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1 CARE Ratings Limited
Press Release
Mahindra Rural Housing Finance Ltd April 16, 2018
Ratings
Instrument Amount
(Rs. crore) Rating
1 Rating Action
Non-Convertible Debenture issue
200.00
CARE AA+; Stable (Double A Plus; Outlook: Stable)
Reaffirmed
Subordinated Debt 300.00
CARE AA+; Stable (Double A Plus; Outlook: Stable)
Reaffirmed
Total 500.00 (Rs. Five Hundred crore
only)
Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers
The ratings assigned to debt instruments of Mahindra Rural Housing Finance Limited (MRHFL) continue to factor in its
strong parentage of Mahindra & Mahindra Financial Services Ltd (MMFSL) (rated ‘CARE AAA’). The ratings reflect the
demonstrated financial, operational and managerial support from MMFSL. In addition, the shared ‘Mahindra’ brand and
branch network with MMFSL are also considered as key credit strengths. The ratings also factor in MRHFL’s adequate
capitalization levels, comfortable liquidity profile, good resource raising ability and moderate financial performance. The
ratings are constrained by MRHFL’s weak asset quality, relatively unseasoned portfolio and geographical concentration.
Continued support of MMFSL, capital adequacy, asset quality and profitability are the key rating sensitivities.
Detailed description of the key rating drivers
Key Rating Strengths Strong parentage of MMFSL and demonstrated operational, managerial and financial support from MMFSL: MRHFL is
subsidiary of MMFSL which holds 87.50% shareholding while the remaining 12.50% shareholding is held by National
Housing Bank (NHB) as on December 31, 2017. MMFSL is a subsidiary of Mahindra and Mahindra Limited (rated CARE
AAA; Stable) which holds 51.20% shareholding in MMFSL. MMFSL is one of India’s leading vehicle financiers.
MRHFL has been receiving regular capital support from both MMFSL and NHB to support the strong business growth of
MRHFL. During FY17 (refers to the period April 1 to March 31), MMFSL and NHB have infused equity capital of Rs.130
crore in MRHFL.
MRHFL also benefits from the managerial support of MMFSL. MMFSL has deputed senior members as Directors of
MRHFL. Mr. Ramesh Iyer (Vice-Chairman and Managing Director, MMFSL) is the chairman of MRHFL and Mr. V. Ravi
(C.F.O. and Executive Director, MMFSL) are the directors on the board of MRHFL
MRHFL operates from geographic areas and target segments wherein MMFSL has rich experience. In addition to the
capital and management support, MRHFL also benefits from the common ‘Mahindra’ brand support from the parent
which gives MRHFL an advantage to expand its business rapidly in the rural and semi-urban areas which has been
successfully demonstrated in past and also helps to borrow funds at very competitive rates.
Moderate gearing levels; albeit comfortable capitalization level due to small ticket size loans having lower risk
weighted: As on March 31, 2017, gearing ratio was 9.10 times (10.69 times as on March 31, 2016). As on Dec 31, 2017,
gearing level was 9.69 times. MRHFL provides housing loans to rural borrowers having average ticket size of Rs. 1.27 lakh,
which falls under category of Housing Loan less than Rs.30 lakh and Loan To Value (LTV) ratio of less than 75% which have
lower risk weights. As a result, MRHFL reported Capital Adequacy Ratio (CAR) of 30.54% (Tier I CAR: 21.27%) as on March
31, 2017 and as on December 31, 2017, CAR of 28.95%.
Comfortable liquidity and resource profile: As on September 30, 2017, MRHFL’s liquidity profile was moderate mainly on
account of shorter tenure of its borrowings as compared to its loan portfolio. However, the mismatches are mitigated by
adequate amount of unutilized lines of credit from various banks, and MRHFL can also avail ICDs from MMFSL, which
provides comfort.
2 CARE Ratings Limited
Press Release
Moderate financial performance: MRHFL reported Profit After Tax (PAT) of Rs.83 crore on total income of Rs.703 crore
during FY17 (refers to period from April 01 to March 31) as compared to PAT of Rs. 63 crore on total income of Rs.495
crore in FY16. MRHFL’s Return on Total Assets (ROTA) for FY17 was marginally lower at 2.03% as compared to 2.32% for
FY16 on account of higher provisioning as well as operating costs. For 9MFY18, MRHFL reported PAT of Rs.74 crore on
total income of Rs.686 crore as compared to PAT of Rs.44 crore on total income of Rs. 484 crore for 9MFY17. As the target
customer segment of MRHFL has higher dependence on agricultural income, MRHFL sees improvement in collection in
the second half of financial year, with payments received post the harvest season.
