Aviom India Housing Finance Private Limited : Rating Rationale

This article was originally posted on: https://www.crisilratings.com/mnt/winshare/Ratings/RatingList/RatingDocs/AviomIndiaHousingFinancePrivateLimited_May%2018,%202023_RR_318688.html

Download the Rating Rationale PDF from here

Rating Rationale

May 18, 2023 | Mumbai

Aviom India Housing Finance Private Limited

Rating upgraded to ‘CRISIL BBB+/Stable’; Rated amount enhanced for Bank Debt

Rating Action

Total Bank Loan Facilities Rated Rs.125 Crore (Enhanced from Rs.25 Crore)
Long Term Rating CRISIL BBB+/Stable (Upgraded from ‘CRISIL BBB/Stable’)

Rs.62 Crore Non Convertible Debentures CRISIL BBB+/Stable (Upgraded from ‘CRISIL BBB/Stable’)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities and non-convertible debentures of Aviom India Housing Finance Private Limited (Aviom) to ‘CRISIL BBB+/Stable’ from ‘CRISIL BBB/Stable’.

The upgrade is driven by the company’s demonstrated ability to scale up assets under management (AUM) backed by steady fund raising, and to leverage its balance sheet while maintaining profitability. These strengths are partially offset by limited seasoning of the portfolio due to modest track record of operations.

Aviom grew its AUM to Rs 1,035 crore as on March 31, 2023, from Rs 725 crore a year earlier and Rs 461 crore as on March 31, 2021. The growth has been supported both by capital and external debt from development financial institutions, banks and non-banking financial companies (NBFCs). The company has raised Rs 256 crore from its promoter and impact investors till date with the latest infusion of ~Rs 100 crore by Nuveen Alternatives Advisors LLC (Nuveen) and ~Rs 22 crore by the promoter in fiscal 2023. Borrowings amounting to Rs 586 crore were raised in fiscal 2023, against Rs 421 crore in fiscal 2022.

Aviom extends home loans (71% of AUM as on March 31, 2023) and loans against property (LAP) (29%) to low-income women borrowers in Tier II and Tier III towns. The company has been profitable since fiscal 2022 and generated profit after tax (PAT) of ~Rs 16 crore for fiscal 2023[1]. The balance sheet is moderately leveraged as indicated by weighted average cost of funds of 12.6% and gearing of 3.2 times as on March 31, 2023. Ability to mobilise resources at competitive rates will support net interest margin.

As the company’s loan book seasons, asset quality will be key monitorable.

[1] Provisional estimates

Analytical Approach

CRISIL Ratings has analysed the standalone business and financial risk profiles of Aviom.

Key Rating Drivers & Detailed Description

Strengths:

Capitalisation supported by steady capital raised since inception:

Networth increased to Rs 289 crore as on March 31, 2023, from Rs 153 crore as on March 31, 2022. The networth is supported by steady capital raised since inception from impact investors such as Gojo and Company Inc, SABRE Partners AIF Trust, Capital 4 Development Asia Fund Cooperative UA, Teachers Insurance and Annuity Association of America (TIAA) managed by Nuveen. Aviom has raised Rs 256 crore through equity and compulsory convertible preference shares so far, with Rs 122 crore infused in fiscal 2023.

In fiscal 2023, the company signed a definitive term sheet with TIAA, an American investment manager, for a commitment of Rs 250 crore which is a combination of primary (Rs 175 crore) and secondary (Rs 75 crore) capital infusion. Of this, Rs 100 crore was infused in fiscal 2023 and Rs 75 crore primary and Rs 75 crore secondary infusion is subject to regulatory approval which is expected by the first half of fiscal 2024.

As on March 31, 2023, on a fully diluted basis, the promoter Ms Kajal Ilmi and her family members held 33.09% stake in Aviom, with the other key stakeholders being Gojo and Company Inc (33.39%), Nuveen (14.46%), SABRE Partners AIF Trust (10.95%), Capital 4 Development Asia Fund Cooperative UA (6.35%). The balance is held by the friends and family members of the promoter.

The recent capital raise helped moderate leverage to 3.2 times as on March 31, 2023 (provisional) from 4.4 times as on March 31, 2022. On a steady state basis, the leverage should remain below 5 times over the medium term. CRISIL Ratings believes Aviom has adequate capitalisation to support its medium-term growth strategy.

Access to diverse lenders across financial institutions:

Aviom has mobilised funds from ~55 financiers, including NBFCs/housing finance companies (HFCs) (43% of borrowings), private/public sector banks and small finance banks (23%), development financial institutions/impact financiers (31%) and NHB (2%) and others. Considering its scale of operations, the number of lending relationships is fairly diversified. The company has relationships with large private and public sector banks, and the management aims to increase relationships with banks for competitive pricing and larger tenure. The company is also exploring direct assignment avenues, which could serve as an additional funding source.

Weaknesses:

Vulnerability of the borrower segment; asset quality yet to reach steady state

Aviom reported gross non-performing assets (GNPAs) of 0.49% as on March 31, 2023 (0.35% as on March 31, 2022). On a two-year lagged basis, GNPAs were at 1.07% as on March 31, 2023 (1.01% a year earlier), and the company has not offered any restructuring to its borrowers.

A significant portion of the loan book (70% as on March 31, 2023) has been originated 2021 onwards. Therefore, asset quality will need to be monitored as the portfolio seasons. Ability to successfully manage collections and recovery over a sustained period in this borrower segment will need to be seen.

