Launch of Piramal Housing Finance September 2017 Launch of Piramal Housing Finance
Is there an opportunity for us to create a sizeable HFC in India? Launch of Piramal Housing Finance Page 3
Significant long term potential in housing sector in India
25% 2 Crore of 25 Crores Indian 10 Crore houses targeted in urban households currently facing houses need to get added in areas under ‘Housing for All by housing shortage next 10 years 2022’
Source : KPMG - NARDECO Report : Source : Industry Research Report Source : MHUPA, PIB Release on ‘Housing for all by 2022’, Census 2011 ‘Housing for All by 2022
30 Lac ~3 Lac houses targeted to get added houses currently added every year each year in urban areas Source : Prop Equity, Source : MHUPA, PIB Release on ‘Housing Industry Research for All by 2022 Report
Investments in excess of US$ 1 trillion are required in housing and allied industry in next 7 years Launch of Piramal Housing Finance Page 4
Strong government focus on housing sector
Low and Middle Income Group to get significantly benefited through Credit Linked Subsidy Scheme under Pradhan Mantri Awas Yojana Measures to boost Enhanced transparency and greater accountability in real estate sector due to Real housing sector in India Estate (Regulation and Development) Act will increase the confidence of new home buyers
100% tax exemption on profits from construction of affordable housing
Infrastructure status to affordable housing will ensure easier access to credit and help in reducing developers’ cost of borrowing for affordable projects
Home buyers allowed to withdraw funds from their accumulated Employee Provident Fund corpus for buying homes / pay home loan EMIs Launch of Piramal Housing Finance Page 5
Opportune time to enter housing finance India’s mortgage market is highly underpenetrated Home affordability is nearing best-in-decade 60 Denmark 114 (%) EMI as % of post-tax income UK 75 50 US 68 Singapore 56 HK 45 40 Germany 42 Taiwan 40 Mortgage to GDP ratio 30 S Korea 36 Malaysia 32 20 Thailand 20 China 18 10 India 9 (% GDP) 0 0 20 40 60 80 100 120 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Note : Mortgage penetration is based on 2015 HFCs’ access to funds is also improving…. ….and also benefits from sharp fall in funding costs Mutual Funds Insurance Funds Foreign Funds 10.0 9.7 Cost of 5Y AAA-rated bond Masala Bonds to help 9.5 Debt mutual funds can tap foreign funding 9.0 now invest up to 40% of AAA-rated HFCs through INR 8.5 assets in HFCs vs 30% excluded from sectoral denominated bonds 8.0 7.8 earlier cap for investments in 7.5 financial / insurance =>Additional Rs.600bn Strong demand 7.0 sector can be accessible to indicates good appetite
for future issuances as
Jul-15 Jul-16
HFCs Jul-14
Jan-14 Jan-15 Jan-16 Jan-17
Sep-14 Sep-15 Sep-16
Nov-14 Nov-15 Nov-16
Mar-14 Mar-15 Mar-16 Mar-17
May-15 May-16 well May-14 Source : Government, European Mortgage Federation, Asian Development Bank, EconomyWatch.com, Bloomberg, CLSA Launch of Piramal Housing Finance Page 6
Very few players in HFCs dominating the market HFCs/NBFCs growing faster than the home loan market HFCs/NBFCs market share in home loans is growing Total home loans CAGR : 16% (Rs. billion) Market share of HFC /NBFCs Home Loans (%) 37% HFCs/NBFCs loans CAGR : 21% 36% 36% Banks HFCs/NBFCs 14,405 35% 35% 12,384 10,433 8,824 33% 7,421 5,477 6,252 31%
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
PSU Banks & HFCs/NBFCs dominates home loan market However, very few sizable HFCs present in India PSU Banks HFCs & NBFCs Private Banks Foreign Banks No. of HFCs based No. of HFCs based (in Rs. Crores) on Total AUM on Retail AUM 100,000+ 2 2 Over 60% of the housing 70,000 – 100,000 2 1 finance market is dominated 2017 40,000 – 70,000 1 2 today by 4 HFCs & 3 banks 10,000 – 40,000 5 4 < 10,000 Cr 79 80 Source : Company analysis Source : NHB, RBI, ICRA Data as on 31st March 2017 Launch of Piramal Housing Finance
Business Overview Launch of Piramal Housing Finance Page 8
Business overview FY2020 Projected Segmental Mix Product offerings
Products Property type 1. Home Loan 1. Residential i. Purchase i. Under-construction Salaried ii. Improvement ii. Self-occupied 30% iii. Balance transfer iii. Vacant iv. Top Up 2. Commercial 2. Loan Against Property i. Self-occupied i. Business expansion ii. Lease Rental Self-employed ii. Balance transfer 70% iii. Top Up 3. Small Construction Finance
Key Differentiators
