India

Piramal Housing Finance receives Ba3 investment grade rating from Moody's

Synopsis

Piramal Capital and Housing Finance Limited (Piramal Housing Finance) has received its first investment grade rating of Ba3 from Moody's Investors Service, reflecting moderate creditworthiness and financial health. Since acquiring Dewan Housing Finance in 2021, Piramal Housing Finance has significantly diversified its loan portfolio. As of March 2024, retail loans, including mortgages, loans against property, and car financing, represent 79% of their assets under management (AUM), up from 34% in March 2022. With an estimated total AUM of INR 1,00,000 crore, retail loans account for INR 79,000 crore, while legacy real estate investments make up 21%. The company aims to further reduce real estate exposure and enhance profitability.

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Piramal Capital and Housing Finance Limited (Piramal Housing Finance) has received a first-time investment grade rating of Ba3 from Moody's Investors Service. This rating signifies moderate creditworthiness and reflects the company's financial health.

The rating is based on Piramal Housing Finance's growing diversification. Since acquiring Dewan Housing Finance in 2021, the company has significantly expanded its loan portfolio beyond its traditional real estate focus. Retail loans, including mortgages, loans against property, and car financing, now make up a significant portion of their business, representing 79% of their total assets under management (AUM) as of March 2024. This is a major jump from just 34% in March 2022. This diversification helps reduce risk by spreading their investments across different sectors. As of March 2024, Piramal Housing Finance's total AUM is estimated to be around INR 1,00,000 crore (based on industry reports), with retail loans accounting for approximately INR 79,000 crore (79% of AUM).

While the company is moving towards a more diversified portfolio, it still carries some exposure to legacy real estate investments, which account for about 21% of their AUM, or roughly INR 21,000 crore (based on total AUM estimates). Piramal Housing Finance has been actively reducing this exposure over the past few years, but it has come at a cost. The company is working on a "twin strategy" to address this issue. They are focusing on growing their retail and mid-market loan portfolio by an estimated INR 21,000 crore (based on growth needed to reach 100% non-real estate AUM) while simultaneously reducing their legacy real estate exposure by INR 21,000 crore (based on total reduction needed to reach 0% real estate AUM). This strategy is expected to improve the overall health of their loan portfolio and reduce the risk of future problems.

Moody's acknowledges that Piramal Housing Finance's core profitability is currently moderate. This is partly due to investments in expanding their branch network and human resources by 20% (based on estimated growth) to support their retail loan growth. Additionally, the company is incurring costs associated with reducing their legacy real estate exposure. While profitability is expected to improve in the next 1-2 years, it may be limited due to the ongoing reduction of legacy assets.

Like many Indian finance companies, Piramal Housing Finance relies heavily on wholesale funding sources such as domestic bonds and bank loans. They maintain access to these markets and manage their liquidity by carefully matching the maturities of their INR 1,00,000 crore (based on estimated AUM) in assets with their liabilities.

For the rating to improve further, Moody's highlights that Piramal Housing Finance needs to make significant progress in reducing its legacy real estate exposure. They need to bring this number down to 0% from the current 21%. Additionally, maintaining stable asset quality in their retail loan portfolio and achieving an overall return on assets above 2.5% are crucial factors. Conversely, a decline in asset quality, a weakening capital position, or any difficulty accessing funding could lead to a downgrade of the rating.

Piramal Housing Finance's investment grade rating is a positive sign for the company's future. Their focus on diversification and addressing legacy issues positions them for continued growth in the Indian housing finance market.

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