Aviom mainly provides secured loans to microfinance borrowers, which is a relatively new borrower segment for an HFC. The borrowers are self-employed or salaried individuals in informal sectors, with incomes ranging from Rs 15,000-45,000. They are vulnerable to cash flow fluctuations and have limited access to liquidity during any exigency.

Aviom has comprehensive policies to safequard its portfolio and has capped key credit metrics such as LTV (loan-to-value), debt burden ratio, and loan ticket size. CRISIL Ratings expects the steady state asset quality to improve as the portfolio seasons and this will remain a key monitorable.

Nascent business operations; earnings to stabilise with operating leverage

Aviom started operations in August 2016 and has grown its AUM to Rs 1,035 crore as on March 31, 2023, from Rs 725 crore as on March 31, 2022 (Rs 461 crore as on March 31, 2021, and Rs 242 crore as on March 31, 2020). The tenure of loans is typically around seven years, and a complete cycle is yet to be witnessed for a large part of the book. Therefore, asset quality is yet to reach steady-state level and thus, credit cost may inch up.

Aviom has been able to risk-price its loans, given the vulnerable borrower base, which is reflected in healthy net interest margin of 8.2% and 7.1% for fiscals 2023 and 2022, respectively. Operating expense to average asset ratio rose to 9.3% in fiscal 2023 from 8.7% in fiscal 2022 due to expansion in the number of branches towards the end of fiscal 2023. However, with a branch breaking even in 8-10 months by achieving AUM of Rs 3.0-3.5 crore, operating efficiency will come into play as business scales up. Return on average assets was 1.4% for fiscal 2023 against 1.7% for fiscal 2022. Ability to improve earnings while absorbing higher-steady state credit costs will need to be demonstrated over time.

Liquidity: Adequate

As on March 31, 2023, the asset liability maturity profile had positive cumulative mismatches in up to 5-month buckets. The company had liquidity of Rs 143 crore in the form of cash and bank balances as on that date, sufficient to cover maturing debt obligations for more than five months. As an internal policy, the company maintains on-balance sheet liquidity to cover one month of debt, operating expenses and disbursements.

Outlook: Stable

Aviom will maintain adequate capitalisation over the medium term with steady growth in the AUM. Ability to maintain asset quality and improve earnings as the loan book seasons will be a key monitorable

Rating Sensitivity factors

Upward factors

Substantial scale up in franchise with stable asset quality on a steady state basis
Comfortable profitability with return on assets above 2% on a sustained basis

Downward factors

Steady state leverage rising beyond 6 times
Significant and sustained weakening of asset quality

About the Company

Incorporated in February 2016, Aviom is a Delhi-based HFC, which provides home loans and LAP. It began operations in August 2016 on receipt of its HFC license. The company had a wide network of 117 branches as on March 31, 2023.

Aviom is led by Ms Kajal Ilmi, who has experience of over two decades in real estate and housing. As on March 31, 2023, Ms Kajal Ilmi and her family members held 33.39% stake in the company on a fully diluted basis. Gojo and Company Inc, SABRE Partners AIF Trust, Capital 4 Development Asia Fund Cooperative UA and TIAA are the other key shareholders.

AUM grew to Rs 1,035 crore as on March 31, 2023, from Rs 725 crore as on March 31, 2022. The company reported PAT of ~Rs 16 crore (provisional) and total income (net of interest expense) of Rs 125.7 crore for fiscal 2023, against Rs 12.17 crore and Rs 85.5 crore, respectively, for fiscal 2022.

Key Financial Indicators

^Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the ‘Annexure – Details of Instrument’ in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities – including those that are yet to be placed – based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure – Details of Instrument(s) ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity levels Rating assigned with outlook INE0E2307146 Non-convertible debentures 29-Jul-22 12.2902% 29-Jan-26 31 Simple CRISIL BBB+/Stable INE0E2307138 Non-convertible debentures 21-Jul-22 12.2428% 21-Jul-27 31 Complex CRISIL BBB+/Stable NA Term loan 14-Jul-22 9.90% 30-Jul-29 25 NA CRISIL BBB+/Stable NA Proposed Long Term Bank Loan Facility NA NA NA 100 NA CRISIL BBB+/Stable

Annexure – Rating History for last 3 Years Current 2023 (History) 2022 2021 2020 Start of 2020 Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating Fund Based Facilities LT 125.0 CRISIL BBB+/Stable — 27-07-22 CRISIL BBB/Stable — — — — — 23-06-22 CRISIL BBB/Stable — — — — — 14-06-22 CRISIL BBB/Stable — — — Non Convertible Debentures LT 62.0 CRISIL BBB+/Stable — 27-07-22 CRISIL BBB/Stable — — — — — 23-06-22 CRISIL BBB/Stable — — — All amounts are in Rs.Cr.

Annexure – Details of Bank Lenders & Facilities Facility Amount (Rs.Crore) Name of Lender Rating Proposed Long Term Bank Loan Facility 100 Not Applicable CRISIL BBB+/Stable Term Loan 25 State Bank of India CRISIL BBB+/Stable This Annexure has been updated on 18-May-2023 in line with the lender-wise facility details as on 10-Jun-2022 received from the rated entity.

Criteria Details

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).

CRISIL Ratings Limited (‘CRISIL Ratings’) is a wholly-owned subsidiary of CRISIL Limited (‘CRISIL’). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”).

For more information, visit www.crisilratings.com

About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better.

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, “Guidelines for Issue and Listing of Structured Products/Market Linked Debentures”. The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings’ use of ‘PP-MLD’ please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html