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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 155.00 | ACUITE BBB | Negative | Reaffirmed | Stable to Negative | - |
| Non Convertible Debentures (NCD) | 10.00 | Not Applicable | Withdrawn | - |
| Total Outstanding | 155.00 | - | - |
| Total Withdrawn | 10.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) on the Rs. 155.00 Cr. bank facilities of Mentor Home Loans India Limited (MHIL). The outlook has been revised from 'Stable' to ‘Negative’.
Acuité has withdrawn its long-term rating on the Rs. 10.00 Cr. Non-convertible debentures of Mentor Home Loans India Limited (MHIL) without assigning any rating as it is a proposed facility. The withdrawal is on account of request received from client and in accordance with Acuite's policy on withdrawal of rating as applicable to the respective facility / instrument. Rationale for the rating The revision in outlook is on account of sequential deterioration in MHIL’s scale of operations and in profitability metrics. The company’s on-book AUM deteriorated at Rs. 256.66 crore as on Dec 31, 2023 as against Rs 282.40 crore as on March 31, 2023 and Rs 319.03 Cr. as on March 31 2022. The overall AUM declined from Rs 457.11 Cr. in FY2021 to Rs 408.34 Cr. in FY 2024 (provisional) of which ~90 percent of off book exposure is towards direct assignments. The PAT moderated to Rs 9.07 Cr. in 9MFY2024 as against Rs 12.37 Cr. in 9MFY2023. However, the PAT marginally improved though remaining moderate for FY2024(provisional) to Rs 12.07 Cr. as against Rs 11.68 Cr. in FY23 and Rs 16.26 Cr. in FY2022. The rating is further constrained due to the ongoing dispute amongst the promoters which has impacted the business growth & resources raising in the company over the last few years. Over the last few years, the company’s disbursals have declined from Rs. 107 Cr. during FY2020 to Rs. 72.74 Cr. during FY2023 (Rs. 44.95 Cr. during 9MFY23) owing to challenges in resource raising from financial institutions. Consequently, there has been a decline in the overall AUM and profits. The rating is further constrained by the relatively small scale of operations and geographical concentration of the loan portfolio with ~74 percent POS in Rajasthan. The rating continues to factor in MHIL’s experienced promoter and management team, as well as its adequate capitalisation & liquidity buffers. Overall Capital Adequacy Ratio (CAR) stood at 96.20 percent as on December 31, 2023. The rating further derives strength from healthy asset quality marked by on time portfolio of 93.16 percent as on December 31, 2023. Acuité believes that an amicable resolution to the ongoing promoter dispute is a key rating monitorable for the company’s growth prospects going forward. |
| About the company |
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MHIL is a Jaipur based non-deposit taking Housing Finance Company (HFC) engaged in mortgage financing, Loans against Property (LAP) and housing loans. The company was originally established in 1995 as a Non-deposit taking Non-Banking Finance Company (NBFC) and subsequently in 2014, the company got registered as a Housing Finance Company with the National Housing Bank. The company is promoted by Mr. G. L. Goyal and is presently managed by Mr. Pawan Goyal (Managing Director), who has over two decades of experience in the financial services sector. The company has presence in Rajasthan, Madhya Pradesh, Maharashtra and Gujarat and operates through a network of 41 branches.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of MHIL to arrive at this rating. |
| Key Rating Drivers |
| Strength |
| Sound Asset Quality
MHIL, initially started its operations in 1994 as an NBFC engaged in vehicle financing and subsequently shifted to housing finance in 2014. Over the past 7 years the company has established its market position by scaling up its portfolio from Rs. 42.0 Cr. as of March 31, 2014 to Rs. 412.56 Cr. as of December 31, 2023. Its portfolio comprises mainly of retail housing loans (in affordable segment) i.e. 76 percent, the balance being LAP. The company’s AUM of Rs. 412.56 Cr. as on December 31, 2023 includes off balance sheet exposures in the form of direct assignment portfolio comprising ~28 percent of AUM. However, MHIL’s AUM has remained stagnant over the past couple of year. The company’s operations are mostly concentrated around Rajasthan with around 74 percent of the loan book originated from Rajasthan. Besides Rajasthan, the company has presence in other states like Gujarat, Madhya Pradesh & Maharashtra. It operates through a network of 41 branches spread across these four states. While Rajasthan continues to be a major market for MHIL, its entry into other states will gradually de-risk its portfolio from geographical concentration risk. MHIL’s operations are overseen by Mr. Pawan Goyal, Managing Director, along with support from professionals in various verticals. MHIL has reported decline in loan portfolio while maintaining asset quality. The company reported Gross Non-Performing Assets (GNPA) of 1.89 percent and NNPA of 1.41 percent as on December 31, 2023. The company has adopted prudent lending practices as reflected in its average Loan to Value (LTV) ratio, it has maintained LTV ratio up to 50 percent in its overall portfolio. MHIL’s borrower profile constitutes exposure of ~60 percent to self-employed borrowers and remaining to salaried borrowers. The cash flows of these borrowers especially in the self- employed category are linked to the economic activities in the region. MHIL’s portfolio has however, declined as the company is raising funds only through direct assignment transactions as lenders have taken a cautious approach in sanctioning fresh loans with regards to on-going family feud. Acuite believes that MHIL’s ability to raise and deploy the funds profitably while maintaining its asset quality will be key rating monitrable. Adequate Capitalisation MHIL’s capitalization remained comfortable with overall Capital Adequacy Ratio (CAR) of 96.20 percent as