Indiabulls Financial Services : Housing Finance Limited rated AA+ by ICRA Limited

Indiabulls Housing Finance Limited

Instrument	Amount (in Rs. crore)	Rating Action
Non Convertible Debentures	4000	[ICRA]AA+ (Stable) (upgraded from [ICRA]AA (Stable)

ICRA has upgraded the long-term rating assigned to Rs 4000 crore of Non Convertible Debentures of Indiabulls Housing Finance Limited (IBHFL or 'the company') to [ICRA]AA+ (pronounced ICRA double A plus) with stable outlook from [ICRA]AA (pronounced as ICRA double A) with stable outlook† . The rating revision reflects steady improvement in IBHFL's operational and financial indicators over the past few years amidst tight control over asset quality indicators. The rating also factors in the comfortable capitalization as well as demonstrated ability to raise capital, well diversified resource profile, and sound liquidity position with policy of maintaining adequate liquid funds in the company. IBHFL is one of the larger housing finance companies in the country with a widespread branch network, primarily focused on the relatively less risky salaried home loan borrower segment, though it
also extends mortgage loans to the self employed segment and is also engaged in wholesale lending to real estate players. IBHFL's credit strengths are partially offset by the concentration and credit risks associated with its large ticket size Commercial Credit portfolio, and the relatively moderate seasoning in the overall credit portfolio given the steady though high CAGR of ~28% over the past three years. ICRA also notes that while the group has presence in other businesses such as Real Estate, Power and Securities, those businesses are being managed independently. Going forward also, ICRA expects no fungibility in cash flows between IBHFL and any other group/ associate companies (including Indiabulls Real Estate Limited, Indiabulls Power Limited and Indiabulls Securities Limited) in the event of distress.
IBHFL's assets under management increased by around 20% during FY14 to Rs 41,169 crore. Share of mortgage book was marginally higher at ~74% as on Mar-14 from ~72% as on Mar-13, contributed by the slightly higher share of housing loans (~48% as on Mar-14 from ~46% of the total portfolio as on Mar-13). The balance 26% of the mortgage book pertains to Loan Against Property (LAP), which is offered to self-employed borrowers. Within home loans, the company continues to focus on salaried segment, which accounts for ~72% of the HL book. While the LAP segment is comparatively riskier, the company has put in place strong systems and processes to manage this business. The company has stopped disbursement in its Commercial Vehicles segment which accounted for ~5% of the portfolio as on Mar-14 (~7% as on Mar-13). The balance 21% of the total portfolio pertains to Commercial Credit (CC) comprised of Lease Rental Discounting (LRD) loans to builders (69% of CC), Construction finance (25% of CC) and other loans (mainly working capital loans) forming 6% of the CC book. Going forward, the company is expected to continue to focus on mortgage business with share of incremental disbursements being estimated at 50% HL, 25%-28% Loan Against Property and 22-
25% Commercial Credit.
IBHFL's reported asset quality indicators remained stable with Gross NPA of 0.83% as on Mar-14 (0.79% as on Mar-13). During FY14, the company faced stress in its commercial vehicle portfolio in line with the experience of the entire CV financing industry. However, the impact on IBHFL was limited as the commercial vehicle portfolio accounted for just ~5% of the total AUM. With the company having stopped incremental disbursements for commercial vehicles, the adverse impact on the overall financials is likely to remain low. While the company has been doing commercial credit lending for over five years, the credit and concentration risk associated with this business is significant as stress in a few accounts could lead to considerable deterioration in asset quality indicators. Also, recovery from such accounts could take longer time and it may not be as easy in case of retail mortgage loans. Given the strong underwriting and risk management practices of the company and the fact that retail mortgage as an asset class has historically demonstrated fairly stable performance for the industry with low delinquencies, ICRA expects the asset quality indicators to remain comfortable over the near to medium term. IBHFL's ability to maintain the asset quality along with the portfolio growth would remain a key rating sensitivity.

† For complete rating scale and definitions please refer to ICRA's Website www.icra.inor other ICRA Rating

Publications.

