IIFL Home Tranche-I NCD issue review - (May apply)

• This is the maiden offer from IIFL Home, an IIFL group company.
• Except for a minor setback for FY20, it has fared well.
• The offer is rated CRISIL/AA stable and BWR/AA+ stable.
• This offer has only long tenure unsecured instrument.

ABOUT COMPANY:

IIFL Home Finance Ltd. (IHFL) is a part of IIFL group and is a retail focused housing finance company with main focus on providing loans to first time home buyers in the EWS and LIG segment in the suburbs of Tier 1 cities, Tier 2 cities and Tier 3 cities in India where the collateral is a proposed self-occupied residential property. The company serves salaried and self-employed customers who account for 44.37% and 55.63% of its AUM as of March 31, 2021, respectively. IHFL has served over 141,000 customers as of March 31, 2021.

It offers customers a range of mortgage-related loan products, including (i) housing loans, for purchase of ready built residential units, under construction property by approved builders, self-construction, home improvement on pre-owned property and purchase of land for construction of residential property; (ii) secured business loans, for primarily meeting working capital requirement, business use and purchase of commercial property; and (iii) affordable housing project loans, to meet construction expenses of affordable housing projects of reputed developers. Housing loans, secured business loans and affordable housing project loans contribute 69.78%, 26.00% and 4.22% of its AUM, as of March 31, 2021, respectively.

IHFL's AUM has increased from Rs. 9769.32 cr. as of March 31, 2017 to Rs. 20693.69 cr. as of March 31, 2021, at a CAGR of 20.64%. Its cost to Income Ratio has decreased from 49.64% for Fiscal 2017 to 22.32% for Fiscal 2021. As of March 31, 2021, its Gross NPA expressed as a percentage of AUM was 1.72% and Net NPA expressed as a percentage of AUM was 1.20%.

The company has a widespread network of 125 branches in 16 states and one union territory as of March 31, 2021. Most of its branches are located in the suburbs of Tier 1 cities, Tier 2 cities and Tier 3 cities which offer significant opportunities in affordable housing segment that is relatively untapped by bigger players in the home loan market. IHFL's focus states include Gujarat, Andhra Pradesh, Telangana, Madhya Pradesh, Karnataka, Rajasthan, Maharashtra and Punjab.

ISSUE DETAILS:

The company is coming out with its maiden debt offer under Tranche-I with a base size of Rs. 100 cr. with an option to retain oversubscription to the tune of Rs. 900 cr. making the overall issue size of Rs. 1000 cr. The company will be issuing Unsecured subordinated redeemable non-convertible debentures of the face value of Rs. 1000 each. The issue opens for subscription on July 06, 2021 and will close on or before July 28, 2021. Post allotment, NCDs will be listed on BSE and NSE. IHFL has an in-all shelf limit of Rs. 5000 cr. for this offer. The company will be spending around Rs. 31 cr. for mobilizing Rs. 1000 cr.

Minimum application is to be made for 10 NCDs (i.e. Rs. 10000.00) and in multiple of 1 NCD (i.e. Rs. 1000.00) thereon, thereafter. IHFL has allocated 10% for Institutions, 10% for Non-institutions, 40% for HNIs and 40% for retail investors.

The issue is jointly lead managed by Edelweiss Financial Services Ltd., IIFL Securities Ltd., ICICI Securities Ltd., Trust Investment Advisors Pvt. Ltd., Equirus Capital Pvt. Ltd., Catalysts

Trusteeship Ltd. is the debenture trustee while Link Intime India Pvt. Ltd. is the registrar to the issue.

These NCDs are rated as CRISIL/AA Stable by CRISIL Ratings Ltd. and BWR/ AA+/Stable by Brick Work Ratings India Pvt. Ltd. The aforesaid rating indicates that instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations and carry very low credit risk.

This NCD carries coupon rates ranging from 9.60% to 10.50% p.a., and having interest payment mode of Monthly, Annually or Cumulative as per the preference of investors. The only tenure for these NCDs will be 87 months. Thus it's a long term investment debt offer for Unsecured instruments.

IHFL will use up to 75% of the net proceeds for onward lending, financing and for repayment/prepayment of principal and interest of existing borrowings and 25% for general corporate purposes.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, IHFL has posted total income/net profit of Rs. 1846.11 cr. / Rs. 306.39 cr. (FY19), Rs. 1803.02 cr. / Rs. 244.92 cr. (FY20) and Rs. 2067.75 cr. / Rs. 401.10. Cr. (FY21). It suffered a minor setback for FY20.

IHFL's current debt equity ratio of 6.06 (as of March 31, 2021) will stand enhanced to 8.39 post this entire issue of Rs. 5k cr.