description Strengths:
HFS is a part of the HoH group, promoted by the SLH family. The financial services entity has been identified as the primary focus for the group’s diversification plans. HFS benefits from the group in terms of the shared brand and financial as well as operational synergies with the group. The promoters have committed Rs 500 crore of initial equity capital and have already infused Rs 400 crore as of fiscal 2022, indicating strong financial support towards HFS. Apart from the equity, the promoters also support HFS through interest-free unsecured loans.
The promoters are actively involved in the operations as well as key strategy and decision-making plans of the company. They have representation across most of the key committees of HFS, such as asset liability, risk management and investment. HFS is expected to leverage and benefit from the shared brand in raising resources and in building relationships with bankers. Given the strategic importance of HFS to the group’s diversification plans, the promoters will continue to provide support (on an ongoing basis and in case of distress) to HFS and hold majority shareholding over the medium term.
HFS has an experienced management team to run the business. The company is led by Mr Uday Suvarna, the chief executive officer. He has around two and half decades of experience in the retail and MSME lending domain. The leadership team across other key functions is well qualified and has extensive experience in retail lending businesses, including the MSME lending space across geographies of India. The company has an experienced board of directors, with independent directors holding more than three decades of experience in the financial sector.
The capital position is comfortable, supported by networth of Rs 391 crore and gearing of 0.2 time as on March 31, 2022. Tier 1 capital adequacy and overall capital adequacy ratio stood at 83% each as on March 31, 2022. While gearing is negligible as of now, with no external borrowing, it may gradually increase and is expected under 4 times on a steady-state basis. The promoters have infused equity capital of Rs 400 crore since inception and are likely to continue to do so to boost business growth.
Weakness:
HFS commenced operations in fiscal 2019. Given the early stage of operations, overall loan book was at Rs 420 crore as on March 31, 2022, a scale-up from Rs 43 crore as on March 31, 2019. The company is primarily engaged in MSME lending, which accounted for 95% of the loan book as on March 31, 2022. As on March 31, 2022, gross non-performing assets (GNPAs) stood at 1.0% against 1.6% as on March 31, 2021, and were nil as on March 31, 2020. The movement in GNPAs in the last two fiscals is primarily on account of slippages in the institutional lending book following the Covid-19 pandemic and acquired direct assignment book. GNPAs in self-sourced retail loan portfolio remained low at 0.3% as on March 31, 2022. Furthermore, the company restructured around 0.8% of its portfolio as on March 31, 2022, under the Resolution Framework for Covid-19-related Stress approved by the Reserve Bank of India (RBI). Nevertheless, given the secured nature of lending, ultimate credit losses should be lower.
Given the early stage of operations, the company’s earnings profile is constrained by high operating expenses. The company reported loss of Rs 7 crore in fiscal 2022 on account of large operating expenses, driven by network expansion cost, employee costs and investments in technology and model development. With scale-up in operations, efficiency should kick in and support overall profitability of the company over the medium term.
The ability of the company scale up operations while maintaining healthy asset quality and profitability will be a key monitorable. |
Liquidity: Adequate As per the asset and liability management statement as on March 31, 2022, HFS had positive cumulative mismatches across all buckets. Cash and equivalents stood at Rs 41 crore as on March 31, 2022 against nil debt repayment over the next one year. The company has a policy of maintaining liquidity worth three months of fixed obligation (including debt obligation). |
Outlook: Stable HFS will continue to benefit from strong support of the promoter group and will have comfortable capitalisation over the medium term. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About the Company HFS (erstwhile Dobra Finance Pvt Ltd) was incorporated on February 10, 2017, and is a non-systemically important non-deposit-taking NBFC registered with the RBI. The company was renamed, and a fresh certificate of incorporation with the new name was received on February 07, 2019. The company is a part of the HoH group, promoted by the SLH family. The family held a 100% stake in the company as on March 31, 2022.
The company finances MSME. HFS was operating with 50 branches across seven states as on March 31, 2022. It had total AUM of Rs 420 crore as on March 31, 2022. |
Key Financial Indicators
*Figures as on / for the period ended March 31, 2022, are provisional/unaudited |
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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 12-May-2022 in line with the lender-wise facility details as on 12-May-2022 received from the rated entity.
Criteria Details
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