Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A (CE)/Provisional CRISIL A (CE)/CRISIL BBB/Stable’ ratings on the bank facilities of Roha Housing Finance Pvt Ltd (Roha Housing).

 

The ‘CRISIL A (CE)’ rating is based on the strength of an unconditional and irrevocable corporate guarantee by the Roha group entity, Roha Dyechem Pvt Ltd (Roha Dyechem; 'CRISIL A/Stable/CRISIL A1'), which has provided a continuing unconditional and irrevocable guarantee that covers Rs 41.43 crore of the rated bank facilities of Roha Housing. CRISIL Ratings understands that Roha Dyechem has taken measures to monitor the cash flow of Roha Housing to ensure timely debt servicing.

 

Roha Dyechem is likely to provide a similar guarantee for the Rs 58.57 crore proposed bank facilities of Roha Housing, which has not been currently sanctioned, resulting in the ‘Provisional CRISIL A (CE)/Stable’ rating on the facilities. The provisional rating is based on the confirmation by the client to share the required documents in line with the structure submitted to CRISIL Ratings, post which the provisional rating will be converted into a final rating.

 

The ‘CRISIL BBB/Stable’ rating on the remaining non-guaranteed bank facilities of Roha Housing reflects the company’s adequate capitalisation supported by regular capital infusion by the Roha group (JJT Trust held 74.2% in Roha Housing as on December 31, 2021) and the experienced management team. These strengths are partially offset by the company’s nascent stage of operations.

 

In-line with the measures announced by the RBI for Covid-19, Roha Housing had also offered moratorium to its borrowers. While the collection efficiency was impacted during the initial months of the moratorium, collections have inched up since. However, the second wave of the Covid-19 pandemic had resulted in intermittent lockdowns and localised restrictions, which impacted the collections again. Although the impact has been moderate compared to the last fiscal, and collections have started picking up, any change in the payment discipline of borrowers may affect the delinquency levels.

 

Under the initial Covid-19 restructuring scheme announced by the RBI dated August 6, 2020, the company restructured around 0.8% of its portfolio. Pursuant to RBI’s May 2021 resolution framework 2.0, the company restructured around 4.9% of assets under management (AUM) as on December 31, 2021. Nevertheless, the ability of the company to manage collections and asset quality in fiscal 2022 will be a key monitorable. The impact of the third wave of the pandemic, in terms of spread, intensity and duration will also be closely monitored.

Analytical Approach

For the guarantee-backed bank facility, CRISIL Ratings has applied its criteria for rating instruments backed by guarantees. The 'CE' (credit enhanced) suffix reflects the payment structure, which is designed to ensure full and timely payment to lenders on account of the corporate guarantee by Roha Dyechem.

 

For arriving at the rating on the non-guaranteed instruments, CRISIL Ratings has considered the standalone business and financial risk profiles of Roha Housing.

Key Rating Drivers & Detailed Description

Strengths:

Continuing unconditional and irrevocable corporate guarantee by Roha Dyechem

For Rs 100 crore bank facilities

The credit-enhanced rating is based on the strength of the continuing unconditional and irrevocable guarantee provided by the guarantor, Roha Dyechem. The credit quality of the rated facility thus reflects the credit quality of the guarantor. CRISIL Ratings understands that Roha Dyechem has taken measures to monitor the cash flow of Roha Housing to ensure timely servicing of debt.

 

Weakness:

Nascent stage of operations

The company commenced operations only in April 2018 and is a small player in the affordable housing finance industry with a loan book of Rs 272.1 crore as on December 31, 2021. Delinquencies increased with gross non-performing assets (GNPAs) of 2.76% as on December 31, 2021 (2.6% as on September 30, 2021), ability to manage asset quality as the loan book increases will remain a monitorable. Moreover, asset quality remains susceptible to sudden upticks in delinquencies during periods of stress, given the inherently risky borrower profile (low-to-middle income group). Nevertheless, asset quality should benefit from the granular and secured nature of the portfolio, with average loan-to-value ratios of around 61%.

 

Given the initial stage of operations, earnings remain constrained due to high operating expenses because of heavy investments in setting up technology and branch infrastructure. The company broke even in fiscal 2020 with a profit after tax (PAT) of Rs 1.37 crore (primarily on account of deferred tax benefit) against a loss of Rs 8.5 crore in the previous fiscal. It had a PAT of Rs. 2.8 crore and return on assets (RoA) of 1.1% in fiscal 2021. However, in first half of fiscal 2022 Roha Housing reported a net loss of Rs 1.4 crore, this is mainly due to higher provisions and operating costs. Ability to successfully and sustainably scale up business in a profitable manner will remain a key rating monitorable.

Liquidity : Adequate

The structural liquidity statement as on September 30, 2021, had positive cumulative gaps across all buckets. The company has adequate liquidity cushion, comprising Rs 51.6 crore in the form of cash and equivalent (including fixed deposits) and unutilized bank lines of Rs 27.4 crore as on December 31, 2021. This will be sufficient to cover debt obligation of Rs 14.3 crore from February 2022 to May 2022.

Outlook Stable

The outlook may be revised to 'Positive' if the company scales up operations while maintaining healthy asset quality and earnings. The outlook may be revised to 'Negative' if asset quality or profitability weakens significantly.

