By Harshal Patkar

India Ratings and Research (Ind-Ra) has affirmed Can Fin Homes Limited’s (CFHL) Long-Term Issuer Rating at ‘IND AAA’. The Outlook is Stable. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

Non-convertible debentures# (NCDs)

-

-

-

INR30

IND AAA/Stable

Assigned

Commercial paper (CP)

-

-

7 to 365 days

INR45

IND A1+

Assigned

Subordinated  debt*

-

-

-

INR3

IND AAA/Stable

Affirmed

NCDs*

-

-

-

INR50

IND AAA/Stable

Affirmed


#Yet to be issued

* Details are given in Annexure.

KEY RATING DRIVERS

Parent Support: The ratings are driven by Ind-Ra’s expectation of a strong support from its parent Canara Bank (Canara, ‘IND AAA’/Stable), if required. CFHL has strong operational linkages with the parent, which held a 30% equity stake as of June 2017. CHFL is an important vehicle to Canara in the housing finance segment, which is a key priority segment for the government of India. The company’s managing director is deputed from Canara, who supervises the top management succession. Also, the parent has a sizeable representation on CFHL’s board with three of the seven members, while the others are independent industry experts. CFHL carries Canara’s brand; the parent intends to remain the single-largest shareholder in CFHL and retain management control. Canara’s resolve to support CFHL is strengthened by the continued improvement in the latter’s competitive position and profitability. Ind-Ra believes CFHL will remain core to the housing finance strategy of Canara over the foreseeable term. Canara has provided funding support in the form of INR5 billion term loans, INR5 billion line of credit and INR6 billion overdraft facilities as a contingent facility.

 

Healthy Standalone Metrics: CFHL maintains a comfortable asset quality with gross non-performing asset ratio of 0.38% at 1QFY18 (FY17: 0.21%; FY16: 0.19%) which compares favourably among peers, underscoring prudent underwriting practices. This includes conservative loan-to-value (circle rates considered for valuation compared with market rates used by peers) as well as instalment-to-income ratios. However, the portfolio is relatively unseasoned and sustained performance has to be established. Over the next few years, CFHL plans to expand into tier 2 and tier 3 cities, operating on a hub and spoke model, and offer products to self-employed professionals and non-professionals. The proportion of self-employed professionals and non-professionals in CFHL’s loan mix increased to 25% in 1QFY18 (FY17: 24%) from 15% in FY15. This has helped the company to maintain yields on average earning assets (FY17: 10.8%, FY16: 10.9%, FY15: 11.1%) leading to an improvement in net interest margin (3.5%, 3.2%, 2.5%), along with savings on the cost of funds. CFHL’s return on average assets improved to 1.94% in FY17 (FY16: 1.64%; FY15: 1.21%) while return on average equity increased to 23.4% (18.2%, 13.9%) owing to increase in leverage.

 

Average Capitalisation; Diversified Funding Profile: Despite CFHL’s high leverage (FY17, 11% FY16: 10.8%), tier 1 capitalisation ratio (1QFY18: 16.7%, FY17: 16.0%, FY16: 17.6%) remained average on the back of reduced risk weights on small ticket housing loans. The company plans to shore up its capital base by way of an INR10 billion rights issue approved by the board, likely to be raised in FY18. Canara is committed to participate and retain its shareholding post the rights issue. CFHL’s asset liability profile appears comfortable on account of unutilised sanctioned limits of INR46 billion as of 1QFY18 spread across banks, mutual funds and National Housing Bank (‘IND AAA’/Stable).


RATING SENSITIVITIES

Negative: A negative rating action could result from a significant dilution of Canara’s ownership resulting in a substantial reduction in the management control. The ratings would also be negatively impacted by lack of timely liquidity support or weakening of Canara’s own capitalisation levels affecting its ability to support CFHL. A negative rating action could also result from signs of a sharp deterioration in CFHL’s liquidity and/or access to funding, as well as from a trend of rising delinquencies, which, in Ind-Ra’s opinion, could lead to a significant weakening of profitability and capital buffers or result in a loss of strategic importance to Canara.


