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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 292.50 | ACUITE A- | Stable | Reaffirmed | - |
| Non Convertible Debentures (NCD) | 37.50 | ACUITE A- | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 330.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) on the Rs. 292.50 Cr. bank facilities of KIFS Housing Finance Limited (KHFL). The outlook is ‘Stable’. |
| About the company |
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Ahmedabad based KHFL, incorporated in November 2015, is a housing finance company (HFC) registered with National Housing Bank (NHB). It primarily focuses on affordable housing segment. KHFL is promoted by the KIFS (Khandwala Integrated Financial Services) group. The group is engaged in the businesses of capital markets activities with presence in segments such as stocks and commodities broking, bullion trading, arbitrage and portfolio management services as well as any movable/ immovable properties. KHFL is owned by KIFS International LLP through its promoters, Mr. Rajesh Khandwala, Mr. Vimal Khandwala and Mr. Jayesh Khandwala. KHFL operations are spread across 79 branches located in 11 states as on September 30, 2022. The geographies targeted are periphery of Tier 2 and Tier 3, towns. KHFL has majorly two products - home loans and loan against property (LAP). Currently, it has 7,224 borrowers and loan book of Rs. 547.31 Cr. as on September 30, 2022. |
| Analytical Approach |
| Acuité has considered the standalone financial and business risk profile of KHFL to arrive at the rating. |
Key Rating Drivers
| Strength |
| Experienced Management Team
KIFS Housing Finance Limited is governed by a professional board, headed by Mr. Rajesh P. Khandwala and Mr. Vimal P. Khandwala being its Promoter Directors. Other Directors to the KIFS Housing Finance Private Limited include Mr. Kartik Shailesh Mehta, Mr. Satish Mehta, Ms. Bhavna Govindbhai Desai and Mrs. Purvi Bhavsar. The top management is supported by Mr. Avinash Srivastava (Chief Operating Officer) and Mr. Vikki Soni (Chief Financial Officer) who run the day to day business of KHFL and have previously worked with large housing finance companies.The management has also implemented strong credit and risk management systems which will enable the company to improve upon their collections and maintain asset quality at moderate levels. Acuité believes that KHFL’s business profile will continue to benefit from the established presence in the housing segment backed by strong promoter support. Comfortable capitalisation supported by resourceful promoters KHFL commenced its operations in the affordable housing finance segment in FY2018, with a focus on extending credit in the affordable housing finance segment. Over the past two years of operations, the company has received continuous support in the form of periodic capital infusion from the promoter group. The company is promoted by the KIFS group through the parent company, KIFS international LLP. The promoters have infused ~Rs. 250 Cr. into the company as on March 31, 2020 and are expected to support any future growth plans as and when required. The day to day operations are managed by promoter director Mr. Vimal Khandwala. The promoters have over 2 decades of experience in financial services industry and are well supported by seasonal management team. The company has also demonstrated its ability to raise debt from banks and financial institutions; it has raised debt of from various public and private banks and through refinancing schemes of National housing bank. KHFL’s capital adequacy ratio stood at 104.85 percent as on September 30, 2022. KHFL’s networth and gearing stood at Rs. 303.46 Cr. and 0.81 times as on September 30, 2022 as against Rs. 298.50 Cr. and 0.90 times as on March 31, 2022. Acuité believes that KHFL will continue to maintain healthy capitalisation levels backed by support from the promoters. Government thrust towards Affordable housing segment KHFL entered into the lending space to extend credit in the affordable housing finance segment, the company over the past two years has built a granular portfolio with maximum ticket size upto Rs. 50 Lakhs. Over the past few years, affordable housing finance segment has received the Government’s thrust through various incentives such as the Pradhan Mantri Awas Yojana (PMAY) scheme. Around 29 percent of the existing home loan customers of KHFL have availed this subsidy. KHFL has a prudent lending philosophy as seen in the granular nature of its portfolio, low Loan to value (LTV) ratio and focus on lending towards salaried class borrowers. The company currently has no real estate developer loans in its portfolio due to which the company has a relatively less risky asset portfolio. As on September 30, 2022 the company had a borrower base of 7,224 borrowers with an average ticket size of ~Rs.10 Lakhs. KHFL’s portfolio comprises borrowers who are mainly from the salaried class with comfortable Fixed obligation to income ratio (FOIR) (average less than 50%) and Loan to value (LTV) ratio (average ~55%). Acuité believes that KHFL will benefit from its prudent lending philosophy along with the governmental thrust in the affordable housing segment while it focuses on growth in its loan portfolio. |
| Weakness |
