Ind-Ra Assigns Indiabulls Housing Finance’s CP ‘IND A1+’
Ind-Ra-Mumbai-10 September 2014: India Ratings & Research (Ind-Ra) has assigned Indiabulls Housing Finance Limited’s (IBHFL) INR20bn commercial paper (CP) programme a rating of ‘IND A1+’.
KEY RATING DRIVERS
The rating reflects IBHFL’s well-matched liquidity profile, strong capitalisation and robust operating profitability buffers (which enable it to absorb significant levels of credit losses), and Ind-Ra’s expectation that they will be maintained. The rating also factors in IBHFL’s entirely wholesale funding profile and unseasoned loan portfolio.
The liquidity profile exhibits well-matched asset and liability tenors, with no cumulative negative asset and liability mismatches across the short-term buckets (up to six months). As a policy, IBHFL maintains adequate liquidity in the form of cash and equivalents, liquid investments and unused bank lines at all times to cover the next six months' targeted disbursals and debt repayments.
The funding profile is entirely wholesale, with bank loans, bonds and CPs accounting for 60%, 32%, and 8%, respectively, of total funding as at end-June 2014 (1QFY15). That being said borrowings are sourced from several domestic banks, with no significant concentration at anyparticular bank. IBHFL also plans to increase its access to longer-term bond funding and to securitise around 30% of its incremental loan book, which should help reduce the cost of borrowing.
The capitalisation is strong and should support IBHFL’s above-average loan growth targets (around 25% CAGR) over the next 18 to 36 months as internal accruals also remain healthy (23.6% as at FYE14). IBHFL reported a high Tier 1 capital ratio of 14.65% at 1QFY15 (FYE14: 15.05%; FYE13: 14.96%). While the company does not plan to raise common equity over the next 18 to 36 months, its leverage is reasonable (FYE14: 6.5x) and is projected to stay between 6.5x-7.5x over the next four years. IBHFL plans to maintain a minimum Tier 1 capital ratio of 13.5%-14% over FY15-FY17.
The overall return on average assets (1QFY15: 3.76%; FYE14: 3.79%; FYE13: 3.57%) and pre-provision operating profitability (PPOP) ratios remain robust (PPOP/average loans: FYE14: 6.91%; FYE13: 6.42%), aided by high yields on advances, controlled funding costs and a competitive cost/income ratio (FYE14: 15.41%; FYE13: 18.41%).
Credit costs increased during FY14 (0.87% of average loans; FYE13: 0.36%) and delinquencies may rise from IBHFL’s high-ticket corporate credit portfolio (FYE14: 21% of assets under management (AUM)), especially from the loans extended to developers for residential construction. That being said, these developer loans accounted for only around 5% of the AUM at FYE14 and IBHFL plans to restrict them to around 5%-6% of the AUM over the next 36 months. Overall asset quality has remained reasonable (though on anunseasoned loan portfolio) with incremental gross NPLs averaging around 0.6% of average loans over the past four years. Furthermore, IBHFL’s high PPOP buffer provides an adequate cushion for the company to absorb significant credit losses.
Positive: The rating is at the top end of the short-term rating scale.
Negative: Anegative rating action could result from signs of sharp deterioration in the company’s liquidity and/or access to funding, as also from a trend of rising delinquencies that in Ind-Ra’s opinion could lead to a significant weakening of the profitability and capital buffers.
IBHFL is a non-deposit accepting housing finance company, registered under the National Housing Bank. It is India’s third-largest housing finance company, and a part of the larger Indiabulls Group that comprises companies operating in the real estate and securities businesses. At 1QFY15, IBHFL had a network of 209 branches, mainly located across north, west and south India.
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