Healthy operational indicators

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. 410.64 Cr. as of December 31, 2022. 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. 410.64 Cr. as on December 31, 2022 includes off balance sheet exposures in the form of direct assignment portfolio comprising ~28.11 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 and profitability measures. The company reported Gross Non-Performing Assets (GNPA) of 2.12 percent and NNPA of 1.48 percent as on December 31, 2022. 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. The low delinquency levels have enabled the company to maintain healthy profitability metrics. MHIL has sustained Net interest margins of 12.04 percent (annualized) in 9MFY23 as against 10.24 percent in FY2022. The company reported Return on Average Assets (ROAA) of 4.39 percent for 9MFY23 (3.74 percent in FY2022).
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 92.33 percent as on December 31, 2022 as against 82.95 percent as on March 31, 2022. Of the overall CAR as on December 31, 2022, Tier I CAR stood at 82.24 percent and Tier II CAR stood 10.09 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. 148.91 Cr. as on December 31, 2022 and Rs. 136.54 Cr. as on March 31, 2022. The networth improved on the back of healthy internal accruals.
The company had relied mainly on bank lines to support its business growth however, during FY2021 and FY2022, the company has relied on direct assignment transactions to sustain its AUM. The company reported gearing of 1.25 times as on December 31, 2022 from 1.79 times as on March 31, 2022. 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.
 

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 76 percent of MHIL’s portfolio as on December 31, 2022 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 FY2022  stood at Rs. 71.92 Cr. as compared to Rs. 47.74 Cr. in 9MFY23. 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.