Press Release
India Shelter Finance Corporation Limited
July 02, 2024
Facilities/Instruments Amount (₹ crore) Rating1 Rating Action
Long-term bank facilities 1,335.00 CARE AA-; Stable Revised from CARE A+; Positive
Details of instruments/facilities in Annexure-1.
Rationale and key rating drivers
Revision in ratings for the long-term bank facilities of India Shelter Finance Corporation Limited (ISFCL) factors in the sizeable
growth in the asset under management (AUM), having reported a five-year compounded annual growth rate (CAGR) of 41% till
FY24 with improving asset quality and profitability. The revision further factors in healthy capital structure, underpinned by the
rise in tangible net worth (TNW) owing to initial public offering (IPO) and healthy internal accruals.
Rating strengths also factor in diversified lender base and takes comfort from majority stake-holding of WestBridge Capital, a
private equity (PE) investor and its long-term commitment with ISFCL.
However, these strengths are constrained by the relatively low portfolio seasoning, with majority of the portfolio being generated
over past few years, given the long-tenured advances and the relatively high geographical concentration, though gradually
declining. Rating strengths are partially offset by presence of interest rate risk, although the company has taken strategical steps
to mitigate the same. Catering to low-middle-income level borrowers that remain inherently vulnerable to macro-economic
challenges, exposes the company to downturn of economic events.
Rating sensitivities: Factors likely to lead to rating actions
Positive factors- Factors that could, individually or collectively lead to positive rating action/upgrade:
• Sizable growth in the scale of operations while maintaining profitability and asset quality parameters at comfortable
levels.
• Significantly improving geographical diversification.
Negative factors- Factors that could, individually or collectively lead to negative rating action/downgrade:
• Declining profitability, with return on total assets (ROTA) reducing below 2.5%.
• Gearing levels increasing above 5x on a sustained basis.
• Material changes in the stake of WestBridge, leading to a reduction in envisaged support.
Analytical approach:
Standalone
Outlook: Stable
CARE Ratings Limited (CARE Ratings) expects ISFCL to continue growing the scale of operations while maintaining the asset
quality and profitability.
Detailed description of key rating drivers:
Key strengths
Improvement in scale of operation
ISFCL’s AUM has been consistently rising over the years with five years CAGR of 41% till FY24 to ₹6,084 crore as on March 31,
2024, with yearly growth rate of 40%. The share of housing loan (HL) is on a lower side as compared to peers, with 62% of AUM
and balance is towards loan against property (LAP) as on March 31, 2024. While adhering to the regulatory guideline to maintain
the share of individual HL minimum of 60% of total assets by March 31, 2024, the company’s share of HL to net total assets stood
at 62% as on March 31, 2024.
ISFCL carries out off balance sheet transactions in form of direct assignment (DA) and co-lending for LAP portfolio only. These
transactions also support the company to adhere to the regulatory guidelines. As on March 31, 2024, the share of off book
portfolio stood at 16%.
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Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications
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Press Release
ISFCL provides HL of a ticket size of ₹ 10 lakh for average tenure of 15 years at a rate of interest of 14.0% and LAP of a ticket
size of ₹10 lakh for average tenure of 11 years at a rate of interest of 15.5%. The company has in-house sourcing of 98% of
portfolio catering majorly to self-employed customer (72%) and balance to salaried customers (28%) as on March 31, 2024.
CARE Ratings expects the company to continue to grow the AUM on a consistent basis, while maintaining the share of on book
portfolio to 80%.
Healthy capital base, further augmented with recent IPO
With ISFCL issuing IPO in December 2023 of ₹1,200 crore in a combination of fresh issue of ₹800 crore and offer for sale of ₹400
crore, coupled with healthy internal accruals, the TNW increased by 86% y-o-y to ₹2,282 crore as on March 31, 2024. Resultantly,
the gearing level reduced to 1.5x as on March 31, 2024 from 2.4x as on March 31, 2023 and capital adequacy ratio (CAR)
increasing to 71% as on March 31, 2024 from 53% as on March 31, 2023.
ISFCL’s promoters, Anil Mehta and WestBridge, together held majority stake in the company with 48% as on March 31, 2024.
WestBridge has no documented exit term and it intends to remain invested in ISFCL for minimum 8-10 years. The PE does not
intend to increase its stake in the company in the immediate term, although in case of opportunity and/or if need arises,
WestBridge may further invest with increasing its stake. Nexus and Madison are expected to exit in the near to medium term, but
no material impact is expected on their exit.
CARE Ratings expects the company to continue to receive support from the promoters.
Improving profitability profile
ISFCL’s profitability has been improving over the years with the rise in profit after tax (PAT) and return on total assets (RoTA).
In FY24, the PAT increased to ₹247 crore, up by 59% y-o-y and RoTA increased to 4.9% in FY24 from 4.1% in FY23.