COMPANY PROFILE

CFHL is a housing finance company started in 1987 by Canara in association with Housing Development and Finance Corporation and Unit Trust of India. The company caters primarily to salaried borrowers in urban areas and 74% of its advances are sourced from the four southern states. At end-June 2017, CFHL had a loan book of INR138 billion and a network of 130 branches, 33 satellite offices and 12 affordable housing centres.

 

FINANCIAL SUMMARY

Particulars

FY17

FY16

Total assets (INR million)

134,576

107,946

Total equity (INR million)

10,768

8,785

Net profit (INR million)

2,353

1,571

Return on average assets (%)

1.94

1.65

Equity/assets (%)

8.0

8.1

Tier 1 capital (%)

16.0

17.6

Source: CFHL, Ind-Ra analysis



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating

3 August 2016

7 October 2014

1 August 2013

Issuer Rating

Long-term

-

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

IND AA+/Stable

NCDs

Long-term

INR80

IND AAA/Stable

IND AAA/Stable

IND AAA

IND AA+

Subordinated debt

Long-term

INR3

IND AAA/Stable

IND AAA/Stable

IND AAA

-

CP

Short-term

INR 45

IND A1+

-

-

-


ANNEXURE

Instrument

ISIN

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Outlook

NCDs

INE477A07050

2 June 2015

8.80%

6 February 2018

INR2

IND AAA/Stable

NCDs

INE477A07068

28 April 2015

8.69%

28 April 2018

INR2

IND AAA/Stable

NCDs

INE477A07076

28 May 2015

8.70%

28 June 2018

INR1

IND AAA/Stable

NCDs

INE477A07084

2 July 2015

8.80%

2 July 2018

INR2

IND AAA/Stable

NCDs

INE477A07092

7 August 2015

8.71%

7 August 2018

INR2

IND AAA/Stable

NCDs

INE477A07118

8 October 2015

8.44%

8 October 2018

INR1

IND AAA/Stable

NCDs

INE477A07126

30 October 2015

8.41%

30 January 2019

INR1.5

IND AAA/Stable

NCDs

INE477A07134

24 November 2015

8.45%

22 February 2019

INR1

IND AAA/Stable

NCDs

INE477A07142

22 December 2015

8.55%

22 March 2019

INR1

IND AAA/Stable

NCDs

INE477A07159

7 January 2016

8.60%

6 April 2019

INR1.25

IND AAA/Stable

NCDs

INE477A07167

17 February 2016

8.85%

19 May 2019

INR1.65

IND AAA/Stable

NCDs

INE477A07100

10 September 2015

8.69%

10 September 2020

INR1

IND AAA/Stable

NCDs

INE477A07175

22 April 2016

8.37%

22 March 2019

INR3

IND AAA/Stable

NCDs

INE477A07183

27 April 2016

8.55%

27 August 2019

INR1

IND AAA/Stable

NCDs

INE477A07191

16 September 2016

7.85%

16 December 2019

INR3

IND AAA/Stable

NCDs

INE477A07209

24 October 2016

7.73%

24 January 2020

INR4.4

IND AAA/Stable

NCDs

INE477A07217

15 November 2016

7.77%

15 November 2021

INR1.22

IND AAA/Stable

NCDs

INE477A07225

12 January 2017

7.57%

12 April 2020

INR4

IND AAA/Stable

NCDs

INE477A07233

27 February 2017

7.68%

27 May 2020

INR2

IND AAA/Stable

NCDs

INE477A07241

18 May 2017

7.89%

18 May 2022

INR6

IND AAA/Stable

NCDs**

INE477A08025

3 December 2014

8.94%

3 December 2024

INR1

IND AAA/Stable

NCDs

INE477A07258

26 July 2017

7.32%

26 October 2022

INR4

IND AAA/Stable

Total

 

 

 

 

INR47.02

 

 

 

Unutilised ^

-

-

INR5.98

 

** Sub-debt

^Sub-limit for sub-debt of INR2 billion


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, structured finance and project finance companies. 

Headquartered in Mumbai, Ind-Ra has six branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Kolkata. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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Analyst Names

  • Primary Analyst

    Harshal Patkar

    Senior Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001722

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121