Key Rating Weaknesses Deteriorating asset quality: Considering the nature of the customer segment being predominantly loans to informal
sector (low ticket-size disbursements to agriculturalist and self-employed class) in rural areas with high exposure to
agriculture income, the asset quality ratios are on the higher side as compared to the traditional housing finance
companies. Further, the Gross NPA and Net NPA ratios undergo substantial variations on account of the fact that rural
operations are characterized by seasonal nature of income flows. As on March 31, 2017, MRHFL reported Gross NPA ratio
of 9.67% and Net NPA ratio of 7.47% as compared to GNPA ratio of 7.26% and Net NPA ratio of 5.55% as on March 31,
2016. As on December 31, 2017 Gross NPA and Net NPA ratios were 13.81% and 10.70% respectively as compared to
11.58% and 9.17% respectively on December 31, 2016.
Further, MRHFL classifies NPA on 90+ DPD in line with NHB guidelines for housing finance companies and does not avail
the NPA recognition norms related to crop seasons for loans extended to an agriculturist or to a person whose income is
dependent on the harvest of crops as permitted by the NHB Guidelines.
Unseasoned portfolio in semi-urban area and geographic concentration: The loan book of MRHFL stood at Rs.4,824
crore as on March 31, 2017 (Rs 3,265 crore as on March 31, 2016). Exposure in Maharashtra and Tamil Nadu accounted
for 59% as on March 31, 2017 (58% as on March 31, 2016). Furthermore, the company has started disbursing loans in
semi-urban areas, which is a new product category for the company.
Interest rate risk: Interest rate risk is inherent in the business model of MRHFL principally as a result of lending to
customers at fixed interest rates and in amounts and for periods, which may differ from its funding sources. Majority of
the borrowings from banks are linked to MCLR / External Benchmark having resets mostly at annual intervals, as against
majority of loan portfolio at fixed rates. In order to cover high costs of operations and to cover risk of delayed cash flows
in rural operations, MRHFL lends at relatively higher rates as compared to its urban peers resulting in MRHFL reporting
high Net Interest Margin (NIM). The NIM of MRHFL is susceptible to and hardening of interest rates.
Analytical approach: CARE has taken a view based on the standalone financial profile of MRHFL, factoring in the
parentage and operational linkages with MMFSL.
Applicable Criteria
Rating Methodology- Non-Banking Finance Companies
Criteria for assigning Outlook to Credit Ratings
Rating Methodology: Factoring Linkages in Ratings
CARE’s Policy on Default Recognition
Financial ratios - Financial Sector
About the Company Incorporated in April 2007, Mahindra Rural Housing Finance Ltd. (MRHFL) is a housing finance company with predominant
presence in rural areas. It is a subsidiary of Mahindra & Mahindra Financial Services Ltd (MMFSL-rated CARE AAA; Stable)
which presently holds 87.5% stake in MRHFL, with the remaining being held by NHB (National Housing Bank) as on
December 31, 2017. Mahindra and Mahindra Ltd. (rated CARE AAA; Stable), held 51.20% equity stake in MMFSL as on
December 31, 2017. MRHFL operates out of a network of 467 branches across 13 states as on September 30, 2017.
Geographically, MRHFL’s loan portfolio is concentrated in the state of Maharashtra (46%), Tamil Nadu (14%), Madhya
Pradesh (9%), Gujarat (7%), Andhra Pradesh (8%) and Kerala (5%) as on March 31, 2017.
3 CARE Ratings Limited
Press Release
Brief Financials (Rs. crore) FY16 (A) FY17 (A)
Total operating income 495 703
PAT 63 83
Interest coverage (times) 1.45 1.43
Total Assets 3,295 4,900
Net NPA (%) 5.55 7.47
ROTA (%) 2.32 2.03
A: Audited
Status of non-cooperation with previous CRA: Not Applicable
Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2
Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity.
This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome
to write to [email protected] for any clarifications.