The yields of the company have been on similar level in FY24 with 14.74% as compared to FY23, although the cost of funds has
increased to 9.01% in FY24 from 8.30% in FY23. This is majorly due to denominator effect as the company’s borrowings reduced
in Q4FY24 owing to the IPO issued in December 2023. The incremental cost of funds for ISFCL is 8.6%. The company has
started variable rate lending, which is restricted to LAP segment (accounting to 15% of the overall AUM as on March 31, 2024).
Supported by lower operating expenses ratio and similar credit cost ratio in FY24 to that of in FY23, and increased net interest
margin (NIM), the RoTA improved to 4.9% in FY24 from 4.1% in FY23.
CARE Ratings expects the profitability to remain at similar level.
Moderate, yet improving asset quality
ISFCL’s asset quality has remained under control with reduction in the gross non-performing assets (GNPA) ratio to 0.97% from
1.13% as on March 31, 2023.
With reduction in restructured portfolio to 0.40% of gross loan as on March 31, 2024 from 0.74% of gross loan as on March 31,
2023 and 1.13% of gross loan as on March 31, 2022, the gross stressed assets ratio reduced to 1.34% as on March 31, 2023
from 1.74% as on March 31, 2023 and 3.16% as on March 31, 2022.
In FY24, the total provision coverage reduced to 0.85% from 0.96% in previous year considering the reduction the estimate of
credit loss by the company. The provision for stage 1 has increased but provision for stage 2 and 3 has reduced. The reduction
in provisioning for stage 2 is considering the reduction in the provisioning for restructured loan which is included in stage 2 loans.
Going forward, ISFCL’s ability to contain its asset quality with its projected high growth remains key monitorable.
Diversified resource profile
ISFCL’s lender-wise borrowing profile is diversified, comprising banks, National Housing Bank (NHB), non-banking finance
companies (NBFCs), financial institution (FI), and capital markets. As on March 31, 2024, the majority borrowings are availed
from private sector bank with 45% (PY: 41%), followed by public sector banks with 22% (PY: 17%), NHB with 19% (PY: 20%),
NBFC and FI each with 7% (PY: 12%, 8%, respectively) and capital market with 1% (PY: 2%).
Key weaknesses
Limited portfolio seasoning
Although the company has been operating for 14 years, portfolio seasoning is limited, with the majority of the portfolio
generated over past few years. The disbursements over the last two years amount to 76% of the AUM as on March 31, 2024.
The behavioural tenure for HL is eight years (against an average tenure of 16 years) and non-HL of 6.5-7 years (against an
average tenure of 11 years). Going forward, the company’s performance in the long term is yet to be seen once the portfolio is
seasoned.
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Press Release
Geographically spread, although concentrated in three states
ISFCL’s operations have been well spread across 15 states. However, top three states, Rajasthan, Maharashtra, and Madhya
Pradesh, continue to dominate the majority operations. Although the concentration in the top three states is on a declining trend
with 62% of AUM as on March 31, 2024 from 64% of AUM as on March 31, 2023.
In line with the company’s strategy to deepen its presence in the southern region, the exposure in Karnataka, Tamil Nadu and
Telangana has been increasing over the years with 7%, 5% and 3%, respectively, as on March 31, 2024 from 7%, 4% and 2%,
respectively, as on March 31, 2023.
With the company deepening its presence in the southern region, CARE Ratings expects the concentration in Rajasthan would
reduce gradually.
Interest rate risk
ISFCL had been previously lending at fixed interest rates, while majority of its borrowings were at floating rates, thus exposing it
to interest rate risk. CARE Ratings notes that the company has started variable rate lending in its LAP segment, which makes
15% of the overall AUM as on March 31, 2024. With this, 82% of the AUM is still at a fixed interest rate, while majority of
borrowings are at floating interest rate.
Exposure to relatively vulnerable borrower segment
As an affordable HFC, ISFCL is focused on providing secured retail home loans to low- and middle-income borrowers in Tier-II
and Tier-III regions, with majority of them having lack of formal income documents. Its customers are a mix of self-employed
(72% of AUM as on March 31, 2024) and the balance to the salaried borrowers, with most of them in Tier-III cities, exposing the
company to the relatively economically vulnerable borrower segment. Since this segment is highly susceptible to the impact of
economic downturns, maintaining good asset quality while increasing the scale of operations is a key sensitivity. However, the
company has put in place adequate credit appraisal mechanisms and an integrated management information system (MIS). ISFCL
operates in physical and digital modes (branded as ‘Phygital’) through a system-driven approach from sales to collection. The
company’s entire portfolio is secured with a moderate loan-to-value (LTV) of 50-60%.
Liquidity: Strong
ISFCL has positive cumulative mismatches across all buckets per the asset liability management statement as on March 31, 2024.
The company has cash and cash equivalents of ₹438 crore in form of cash and bank balance and unencumbered investments as
on March 31, 2024. The company also has adequate inflows in terms of repayable against advances and bank balance of up to
one year of ₹969 crore as against debt obligations of up to one year of ₹765 crore.