Leveraging the Leveraging Brickex Using technology Extending loans strong relationship (distributor base of and analytics to Customised Leveraging our beyond salaried with top developers ~10,000 agents) for provide quick innovative products understanding of class to cover the (focusing on B to B sourcing and turnaround time in to suit different micro markets self-employed to C model instead facilitating retail underwriting and types of customers segment of B to C model) housing loan disbursement Launch of Piramal Housing Finance Page 9
Target segments
Target segments Area of focus Self Employed - No income proof De-prioritize the segment
Selective sourcing based on Self employed - builder’s reputation Completed and under Selective transactions for Partial income proof construction through developer higher ticket size No DSA sourcing relationship No DSA sourcing Higher margins with selective Self Employed - Resale and balance transfer by use of syndication/down DSA (Direct Sourcing Agents) Less focus area Income proof selling
Salaried To boost growth and de-risking
Affordable Urban development Luxury
Tier I cities Our guiding principles for building the HFC Team recruitment and business practices to Creating a values driven Housing align with group values Finance business Leveraging our expertise in Real Taking selective calls for underwriting based Estate on domain expertise Stringent and standardised underwriting Following a disciplined approach and asset monitoring processes Strive for appropriate mix of retail home loans, Driving profitability through loan against property and small construction portfolio diversification finance; targeting self-employed category Technology and data analytics driven Designing systems and processes underwriting and robust operations to enable scalability management Leveraging group’s shared services Utilize group’s shared services for all non-core to achieve economies of scale and support functions Leadership team gained quality experience to Leveraging our association with target self-employed segment investee companies Launch of Piramal Housing Finance How will we grow rapidly and create a sizeable HFC? Launch of Piramal Housing Finance Page 12 How will we grow rapidly and create a sizeable HFC? Currently funding 330 projects of 104 developers in key micro-markets of Tier I cities Leveraging developer • Tapping merely a portion of the existing customer base of these developers can create a relationships • significant opportunity Brickex, an in-house distribution arm, has an access to over 10,000 distributors Leveraging Brickex • • To provide market intelligence and support in sourcing customers • Over 50% of workforce in India is self-employed Extending loans to self- • Created a proprietary set of underwriting parameters to assess the creditworthiness of employed category self-employed individuals • Strong penetration in Tier I cities; incremental growth will be largely driven by entry into Focusing on Tier II & III Tier II & III cities with Grade A developers cities • Target to open 50% of our branches in Tier II & III cities in coming years Focusing also on • Our development partners are entering into the affordable housing segment affordable housing • To selectively fund affordable housing projects of the developers with existing relationship • Tap Piramal group’s ecosystem for loan against property – regular vendors, etc. LAP, Small Construction • Target top developers (leaders in their micro markets) in Tier II & III cities for small ticket Finance Construction Finance Launch of Piramal Housing Finance Page 13 PEL has a strong presence in real estate developer financing Real Estate Developer Financing Loan Book as on 30th Jun 2017 of PEL and its peers 70,000 (Rs. Crores) 60,000 50,000 40,000 30,000 24,924 20,000 10,000 0 HDFC PEL Indiabulls Dewan PNB JM Edelweiss L&T LIC Reliance IIFL Housing Housing Housing Financial Finance Housing Capital Holdings Holdings Finance Launch of Piramal Housing Finance Page 14 Significant opportunity from existing developer relationships Top 10 cities account for ~45% of the total home loans in India; Direct access to 330 projects of 104 developers in key PEL’s developer loan book is exposed to 8 of these top 10 cities micro-markets of top tier cities of India Micro- Cities Developers Projects markets Mumbai 30 31 72 Bengaluru Mumbai - 10% Bengaluru - 8% 40 26 107 Chennai 16 15 40 Delhi - 7% Pune - 4% NCR 15 13 34 Pune 34 10 63 Chennai - 4% Hyderabad - 4% Hyderabad 2 5 6 Thane - 2% Kolkata - 2% Ahmedabad 5 3 8 Kolkata 1 1 1 Ahmedabad - 2% Ernakulam - 2% Total 143 104 330 Rest - 55% Potential home Source : Industry Research Report loan opportunity Sold Unsold Sold Value Unsold Value Total Value No. of Projects Total Units Units units (Rs. Crores) (Rs. Crores) (Rs. Crores) Total projects financed by PEL1 221 49,131 52,379 58,006 60,311 1,01,510 1,18,317 Total projects with developer 553 1,22,828 1,30,948 1,45,016 1,50,777 2,53,775 2,95,793 Note: 1. 