IBHFL's resource profile has improved over last few years with the mobilization of long term funds from various sources. As on Mar 31, 2014, the bank loans accounted for almost 62% while long term bonds accounted for around 30% of the IBHFL's debt capital and the dependence on Commercial Paper was moderate at around 8% of the total borrowings. Accordingly, IBHFL's asset liability mismatch in short to medium term is positive and remains comfortable. IBHFL's liquidity profile is also supported by the company's policy to maintain un-utilised short term bank lines and liquid investments in the form of fixed deposits and investments in liquid mutual funds, together taking care of disbursements over the next 3-6 months.
IBHFL has sound capitalization levels with net worth of Rs. 5,637 crore as on Mar-14 on a consolidated basis. IBHFL's comfortable capital adequacy ratio (CAR) of 19.14% as on March 2014 (18.47% as on March 2013) coupled with strong accruals provide adequate cushion for IBHFL to continue the growth momentum while maintaining regulatory capital adequacy requirement. The gearing level for the company has increased in FY14 from 6.2 to 6.6 times. However, adjusted for cash and cash equivalents, the net gearing stood at 5.3 times as on Mar-14. ICRA has taken note of the company's intent to restrict its net gearing to less than 6.0 times in the near term.
IBHFL witnessed a decline in NIM by ~20 bps in FY14. This was, however, offset by strong control on operating expenses aided by increasing operational efficiency and build-up of long-term assets and improved non interest income. Accordingly, IBHFL reported PAT of Rs 1,569 crores in FY14 (3.75% of ATA), a 24% rise from Rs 1,266 crores in FY13 (3.55%). Going ahead, with the increase in scale of operations and improvement in operating efficiency, overall profitability may improve over the medium term provided credit costs are kept under control.

Company Profile:

Indiabulls Housing Finance Limited (IBHFL) was incorporated in the year 2005 and is a Housing finance company registered with National Housing Bank. The parent company Indiabulls Financial Services Limited (IBFSL) merged with IBHFL in Mar-13. The company is engaged in various lending activities like mortgage loans, commercial credit, commercial vehicle loans etc. with prime focus on mortgage and home finance business As on March 31, 2014 the company had a network of about 205 branches and an asset base of Rs. 44,543 crore.
On a consolidated basis, IBHFL reported a net profit of Rs 1,569 crore on a total income base of Rs
5,905 crore in FY14 as compared with a net profit after tax of Rs 1,266 crore on a total income base of
Rs 4,739 crore in FY13.

For further details please contact: Analyst Contacts:

Mr. Karthik Srinivasan (Tel. No. [phone])

[e-mail]

Relationship Contacts:

Mr. L. Shivakumar (Tel. No. [phone])

[e-mail]

June 2014

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Registered Office ICRA Limited

1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi 110001

Tel: [phone], Fax: [phone]

Corporate Office Mr. Vivek Mathur Mobile: [phone]

Email: [e-mail]

Building No. 8, 2nd Floor, Tower A, DLF Cyber City, Phase II, Gurgaon 122002

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Mumbai Mr. L. Shivakumar Mobile: [phone] Email: [e-mail] 1802, 18th Floor, Tower 3, Indiabulls Finance Centre, Senapati Bapat Marg, Elphinstone, Mumbai 400013, Board : [phone]; Fax: [phone]	Kolkata Mr. Jayanta Roy Mobile: [phone] Email: [e-mail] A-10 & 11, 3rd Floor, FMC Fortuna 234/3A, A.J.C. Bose Road Kolkata-700020 Tel [phone], Fax [phone]
Chennai Mr. Jayanta Chatterjee Mobile: [phone] Email: [e-mail] 5th Floor, Karumuttu Centre 634 Anna Salai, Nandanam Chennai-600035 Tel: [phone]; Fax: [phone]	Bangalore Bangalore Mr. Jayanta Chatterjee Mobile: [phone] Email: [e-mail] 'The Millenia' Tower B, Unit No. 1004,10th Floor, Level 2 12-14, 1 & 2, Murphy Road, Bangalore 560 008 Tel: [phone]; Fax: [phone]
Ahmedabad Mr. L. Shivakumar Mobile: [phone] Email: [e-mail] 907 & 908 Sakar -II, Ellisbridge, Ahmedabad- 380006 Tel: [phone]; Fax: +91- 79-25569231	Pune Mr. L. Shivakumar Mobile: [phone] Email: [e-mail] 5A, 5th Floor, Symphony, S.No. 99, CTS 3909, Range Hills Road, Shivajinagar,Pune-411 020 Tel: + 91-20-25561194-25560196; Fax: [phone]
Hyderabad Mr. Jayanta Chatterjee Mobile: [phone] Email: [e-mail] 4th Floor, Shobhan, 6-3-927/A&B. Somajiguda, Raj Bhavan Road, Hyderabad-500083 Tel:- [phone]