Environment, social, and governance (ESG) risks
Given that ISFCL is engaged in the lending business, it is exposed to environmental risks indirectly through the portfolio of assets.
In case ISFCL’s customer has exposure to environmental risks, it can translate into credit risks for the company.
ISFCL has been taking steps towards environment and social fundamentals by embedding into it the business. With this, the
company has taken approaches towards building educational, healthcare, and women empowering initiatives by partnering with
NGOs. ISFCL Nayi Umeed is one such initiative focused on uplifting underprivileged women by providing them with employable
skills.
Applicable criteria
Definition of Default
Rating Outlook and Rating Watch
Financial Ratios - Financial Sector
Housing Finance Companies
About the company and industry
Industry classification
Macro-economic Sector Industry Basic Industry
Indicator
Financial services Financial services Finance Housing finance company
ISFCL was originally incorporated as Satya Prakash Housing Finance Private Limited on October 26, 1988, with the NHB, and was
re-incorporated as ISFCL on March 12, 2010, post-acquisition by Anil Mehta and others. The company commenced operations in
its present form in March 2010 under the new management. It extends loans for an average ticket size of ₹10 lakh to urban
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Press Release
households, who are a mix of self-employed and salaried workers with monthly incomes (documented or undocumented) of
₹25,000 and above, living in the periphery of urban and suburban areas of Tier-II and Tier-III cities. It offers products such as
home construction, extension, improvement, purchase, and LAP.
Brief Financials (₹ crore) March 31, 2023 (A) March 31, 2024 (A)
Total operating income 605.63 860.38
PAT 154.98 246.87
Interest coverage (times) 1.96 2.10
Total Assets 4,291.63 5,789.75
Net NPA (%) 0.85 0.74
ROTA (%) 4.13 4.90
A: Audited; Note: ‘these are latest available financial results’
Status of non-cooperation with previous CRA:
Not applicable
Any other information:
Not applicable
Rating history for last three years: Annexure-2
Covenants of rated instrument / facility: Annexure-3
Complexity level of various instruments rated: Annexure-4
Lender details: Annexure-5
Annexure-1: Details of instruments/facilities
Rating
Date of
Maturity Size of the Assigned
Name of the Issuance Coupon
ISIN Date (DD- Issue along with
Instrument (DD-MM- Rate (%)
MM-YYYY) (₹ crore) Rating
YYYY)
Outlook
Fund-based - CARE AA-;
- - - July 2032 1335.00
LT-Term loan Stable
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Annexure-2: Rating history for last three years
Current Ratings Rating History
Date(s) Date(s) Date(s) Date(s)
Name of the
and and and and
Sr. No. Instrument/Bank Amount
Rating(s) Rating(s) Rating(s) Rating(s)
Facilities Type Outstanding Rating
assigned assigned assigned assigned
(₹ crore)
in 2024- in 2023- in 2022- in 2021-
2025 2024 2023 2022
1)CARE
A+;
Positive
(13-Mar-
1)CARE 1)CARE A;
CARE 24)
Fund-based - LT- A+; Stable Positive
1 LT 1335.00 AA-; -
Term loan (02-Sep- (02-Mar-
Stable 2)CARE
22) 22)
A+;
Positive
(30-Aug-
23)
LT: Long term
Annexure-3: Detailed explanation of covenants of rated instruments/facilities: Not applicable
Annexure-4: Complexity level of various instruments rated
Sr. No. Name of the Instrument Complexity Level
1 Fund-based - LT-Term loan Simple
Annexure-5: Lender details
To view the lender wise details of bank facilities please click here
Note on complexity levels of rated instruments: CARE Ratings has classified instruments rated by it on the basis of
complexity. Investors/market intermediaries/regulators or others are welcome to write to care@careedge.in for any clarifications.
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Contact us
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Mradul Mishra Sanjay Agarwal
Director Senior Director
CARE Ratings Limited CARE Ratings Limited
Phone: +91-22-6754 3596 Phone: +91-22-6754 3582
E-mail: mradul.mishra@careedge.in E-mail: sanjay.agarwal@careedge.in
Relationship Contact Gaurav Dixit
Director
Pradeep Kumar V CARE Ratings Limited
Senior Director Phone: +91-11-4533 3235
CARE Ratings Limited E-mail: gaurav.dixit@careedge.in
Phone: 91 44 2850 1001
E-mail: pradeep.kumar@careedge.in Neha Kadiyan
Associate Director
CARE Ratings Limited
Phone: +91-11-4533 3262
E-mail: Neha.Kadiyan@careedge.in
About us:
Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
and enable investors to make informed decisions. With an established track record of rating companies over almost three decades,
CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the
methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt
and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.
Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought
in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.
For the detailed Rationale Report and subscription information,
please visit www.careedge.in
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