 

Outlook for guaranteed facilities: Stable

The outlook is based on the 'Stable' outlook on the guarantor's debt instruments. The rating will remain sensitive to any change in the rating on Roha Dyechem.

Rating Sensitivity factors

Upward factors: 

• Substantial and sustained improvement in market position while maintaining asset quality
• Improvement in earnings with RoA above 2.0% on a steady state basis

 

Downward factors:

• Deterioration in asset quality (GNPAs above 3%) on a sustained basis, thereby impacting profitability
• Earnings constrained by higher operating expenses or credit costs

 

Rating sensitive factors (for guaranteed facilities)
Upward factors: 

• Upgrade in the rating on the guarantor

 

Downward factors:

• Downgrade in the rating on the guarantor
• Non-adherence to the terms of transaction structure/payment mechanism

Adequacy of credit enhancement structure

The rating reflects the unconditional and irrevocable guarantee from Roha Dyechem. CRISIL Ratings understands that Roha Dyechem has taken measures to monitor the cash flow of Roha Housing to ensure timely servicing of debt (principal, interest and other monies payable on the guaranteed bank facility).

 

CRISIL Ratings has introduced the 'CE' suffix for instruments having an explicit credit enhancement feature, in compliance with SEBI's circular dated June 13, 2019.

Unsupported ratings- CRISIL BBB/Stable

CRISIL has introduced the 'CE' suffix for instruments having explicit credit enhancement feature in compliance with the Securities and Exchange Board of India's circular dated June 13, 2019.

Key drivers for unsupported ratings

Adequate capitalisation supported by regular capital infusion by JJT Trust

Capital position is adequate as indicated by Tier 1 and overall capital adequacy ratio of 83.9% and 84.3%, respectively, as on December 31, 2021. The promoters have infused Rs 171.50 crore (including premium) till date and additional capital support of about Rs ~150 crore is expected in the next 2-3 years. Networth was Rs 140 crore in relation to a modest portfolio, resulting in low gearing of 0.8 time as on September 30, 2021 (Rs 142 crore and 0.9 times, respectively, in fiscal 2021). The gearing is expected to increase as the portfolio scales up but will not exceed 5 times as per the management philosophy.

 

Roha Housing benefits from being a part of the Roha group, with JJT Trust, the holding entity of Roha Dyechem, being the largest shareholder (over 74% stake as on December 31, 2021). The housing finance business has been identified as one of the focus area for the group’s diversification plans.

 

Experienced management team

The company has an experienced management team, headed by Mr Sunil Kapoor who has a track record of setting up new products as well as distribution channels in the lending business. He is a Chartered Accountant with more than 27 years of experience in retail asset products including loans, cards, finance, mortgages and insurance. He has worked across functions including sales and distribution, operations, risk and credit (underwriting), collections and finance. The leadership team across critical functions such as sales, risk, strategy, finance, technology and operations is well qualified and professional with each member having two decades of experience.

 

The management had put in place adequate systems and processes, including a robust technology platform, for scaling up the business prior to commencing disbursements. This should hold the company in good stead as it scales up its business.

Rating that would have been assigned in the absence of the pending documentation

In the absence of pending documentation considered while assigning the provisional rating as mentioned above, CRISIL Ratings would have assigned a rating of ‘CRISIL BBB’.

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

Roha Housing is a housing finance company that received its license from National Housing Board in December 2017 and began commercial operations in April 2018. The company has two main products: housing loan (70% of the portfolio as on December 31, 2021) and loan against property (LAP). The average ticket size of housing loans and LAP was Rs 8 lakh and Rs 9 lakh, respectively. The company has 26 branches across 6 states (Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Chhattisgarh and the National Capital Region) and had a loan book of Rs 272 crore as on December 31, 2021.

 

In fiscal 2021, the company reported a PAT of Rs 2.8 crore and total income of Rs 34.7 crore (Rs 1.37 crore and total income of Rs 26.3 crore for fiscal 2020). During first half of fiscal 2022, the company reported a net loss of Rs 1.4 crore and total income of Rs 18 crore.

 

About the guarantor- Roha Dyechem

Established in 1972 and promoted by Mr Ramakant Tibrewala, Roha Dyechem manufactures dyes and colours that are used in food and beverages, drugs and cosmetics. It has a wide global network with group companies across 20 countries. The company owns and operates three solar energy projects of 63.5 megawatt (MW) in Gujarat, Rajasthan and Maharashtra; and three wind energy projects of 31.5 MW in Maharashtra, Madhya Pradesh and Rajasthan. The energy generated from the solar plant in Maharashtra shall be used for captive purposes.

 

For fiscal 2021, at a standalone level, the company saw revenue decline of 3.54% and operating margin declined to 33.4%% from 34.7% in fiscal 2020.

List of covenants

The material covenants of the instruments pertain to, among others:

 

• Declaring dividends for any year except out of profits relating to that year after making all due and necessary provisions and provided there is no default on any obligation to the bank
• Downgrade in the rating on Roha Dyechem
• Roha Housing cannot Undertake any guarantee or letter of comfort in nature of guarantee on behalf of any other company (including group companies) other than the normal course of business
• Maintaining minimum capital adequacy ratio of 25% till March 31, 2021, and compliance with regulatory norms thereafter
• Maintaining capital of at least Rs 90 crore during currency of the loan

Any other information: Not applicable