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Tata Capital Housing Finance

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    1 Tata Capital Housing Finance Limited May 23, 2018 Summary of rated instruments Instrument* Previous Rated Amount (Rs. crore) Current Rated Amount (Rs. crore) Rating Action Commercial Paper Programme 5,000.00 8,000.00 [ICRA]A1+; assigned/outstanding Non-Convertible Debentures Programme 2,400.00 2,400.00 [ICRA]AA+(stable); outstanding Subordinated Debt Programme 1,100.00 1,100.00 [ICRA]AA+(stable); outstanding Total 8,500.00 11,500.00 *Instrument details are provided in Annexure-1 Rating action ICRA has assigned a short-term rating of [ICRA]A1+ (pronounced ICRA A one plus) to the enhanced commercial paper programme of Rs. 8,000 crore (enhanced from Rs. 5,000 crore) of Tata Capital Housing Finance Limited (TCHFL) 1 . ICRA has a long-term rating outstanding of [ICRA]AA+ (pronounced ICRA double A plus) for the Rs. 2,400 crore non-convertible debentures programme and Rs. 1,100 crore subordinated debt programme of TCFSL. The outlook on the long-term ratings is Stable. Rationale The rating primarily derives strength from TC HFL’s ultimate parent Tata Sons Limited (TSL, rated [ICRA]AAA(stable)/[ICRA]A1+). TCHFL is a 100% subsidiary of Tata Capital Limited (TCL), which in turn is 93.22% owned by TSL. ICRA views the housing finance segment as an important extension of the existing bouquet of financial products offered by TCL, making TCHFL strategically important for the parent. The company benefits from the Tata Group’s strong franchise and close board supervision and its access to TCL’s infrastructure, marketing and loans srcin ation teams which has enabled it to grow its business volumes. TCHFL enjoys healthy financial flexibility to mobilise long term funding at competitive rates on account of its strong parentage. While the company’s ALM profile exhibits some mismatches in sh ort term buckets, these are adequately backed by unutilised banks lines. Given the company’s parentage, ICRA expects  the company to be able to refinance the asset liability gaps and also expects support to be forthcoming from the parent, as and when requir ed. The company’s capitalisation profile though moderate, has been supported by the regular equity infusion from the parent (Rs. 165 crore in FY2017 and Rs. 301 crore in FY2018) and ICRA expects the company to remain adequately capitalised as it continues to expand its portfolio. The rating also factors in the company’s steady growth in business volumes (~32% CAGR in portfolio over the last three years), moderate profitability (average ROE of ~13% over the last three years) and good asset quality through business cycles (gross NPAs of 1.22% as on March 31, 2018) despite the high proportion of lending to the relatively riskier self- employed segment. The company’s ability to maintain good asset quality while expanding its scale of operations and any dilution in the significance of TCHFL to its parent would be key rating sensitivities. 1   For complete rating scale and definitions, please refer to ICRA's website ( www.icra.in ) or other ICRA rating publications EMISPDF in xlri2011 from 115.113.198.236 on 2018 07 31 18:57:55 BST. DownloadPDF. Downloaded by in-xlri2011 from 115.113.198.236 at 2018-07-31 18:57:55 BST. EMIS. Unauthorized Distribution Prohibited.    2 Outlook: Stable In ICRA’s opinion, TCHFL will continue to enjoy support from its ultimate parent, TSL, helping it maintain a comfortable capitalisation and liquidity profile. The outlook may be revised to Positive in case there is a significant improvement in the company’s profitability profile with loan book expansion and controlled asset quality. The outlook may be revised to Negative in case there is a deterioration in the c ompany’s asset quality or solvency indicators. Any dilution in importance to the parent or a change in the expected level of support would also remain a key rating sensitivity. Key rating drivers Credit strengths Strong parentage and strategic importance to the Group  - TSL has a 93.22% stake in TCL, which in turn has a 100% ownership in TCHFL. ICRA views the housing finance segment as an important extension to the existing bouquet of financial products offered by TCL, making TCHFL strategically important for the parent. The company benefits from the Tata Group’s strong