| Limited seasoning of portfolio; Marginal asset quality pressures likely over the near term KIFS established operations in FY2018 and commenced disbursements from July 2017, the company has a loan book of Rs. 491.31 Cr. as on March 31, 2022 as against Rs. 451.22 Cr. as on March 31, 2021. Further, the loan book stood at Rs. 547.31 Cr as on September 30, 2022. The borrower base comprises mainly of salaried customers and balance comprises of self-employed customers. The performance of the portfolio will be demonstrated only over a period of time. Acuité observes that the company has seen a decline in the collection efficiency at ~93 percent for the month ended September 2022. Any further disruption of activities in the country may impact the asset quality of lenders such as KHFL. This may result in higher credit costs and moderation in profitability margins, notwithstanding the adequate capital buffers available to absorb any adverse income shocks. Besides the concerns on its asset quality, the loan portfolio is also susceptible to risks of prepayments, balance transfers to other NBFCs/Banks; this is also likely to impact the loan book growth. KHFL’s asset quality remained moderate marked by on-time portfolio of 90.88 percent and GNPA of 1.97 percent as on December 31, 2022 however, delinquencies were observed in the softer buckets. KHFL’s asset quality marginally deteriorated with the NNPA at 1.60 percent during 9MFY23. Moderate financial risk profile KHFL’s operating income (net of interest expenses) stood at Rs. 46.08 Cr. for FY2022 from Rs. 44.61 Cr. in FY2021 improving significantly from Rs. 20.49 Cr. for FY2019. Profitability metrics have moderated marked by Return on Average Assets (RoAA) at 2.11 percent as on March 31, 2022 (P.Y: 3.54 percent) & Net Interest Margin (NIM) at 7.24 percent as on March 31, 2022 (P.Y: 8.27 percent). The company reported a decline in PAT levels to Rs. 12.83 Cr in FY2022 as compared to Rs. 17.68 Cr in FY2021. The PAT stood at Rs. 4.97 Cr as on September 30, 2022. KHFL’s Operating Expenses to Earning Assets (Opex) increased to 6.64 percent (annualised) as on September 30, 2022 vis-à-vis 4.10 percent as on March 31, 2022. |
| ESG Factors Relevant for Rating |
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KIFS Housing Finance Limited (KHFL) belongs to the housing finance sector which complements banks’ efforts in improving mortgage penetration in India. Some of the material governance issues for the financial services sector are policies and practices with regard to business ethics, board diversity and independence, compensation structure for board and KMPs, role of the audit committee and shareholders’ rights. On the social aspect, some of the critical issues for the sector are the contribution to financial inclusion and community development, responsible financing including funding of environmentally friendly housing projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. KHFL maintains adequate transparency in its business ethics practices as can be inferred from the entity’s disclosures regarding related party transactions, vigil mechanism, insider trading and whistle blower policy. It also adheres to Reserve Bank of India’s Fair Practices Code and has the necessary interest rate and grievance redressal policies. The board of directors of the company comprises two independent directors and two female directors out of a total of six directors. The company works on several community development initiatives through its CSR projects.
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| Rating Sensitivity |
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| Material Covenants |
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KHFL is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality, among others. As per confirmation received from the client, the company is adhering to all terms and conditions stipulated as covenants by all its lenders/investors.
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| Liquidity Position |
| Adequate |
| The company has adequately matched asset liability profile as on December 31, 2021 with majority of the portfolio currently funded with equity. The company had liquidity of ~Rs. 68.52 Cr. as on September 30, 2021 in liquid investments and unencumbered cash and bank balances. |
| Outlook - Stable |
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Acuité believes that KHFL will benefit from its strong capitalisation levels and expected continuous support from its promoters. The outlook may be revised to ‘Positive’ in case of significant and sustainable growth in its AUM while maintaining profitability, asset quality and capitalization indicators. Conversely, the outlook will be revised to ‘Negative’ in case of any deterioration asset quality or profitability metrics.
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| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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* Total income equals to Net interest income plus other income
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| Status of non-cooperation with previous CRA (if applicable): |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Banks And Financial Institutions: https://www.acuite.in/view-rating-criteria-45.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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