Analyst Contact: Name: Aditya Acharekar Tel: 022-6754 3528
Mobile: + 91-9819013971
Email: [email protected]
**For detailed Rationale Report and subscription information, please contact us at www.careratings.com
About CARE Ratings:
CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading
credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also
recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of
its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum
of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form
an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading
service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the
international best practices.
Disclaimer
CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the
concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained
from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or
completeness of any information and is not responsible for any errors or omissions or for the results obtained from the
use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee,
based on the amount and type of bank facilities/instruments.
In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the
partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of
withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial
performance and other relevant factors.
4 CARE Ratings Limited
Press Release
Annexure-1: Details of Instruments/Facilities
Name of the Instrument
Date of Issuance
Coupon Rate
Maturity Date
Size of the Issue (Rs. crore)
Rating assigned along with Rating Outlook
NCD 03-May-16 8.75% 03-May-21 5 CARE AA+; Stable
NCD 07-Jun-16 8.90% 07-Jun-21 30 CARE AA+; Stable
NCD 18-Nov-16 7.90% 16-Nov-18 25 CARE AA+; Stable
NCD 22-Nov-16 8.10% 22-Nov-21 25 CARE AA+; Stable
NCD 24-Mar-17 8.25% 24-Mar-20 50 CARE AA+; Stable
NCD 27-Mar-17 8.30% 26-Mar-27 10 CARE AA+; Stable
NCD (Proposed) - - - 55 CARE AA+; Stable
Sub-Debt 29-Apr-15 9.50% 29-Apr-25 25 CARE AA+; Stable
Sub-Debt 13-Oct-15 9.25% 13-Oct-25 35 CARE AA+; Stable
Sub-Debt 29-Apr-16 9.10% 29-Apr-26 15 CARE AA+; Stable
Sub-Debt 06-May-16 9.10% 06-May-26 15 CARE AA+; Stable
Sub-Debt 18-May-16 9.10% 18-May-26 6 CARE AA+; Stable
Sub-Debt 20-May-16 9.10% 20-May-26 10 CARE AA+; Stable
Sub-Debt 30-May-16 9.10% 29-May-26 4 CARE AA+; Stable
Sub-Debt 25-Jul-16 8.99% 24-Jul-26 25 CARE AA+; Stable
Sub-Debt 17-May-17 8.40% 17-May-24 10 CARE AA+; Stable
Sub-Debt 19-May-17 8.50% 19-May-27 10 CARE AA+; Stable
Sub-Debt 30-May-17 8.50% 28-May-27 25 CARE AA+; Stable
Sub-Debt 15-Jun-17 8.50% 15-Jun-27 50 CARE AA+; Stable
Sub-Debt (Proposed)
- - - 70 CARE AA+; Stable
5 CARE Ratings Limited
Press Release
Annexure-2: Rating History of last three years
Sr. No.
Name of the Instrument/Bank
Facilities
Current Ratings Rating history
Type
Amount Outstanding (Rs. crore)
Rating
Date(s) & Rating(s)
assigned in 2017-2018
Date(s) & Rating(s)
assigned in 2016-2017
Date(s) & Rating(s)
assigned in 2015-2016
Date(s) & Rating(s)
assigned in 2014-2015
1. Issuer Rating-Issuer Ratings
Issuer rat
0.00 CARE AA+ (Is); Stable
- 1)CARE AA+ (Is); Stable (31-Dec-16)
1)CARE AA+ (Is) (24-Dec-15)
1)CARE AA+ (Is) (16-Oct-14)
2. Debt-Subordinate Debt LT 300.00 CARE
AA+; Stable
- 1)CARE AA+; Stable (08-Feb-17) 2)CARE AA+; Stable (31-Dec-16) 3)CARE AA+ (13-May-16)
1)CARE AA+ (24-Dec-15) 2)CARE AA+ (21-Sep-15)
1)CARE AA+ (11-Mar-15)
3. Debentures-Non Convertible Debentures
LT 200.00 CARE AA+; Stable
- 1)CARE AA+; Stable (08-Feb-17) 2)CARE AA+; Stable (31-Dec-16) 3)CARE AA+ (13-May-16) 4)CARE AA+ (13-Apr-16)
- -
6 CARE Ratings Limited
Press Release
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CIN - L67190MH1993PLC071691