franchise and close board supervision and its access to TCL’s infrastructure and marketing and loans srcination teams which has enabled it to grow its business volumes. TCHFL also enjoys good financial flexibility as a result of being part of the Tata Group, with access to funds at competitive rates of interest. However, any dilution in the expected level of support to TCL or change in the credit profile of its parent would be a key rating sensitivity. Robust growth in advances over the past few years  - TCHFL has grown it portfolio at a CAGR of ~32% over the last three years to Rs. 21,090 crore as on March 31, 2018 of which 70% was in the home loan segment, 20% in the LAP and 10% in the builder and construction finance segment. The share of LAP in the overall portfolio is likely to increase following the relaxation in NHB guidelines, which had earlier restricted it to 25% for the HFC to be eligible for NHB refinance. The company intends to expand its operations to Tier II and Tier III cities to tap the growing affordable housing market, which currently accounts for ~6% of the total portfolio. Given the increase in the supply in the housing market and demand holding up, ICRA expects the growth prospects to remain good for the company. Good asset quality notwithstanding the risky borrower profile  - TCHFL’s gross NPAs increased marginally to 1.22% as on March 31, 2018 from 0.91% as on March 31, 2017. Nevertheless, the asset quality remains comfortable when compared to its peers especially given the company’s relatively high share of self  -employed borrowers (~ 50% of the retail portfolio). During FY2018, TCHFL increased its provision cover ratio to 61% as on March 31, 2018 resulting in stable net NPAs of 0.48% as on March 31, 2018 as compared to 0.46% as on March 31, 2017. The company’s builder loan  portfolio has shown lower delinquencies as compared to the other segments; the gross NPAs for builder loan segment stood at 0.47%, followed by home loan at 1.34% and LAP at 1.49% as on March 31, 2018. Going forward, the company’s ability to maintain a control over its asset quality as it continues to expand will be an important rating consideration. Credit challenges Moderate capitalisation indicators, given the higher pace of growth than internal capital generation -  TCHFL has grown it portfolio at a CA GR of ~32% over the last three years to Rs. 21,090 crore as on March 31, 2018. Since TCHFL’s pace of growth has been higher than internal capital generation, the need for external capital has remained high. The company’s capitalisation has been supported by regular capital infusions from the parent (Rs. 165 crore in FY2017 and Rs. 301 crore in FY2018). Notwithstanding TCHFL’s ability to raise equity and the high level of support from the parent, its gearing levels were relatively high at 10.3 times as on March 31, 2018 (though it has declined from 11.2 times as on March 31, 2017) . The company’s capital adequacy with its Tier 1 and CRAR improved to 12.10% and 17.22% respectively as on March 31, 2018 as compared to 10.19% and 16.01% respectively as on March 31, 2017. ICRA expects the company to remain adequately capitalised as it continues to expand its portfolio given the strong capital commitment from its parent. EMISPDF in xlri2011 from 115.113.198.236 on 2018 07 31 18:57:55 BST. DownloadPDF. Downloaded by in-xlri2011 from 115.113.198.236 at 2018-07-31 18:57:55 BST. EMIS. Unauthorized Distribution Prohibited.    3 Moderate profitability  –   TCHFL’s  net interest margins declined marginally to 3.2% in FY2018 from 3.3% in FY2017. The company’s operating expenses moderated to 1.47% of ATA in FY2018 from 1.60% in FY2017 owing to improved operating efficiencies following business growth. However, its credit provisions increased to 0.68% of ATA in FY2018 from 0.46% in FY2017, with some slippages in the loan book). Consequently, its return of assets declined to 1.13% in FY2018 from 1.17% in FY2017. The company reported a moderate return on equity of 13.70% in FY2018 (14.57% in FY2017) as compared to its peers. Relatively high ALM gaps; however, adequate unutilised bank lines results in a comfortable liquidity profile -   TCHFL’s reliance on short-term funds, while resulting in a lower cost of funds, results in relatively high asset liability maturity (ALM) gaps. ICRA takes comfort from the company’s policy of maintaining adequate unutilised bank facilities to cover these mismatches. ICRA expects the company to be able to refinance the asset liability gaps and also expects the support to be forthcoming from the parent as and when required. Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below .   Links to applicable criteria: Rating Methodology for Housing Finance Companies About the company: Tata Capital Housing Finance Limited (TCHFL) is a 100% subsidiary of Tata Capital Limited (TCL) and was incorporated for providing long- term housing finance. The company’s incorporation was an integral part of TCL’s plan to augment its existing product pipeline in the retail segment. TCHFL is registered with the National Housing Bank as a housing finance company. The company commenced its lending operations in July 2009 and had a total portfolio of around Rs. 21,090 crore as on March 31, 2018. For FY2018, the company reported a profit after tax of Rs. 214.20 crore (vis-à-vis Rs. 178.17 crore in FY2017) on a total income of Rs. 1,983.55 crore in FY2018 (vis-à- vis Rs. 1,723.07 crore in FY2017). The company’s total net worth stood at Rs. 1,772.70 crore as on March 31, 2018. About Tata Capital Limited: TCL is a subsidiary of Tata Sons Limited, which holds 93.22% of TCL. TCL is registered as a core investment company and is the holding company for various financial services of the Group including TCFSL, Tata Capital Housing Finance Limited and Tata Securities Limited. TCL also holds strategic and private equity investments. For FY2018, the company reported a net profit of Rs. 201.78 crore on a total asset base of Rs. 7,278.34 crore against a net profit of Rs. 180.16 crore on a total asset base of Rs. 6,703.04 crore in FY2017. About Tata Sons Limited:   Tata Sons Limited (TSL), founded in 1917 by Tata G roup’s founder, Shri J N Tata, is the principal holding company for Tata Group and the owner of the Tata brand and associated Tata trademarks. Charitable trusts, including those endowed by the late Sir Dorabji Tata, own 66% of TSL’s share s. While income from dividends and profit generated on sale of investments constitute the principal revenue source for the company, it also earns royalty fees from Group companies for using the Tata brand. Currently, TSL’s equity investments are spread across seven major industry segments and include investments in Tata Consultancy Services Limited, Tata Steel Limited, Tata Power Company Limited, Tata Motors Limited, Tata Chemicals Limited, Tata Teleservices Limited, and Tata Global Beverages Limited. EMISPDF in xlri2011 from 115.113.198.236 on 2018 07 31 18:57:55 BST. DownloadPDF. Downloaded by in-xlri2011 from 115.113.198.236 at 2018-07-31 18:57:55 BST. EMIS. Unauthorized Distribution Prohibited.    4 Key Financial Indicators (Audited) FY 2017 FY 2018 Net interest income 469 576 Profit before tax 273 329 Profit after tax 178 214 Portfolio 17,343 21,090 Total assets 17,206 20,669 % Tier 1 10.19% 12.10% % CRAR 16.01% 17.22% Gearing 11.23 10.29 % Net profit/Average total assets 1.17% 1.13% % Return on net worth 14.57% 13.70% % Gross NPAs 0.91% 1.22% % Net NPAs 0.46% 0.48% Net NPA/Net worth 5.77% 5.45%  Amount is Rs. crore Source: TCHFL; ICRA research Status of non-cooperation with previous CRA: Not applicable Any other information: None Rating history for last three years: Instrument Current Rating (FY2019) Chronology of Rating History for the past 3 years Type Amount Rated (Rs. crore) Amount Outstanding (Rs. crore) May 2018 FY2018 FY2017 FY2016 Sep 2017 April 2017 Jan 2017 May 2016 Feb 2016 Sep 2015 1 Commercial Paper Programme Short Term 8,000.00 - [ICRA] A1+ [ICRA] A1+ - - withdrawn [ICRA] A1+ [ICRA] A1+ 2 Non- Convertible Debenture Programme Long Term 2,400.00 1,384.50 [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) 3 Subordinated Debt Programme Long Term 1,100.00 597.50 [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) [ICRA] AA+ (Stable) Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as Simple , Complex and Highly Complex . The classification of instruments according to their complexity levels is available on the website www.icra.in  EMISPDF in xlri2011 from 115.113.198.236 on 2018 07 31 18:57:55 BST. DownloadPDF. Downloaded by in-xlri2011 from 115.113.198.236 at 2018-07-31 18:57:55 BST. EMIS. Unauthorized Distribution Prohibited.
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