| Sundaram Home 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’ rating to the Rs 500 crore non-convertible debentures of Sundaram Home Finance Limited (Sundaram Home) and reaffirmed its 'CRISIL AA+/FAAA/Stable/CRISIL A1+' ratings on outstanding debt instruments and bank facilities.
The ratings continue to reflect the strong support from the promoter-shareholder, Sundaram Finance Ltd (SFL; ‘CRISIL AAA/FAAA/Stable/CRISIL A1+’). The ratings also factor in the stable resource profile and adequate capitalisation of Sundaram Home. These strengths are partially offset by its modest market position and below-average asset quality.
In line with the Reserve Bank of India (RBI) measures for Covid-19 relief, Sundaram Home had given moratorium to its borrowers. While collection efficiency was impacted during the initial months of the moratorium, it has improved since then. While the intermittent lockdowns and localised restrictions during the second wave of the pandemic resulted in some delay in collection in April and May 2021, collections have improved significantly since June 2021. However, any change in the payment discipline of borrowers can affect delinquency.
Overall delinquencies augmented with gross non-performing assets (GNPAs) increasing to 4.95% as on September 30, 2021, from 4.78% a year earlier. Also, under the RBI resolution framework for Covid-19-related stress, the restructured portfolio was around 5.5% of the overall loan portfolio as on September 30, 2021. Given the challenging macro environment, asset quality and its impact on earnings will remain monitorables. CRISIL Ratings understands that the recent RBI clarification circular will result in a rise in reported gross NPAs and a one-time impact on profitability. This, as well as the impact of a third wave of the pandemic in terms of its spread, intensity and duration on asset quality, will be closely monitored. |
Analytical Approach CRISIL Ratings has assessed the standalone credit risk profile of Sundaram Home and has factored in strong managerial and financial support from SFL. CRISIL Ratings believes Sundaram Home will receive distress support from the parent for timely servicing of debt, considering its strategic importance and the high moral obligation of the parent on account of 100% shareholding and shared brand. |
Key Rating Drivers & Detailed Description Strengths:
Sundaram Home continues to receive strong operational and managerial support from its parent and will benefit over the medium term from the acquisition of stake by SFL as it will provide stronger operational linkages with the parent.
Sundaram Home uses the services of Sundaram Direct, a division of SFL, to source a part of its business. It also has access to the parent’s retail customer base and branch network, and benefits from the parent’s brand equity and customer loyalty. SFL and BNP Paribas Home Finance had infused equity in the past and now the Parent, SFL is likely to provide support going forward. Robust growth in India’s housing sector and the increasing size of Sundaram Home’s mortgage loan portfolio will continue to enhance the company’s strategic importance to SFL.
Sundaram Home has a stable and well-diversified resource profile, including bank funds (15%), refinance from NHB (23%), NCDs and bonds (34%), fixed deposits (25%) and commercial papers (3%) as on September 30, 2021. The company has successfully tapped debt capital markets by raising medium- and long-term debt from several investors at competitive rates. Incrementally, Sundaram Home raised Rs 1,343 crore in the first half of fiscal 2022.
Tier I and total capital adequacy ratios were comfortable at 24.9% and 25.8%, respectively, as on September 30, 2021 (24.1% and 24.9%, respectively, as on March 31, 2021). The gearing, at 5.1 times as on September 30, 2021 (5.3 times as of March 31, 2021), was in line with the industry standards. Networth coverage for net stage 3 assets stood at 6.7 times as on September 30, 2021 (16.2 times as on March 31, 2021).
Weaknesses:
Sundaram Home remains a modest player in the housing finance segment, with operations largely restricted to south India and assets under management (AUM) of Rs 9,134 crore as on September 30, 2021 (Rs 9,173 crore as on March 31, 2021). Overall loan disbursements declined ~41% to Rs 1,254 crore during fiscal 2021 from Rs 2,113 crore in the previous fiscal, due to weak macro environment given Covid-19. However, disbursements have gradually picked up from July 2021 with the company disbursing Rs 891 crore of loans in the first half of fiscal 2022. Housing loans are expected to remain the key focus segment over the medium term.
Asset quality continues to be below average with gross stage 3 assets at 4.95% of total loans as on September 30, 2021 (4.48% as on March 31, 2021, largely due to stress in the loans against property [LAP] segment). The LAP portfolio, which stood at Rs 2,817 crore as on September 30, 2021, has witnessed major asset quality issues (gross NPAs of 8.2% as on September 30, 2021) over the past few years. However the size of this asset class has been small and stable (around 30% of total loan book) over the last few years. Moreover, net stage 3 assets were comfortable at 2.55% as on September 30, 2021 (1.09% as on March 31, 2021). Centralisation of loan appraisals and strengthening of recovery verticals have helped improve credit practices and asset quality of contracts originated in the past few years. |
Liquidity: Strong The asset liability management profile as on September 30, 2021, had positive cumulative gaps till the three months bucket. Liquidity is comfortable with adequate cash and equivalent of Rs 401 crore and cushion through unutilised bank lines of Rs 115 crore as on November 30, 2021. This is sufficient to cover debt obligation of Rs 486 crore for the two months till January 2022. Liquidity is cushioned by support from SFL. |
Outlook: Stable The ratings on Sundaram Home are closely linked to the ratings on SFL. Sundaram Home will continue to derive strong management and operational support from the parent and will maintain a stable resource profile and adequate capitalisation over the medium term. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Sundaram Home was founded as Sundaram Home Finance Ltd in July 1999 by SFL with equity participation from International Finance Corporation (IFC), Washington, and the Netherlands Development Finance Company (FMO). In fiscal 2007, SFL acquired the equity stakes of IFC and FMO. In October 2007, SFL sold 43% of its stake in Sundaram Home to BNP Paribas Personal Finance, a wholly owned subsidiary of BNP Paribas. With a 50.1% stake, SFL was Sundaram Home’s majority shareholder with the balance 49.9% held by BNP Paribas Personal Finance. However, on June 20, 2019, SFL approved the acquisition of 49.9% Sundaram Home from BNP Paribas Personal Finance. Thus, Sundaram Home has become a wholly owned subsidiary of SFL.
For the year ended March 31, 2021, Sundaram Home reported a profit after tax (PAT) of Rs 192 crore and total income of Rs 1,039 crore, against a PAT of Rs 218 crore (includes a one-time exceptional item of Rs 60 crore on account of write back of deferred tax liabilities) and total income of Rs 1,079 crore for the earlier 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)
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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 03-Jan-2022 in line with the lender-wise facility details as on 31-Aug-2021 received from the rated entity.
Criteria Details
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