on December 31, 2023 as against 91.74 percent as on March 31, 2023. Of the overall CAR as on December 31, 2023, Tier I CAR stood at 88.94 percent and Tier II CAR stood 12.88 percent. The improvement in CAR was majorly on account of reduction in risk weighted assets due to declining on-book loan portfolio. MHIL has a net worth of Rs. 157.30 Cr. as on December 31, 2023 and Rs. 148.22 Cr. as on March 31, 2023. The networth improved on the back of healthy internal accruals. The company had relied mainly on bank lines to support its business growth however, since FY2021, the company has relied on direct assignment transactions to sustain its AUM. The company reported gearing of 0.81 times as on December 31, 2023 from 1.15 times as on March 31, 2023. Debt comprises mostly term loans and cash credit availed from Banks & NBFC/FI. Besides term loans & re-finance from NHB which contribute majorly portion of debt funding company also has cash credit limit and has raised funds through NCDs (comprises 1 percent of borrowings). Acuité believes that the MHIL is adequately capitalized to support its growth prospects for over near to medium term |
| Weakness |
| Disputes in the promoter family
MHIL is a family run NBFC, promoted by Mr. G. L. Goyal. The day to day operations of the company were managed by his sons, Mr. Pawan Goyal and Mr. Basant Goyal. Post a family feud, Mr. Basant Goyal, (a member of the promoter family), who was earlier associated with MHIL as an Executive director, has stepped down from his executive role, though he still continues on the Board of the company. Mr. Pawan Goyal, is presently in charge of the day to day operations. The promoter dispute is currently sub judice and is being represented in National Company Law Tribunal (NCLT). The management has inducted professionals from the industry to oversee key functions which were earlier handled by Mr. Basant Goyal. The ability of the new management to maintain the key operating parameters, post these operational level developments is to be examined. Acuité believes that the efficacy of the company to maintain its operating performance and financial flexibility under these circumstances will remain a key rating monitorable. Susceptibility of operating performance to the overall operating environment MHIL’s key product offerings are spread across financing through home loans in the affordable housing segment and Loan against property (LAP). Around 75 percent of MHIL’s portfolio as on December 31, 2023 accounts for home loans while remaining comprises of LAP portfolio. Majority of the MHIL’s borrowers comprise of self-employed individuals including small traders, retailers, businessmen and other local small business operators. MHIL’s overall credit profile is also susceptible to concentration of portfolio in Rajasthan, hence, the serviceability of these loans is directly dependent on the level of economic activity in the region. While on one hand, MHIL could face asset side challenges w.r.t asset quality, MHIL also faces challenges in raising fresh long-term funding. The overtly cautious and selective approach adopted by lenders and management dissent has led to lower availability of fresh funding for MHIL. The increasing challenges in the operating environment has further made it difficult to raise fresh long-term funding. Amidst such a challenging financing environment, companies like MHIL, with dissension in management, are likely to face challenges in terms of their funding. MHIL has, in this period, adopted to means like raising finances through sale of pool through direct assignment route. Further the thrust of regulator in the affordable housing segment, has led to various large number of players entering the affordable housing finance segment. These players offer similar products at competitive rates which has led to increased choice for customers. Acuite believes that the company will benefit from the expected buoyancy in demand for affordable housing segment once the economic climate in the country stabilises and MHIL’s ability to benefit from the growth in demand for affordable housing. MHIL’s disbursement for FY2023 stood at Rs. 72.74 Cr. as compared to Rs. 44.95 Cr. in 9MFY24. Sustainability of growth of this segment remains a key monitorable. Acuité believes that MHIL‘s ability to raise long term funding at competitive rates to augment its growth in a challenging operating environment while maintaining its asset quality and keeping its opex at optimal levels will be a key rating monitorable. |
| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
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MHIL has adequately matched asset liability profile as per ALM statement dated December 31, 2023. As on December 31, 2023 MHIL had cash & cash equivalents of Rs. 29.22 Cr. The debt servicing obligations due over the period of 1 year is ~Rs. 70 Cr. The company also avails cash credit facilities from Banks and has down sold its assets mainly through direct assignment transactions.
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| Outlook: Negative |
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Acuite believes that MHIL’s credit profile will maintain a ‘Negative’ outlook on account of degrowth in AUM and decline in operating performance. The outlook may be revised to ‘Stable’ in case MHIL is able to demonstrate a significant improvement in the AUM and operating performance. The rating may be downgraded if the company faces challenges in raising long term debt and scaling of operation while maintaining asset quality and profitability matrix.
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| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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| Status of non-cooperation with previous CRA (if applicable): |
| Not applicable |
| 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 • 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 |
| 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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