109 projects are either funded under land acquisition stage or mezzanine lending stage where the construction has still not commenced Tapping a portion of the existing developers’ customer base can create a significant opportunity Launch of Piramal Housing Finance Page 15 Brickex is a source of differentiation for us • Brickex is India’s leading B2B aggregation platform focusing on sales & marketing of Real Estate and Financial Services products with a network of 10,000+ distributors across Tier I cities • Partner relationships include Banks, National Distributors, North and Individual Financial Advisors catering to the entire India suite of Real estate, Mortgage, Mutual fund, Insurance and other third party financial products East West India Leveraging Brickex India Large distribution network Cross-selling South India Developer relationships Capital advisory Launch of Piramal Housing Finance Page 16 Also focusing on Tier II and Tier III cities Home loan concentration of Tier I cities vis-à-vis rest of Next phase of growth to come from Tier II-III cities the state Tier I (Top 3 cities in state) Tier II & III • Targeting to open 24 branches by 2020 • 50% of branches will be in Tier II & III cities 22% 24% 36% 45% Target branch composition of Piramal HFC by FY2020 78% 76% 64% Tier I Tier II & III 55% 50% 50% Karnataka Maharashtra Tamil Nadu Andhra Pradesh Source : Industry Research Report Launch of Piramal Housing Finance Page 17 Other products in the portfolio Small Construction Finance Loan against property (LAP) To enter the market through Piramal ecosystem Focus on local developers (leaders in micro markets) in Tier I cities and ‘Grade A’ developers in Tier II & III cities to tap business opportunities for small LAP will be assessed on cash flows and not just collateral Construction Finance Primarily focus on loan against residential properties Leveraging Brickex for market insights and sourcing • No LAP for under-construction properties Construction Finance Loan book (Rs. Crs) % of Real Estate Loan book Specialised underwriting cell for self-employed Our track record 60% customers in building 60% Construction Finance (large Valuation process will also be validated based on market ticket size) 47% 7% intelligence through Brickex portfolio 318 5,298 12,688 15,046 FY15 FY16 FY17 Q1 FY18 Launch of Piramal Housing Finance How will we keep our costs under control? Launch of Piramal Housing Finance Page 19 How will we keep our costs under control? • Hub-based underwriting to ensure consistency in decision making, better control and ease to Hub and spoke model adapt for future • Branch light model to enable scalability with optimum cost to income ratio Common team across Better team utilization and tighter control credit & disbursement • operations • More scalable and cross-skilled operations across sanction & disbursement at hub • Reduced costs and improved ability to scale by leveraging latest innovative solution providers like Fintechs, etc. Technology • Transparency on application status and quick turnaround time (TAT) in underwriting and disbursement resulting in enhanced customer experience Leveraging group • Ability to manage non-core activities with greater efficiency shared services • Greater economies of scale • B to B to C model will enable significant sourcing from developers resulting in lower cost Sourcing from compared with sourcing from DSAs, connectors, etc . developers and Brickex • Properties sold through Brickex network will be referred to our HFC for loans – low cost of sourcing Launch of Piramal Housing Finance Page 20 Hub and Spoke operating model Builder office Branch 1 DSA Central Regional Hub Sales Team Office Customer location Branch 2 Verification agencies Outsourced contact centre Online/web (Legal, technical, Fraud (Inbound & outbound Control Unit) calling) Document management Launch of Piramal Housing Finance Page 21 Adequately staffed with quality bench strength 150 900 Team as on Sept Target headcount by 2017 2020 • Key management personnel onboard : In-house hiring + externally across 6 key market players Piramal housing finance to National Sales Head IT Head leverage group’s shared services National Credit Head Chief Manager – Risk for some of the non-core functions National Operations Head Zonal Sales Head like : Legal – Head Zonal Credit Head • Vendor bill processing CFO Zonal Operations Head • Employee / DSA / Connector Head – Construction Finance incentive working & pay-outs • Hiring at other levels done from multiple leading Banks, NBFCs and HFCs • Tax payments, GST processes & regulatory return filing • Hiring done via completing psychometric assessment, multi level interviews, • Employee salary processing informal and formal reference checks, diverse mix of companies, etc. Launch of Piramal Housing Finance Page 22 Using innovative solutions to bring in process efficiencies Agile Tech • Concept to ‘Go-Live’ in under 6 months development • Customized features catering to typical pain points in mortgage loan cycle Customer On- • Aadhaar based applicant authentication/verification boarding • Mobile based information capture • Digital modes of capturing and analysing customer financials Underwriting • Online check on legal/ litigation history of the applicant • System driven and rule-based credit underwriting • Digital tracking of application and document status Operations • Use of e-cheque, e-mandate and UPI* for EMI collection Leveraging Fintechs in our technology roadmap To reduce turnaround time – a significant competitive advantage *Unified Payment Interface Launch of Piramal Housing Finance How are we going to keep the asset quality under control? Launch of Piramal Housing Finance Risk management framework Specialised underwriters Independent sales, risk, for self employed / Cap driven portfolio credit, collection and legal affordable housing; (property exposure, teams to ensure there is no scorecards and tools based program, single party bias on data and analytics to flag exposure, etc) alerts for underwriters Usage of analytics & bureau insights for setting Portfolio quality to be an Enterprise risk framework up credit policy framework integral part of sales teams using tech enabled real time and for early warning KRAs and incentives data gathering signals Brickex provides high External experts to quality market intelligence Regular site visits, independently assess the for underwriting interaction with local quality of the transactions, transactions with realistic developers, etc. systems and processes prices and sales velocity. Leveraging the strengths of existing risk management framework to ensure superior asset quality Launch of Piramal Housing Finance How have we performed earlier? Launch of Piramal Housing Finance Page 26 Built a robust and scalable financial services platform Rapidly growing financial services portfolio1 (in Rs. Crores) 4,583 Asset Management 2,3 Loan Book Investment in Shriram 4,583 4,583 28,648 24,400 4,583 13,048 1,636 4,766 2,861 2,016 8,441 8,717 350 7,569 7,160 6,727 3,800 3,857 4,257 1,280 1,865 1,865 1,865 2,787 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Q1 FY18 Notes: 1. Excludes our investment in Vodafone India, which was exited during FY2015 2. Exits from Asset Management business have been included on calendar year basis 3. AUM from FY2006 to FY2011 represents INDIAREIT numbers Launch of Piramal Housing Finance Page 27 Consistently delivering exceptional performance quarter after quarter Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY15 FY16 FY16 FY16 FY16 FY17 FY17 FY17 FY17 FY18 Loan book growth (%) 67% 138% 150% 181% 174% 112% 113% 105% 87% 79% GNPA ratio % 1.9% 1.5% 1.1% 1.2% 0.9% 0.6% 0.4% 0.5% 0.4% 0.2% RoE% 21% 25%+ 25%+ 25%+ 25%+ 25%+ 25%+ 25%+ 25%+ 25%+ Launch of Piramal Housing Finance Page 28 Performing better than the best performing banks and NBFCs of India 30% X-axis : FY2017 Gross NPA Ratio (%) Y-axis : FY2017 RoE (%) Size of the circle : FY2017 Loan book growth (%) PEL 27% PEL’s Financial Services business Banks & NBFCs 24% (%) 21% RoE 18% FY2017 FY2017 15% 12% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% FY2017 Gross NPA ratio (%) Note: Banks and NBFCs includes Bajaj Finance, HDFC Ltd, Indiabulls Housing Finance, HDFC Bank, Kotak Bank, IndusInd Bank and Yes Bank Launch of Piramal Housing Finance How will we generate healthy RoE? Launch of Piramal Housing Finance Page 30 Levers for generating healthy RoE Focus on self-employed segment Entry in Tier II & Tier III cities with top developers Diversification and expected rating upgrade will improve leveraging capability and reduce cost of borrowings, enhancing RoE for overall Financial Services Suitable portfolio mix : Home loans, Small Construction Finance and LAP Technology enabled processes and hub and spoke model to reduce costs Sourcing from developers, Brickex and Direct Sales Team to reduce costs Securitization to enhance returns Leveraging group’s shared services to reduce cost Expected to continue to deliver an RoE of 20%+ in overall Financial Services business Launch of Piramal Housing Finance For Investors : Hitesh Dhaddha Email : [email protected] Phone : +91 22 3046 6444 Bhavna Sinyal Email : [email protected] Phone : +91 22 3046 6570