ICRA downgrades Religare Housing Developments Finance's long-term rating and reaffirms short-term rating; Stock up ~1%

6 Apr 2022 , 10:18 AM

ICRA has revised the long-term bank lines rating and reaffirmed the short-term bank lines rating of Religare Housing Developments Finance Corporation Limited (RHDFCL), step down subsidiary company of Religare Enterprises Limited.

The rating on long-term / short-term bank lines Rs1,200 crore ICRA B+ (Negative) / ICRA A4; long-term rating downgraded from ICRA BB and short-term rating reaffirmed; removed from rating Watch with Negative Implications. Short-term Debt Programme Rs100 crore ICRA A4; reaffirmed and removed Programme rating Watch with Negative Implications.

At around 10.15 am, Religare Enterprises Ltd was trading at Rs139 per share up by Rs1.25 or 0.91% from its previous closing of Rs137.75 per share on the BSE.

“The downgrade in the long-term rating of Religare Housing Development Finance Corporation Limited (RHDFCL) factors in its reduced financial flexibility due to the longer-than-expected delay in the implementation of the Debt Resolution Plan (DRP) of Religare Finvest Limited (RFL). RHDFCL is an 87.5% subsidiary of RFL (rated [ICRA]D), which, in turn, is a wholly-owned subsidiary of Religare Enterprises Limited (REL),” company shared ICRA’s rating rationale.

It added, that the delay in the implementation of the DRP at the RFL level has significantly impacted RHDFCL’s fund flow and has consequently inhibited new business growth for the company. RHDFCL’s loan book RHDFCL has declined continuously and stood at Rs368 crore as on December 31, 2021 (Rs452 crore as on March 31, 2021).

Consequently, the asset quality indicators have deteriorated with gross non-performing advances (GNPAs) of 16.7% as on December 31, 2021 (10.6% as on March 31, 2021). Increase in absolute number of GNPA is on account of the clarification by the Reserve Bank of India (RBI) on IRAC norms vide its circular dated November 12, 2021. RBI has provided NBFCs time till September 2022 to augment the required systems and controls for implementing its instruction on NPA upgradation vide its circular dated February 15, 2022. Gross NPAs would have been at Rs41.3 crore as on December 31, 2021 as against Rs61.3 crore (Rs48.5 crore as on March 31, 2021) adjusting for the impact of the November 2021 circular.

The ratings also factor in the moderate profitability indicators with a return on average assets (RoA) of 0.1% for 9MFY22 and 1.6% for FY21 due to the high credit cost of 1.4% in 9MFY22 and 0.4% in FY21. While collections have been good in the past few months, supported by prepayments and foreclosures, the asset quality profile is expected to remain under pressure over the medium term given the increasing challenges in the operating environment and the reducing denominator.

In past, the company has repaid all the debt obligations on/before time using the inflow from the loan book and liquidity raised through loan sell downs.

An improvement in RHDFCL’s credit profile remains contingent on the timely implementation of RFL’s DRP and RHDFCL’s subsequent ability to resume business operations while maintaining its asset quality. At the same time, a longer-than-expected delay in the implementation of the DRP and hence the subsequent resumption of funding lines for RHDFCL can put further pressure on its already stretched liquidity profile.