March 25, 2021

Godrej Housing Finance Limited: [ICRA]A1+ assigned to CP programme

Summary of rating action Current Rated Amount Instrument* Rating Action (Rs. crore) Commercial paper 300.00 [ICRA]A1+; assigned

Total 300.00

*Instrument details are provided in Annexure-1

Rationale

The rating for Godrej Housing Finance Limited (GHF) derives significant support from its parentage and the continued support expected from the Godrej Group. In addition to the shared brand name, the company is also expected to benefit from the managerial support, operational synergies with the Godrej Group and also leverage on the Group’s relations with bankers/lenders. The Godrej Group has extensive experience and established presence in the sectors like consumer goods, real estate, appliances, agriculture and many other businesses and GHF would have access to the Godrej ecosystem and is expected to benefit from the group’s experience in the real estate development and related businesses. The rating also factors in its ability to raise funds at competitive rates, committed capital support and liquidity in the initial stages of operations. Currently, the majority shareholding of GHF is held by Anamudi Real Estates LLP (AREL) (rated [ICRA]A+(stable); 100% owned by Godrej family). ICRA takes note of the Groups plan to transfer majority shareholding (95%) of GHF under the ultimate parentage of Godrej Industries Limited {GIL; rated [ICRA]AA(stable)} subject to shareholders’ approval and requisite statutory approvals, including that from the Reserve Bank of India (RBI). ICRA takes note of the limited track record of the Godrej Group in the retail lending segment and GHF’s nascent stage of operations. While the company has hired seasoned industry professionals with prior experience in retail lending, GHF’s ability to grow its portfolio while maintaining control over credit underwriting and achieve adequate profitability would remain the key rating factors.

Key rating drivers and their description

Credit strengths

Management support and operational synergies with the parent group - The Godrej Group has diversified into the financial services business through GHFL which would be the entity providing housing loans. Currently, the majority shareholding of GHF (~95%) is held by AREL (100% owned by Godrej family). ICRA takes note of the Groups plan to transfer majority shareholding (95%) of GHF under the ultimate parentage of GIL subject to shareholders’ approval and requisite statutory approvals, including that from the RBI. GIL is the flagship company of the Godrej Group (Godrej group held 66.37% equity in GIL as on December 31, 2020). The rating draws comfort from the shared ‘Godrej’ brand with GHF and access to the Godrej ecosystem which includes customer base of Godrej Properties Limited (GPL) and other Godrej Group entities.

Committed capital support from the parent - The Board of Directors of GIL passed a resolution on February 12, 2020 that GIL would acquire 51.16% in Pyxis Holdings Limited (PHPL) from AREL and further increase it to 81.25%. PHPL which will function as a holding company for the financial services (including GHF) of the Group under GIL. PHPL which would be a subsidiary of GIL which in turn would hold 95% shareholding in GHF. The Godrej Group is expected to provide continued capital support for the growth of the business including an infusion of capital of ~Rs. 1000-1500 crore in the initial few years of operations. The Group has infused capital of ~Rs.121 crore in the form of equity capital (Rs. 14 crore) and compulsorily convertible preference shares (Rs. 107 crore) as on December 31, 2020. This committed capital support is likely to be adequate for the company to grow as per the business plans over the medium term.

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Ability to raise funds at competitive rates supported by group - GHF enjoys good financial flexibility, being a part of the Godrej Group, with ability to raise funds at competitive rates of interest from diverse set of lenders. As on December 31, 2020, GHF had secured sanctions of ~Rs. 175 crore from banks at competitive rates in interest. GHF’s ability to diversify its funding profile over the medium to long term would remain a key monitorable.

Credit challenges

Nascent stage of operations - The company has started its housing-finance operations in November 2020 and had a portfolio of ~Rs. 28 crore on December 31, 2020. ICRA notes its early stage of operations in the housing-finance business. GHF in its initial few years plans to primarily focus on customers of high quality developers including Godrej Properties Limited (GPL) in cities like Mumbai, Pune, Delhi and Bengaluru and would diversify to other geographies and projects of other developers with focus on salaried home buyers as target customers. Given the nascent stages of operations, the profitability indicators are likely to remain muted over the medium term till the company achieves economies of scale. In this regard, presence of strong promoters with patient capital provides comfort. GHF will face competition from banks and leading HFCs primarily while lending to the salaried borrower segment. Overall, over the long-term, the ability of the company to grow its portfolio while maintaining control over credit underwriting and achieve profitability would remain key rating factors.

Limited track record of Group in retail lending compensated by strong management team - Over the years, GIL has evolved as a holding company for the Group's new business initiatives. It has demonstrated its capability to incubate businesses and successfully tied-up joint ventures (JVs) and strategic alliances with leading global players for new businesses. The group however has limited experience in the retail lending segment. ICRA draws comfort from the experienced management team hired from the industry.

Liquidity position: Adequate

Overall liquidity profile was comfortable as on December 31, 2020 with the asset liability maturity profile of the company positive cumulative mismatches across all buckets. The company had undrawn lines of Rs. 155 crore as on December 31, 2020. Further, the promoter group is expected to provide continued capital support for the growth of the business and the parentage of the company is expected to support GHF’s financial flexibility to raise funding at competitive rates.

Rating sensitivities

Positive factors – Not applicable Negative factors – GHF’s ratings are underpinned by its importance to the Godrej Group as the primary financier of housing loans. Any significant change in the shareholding pattern of GHF or a change in the expectation of support from the Group or a deterioration in the credit profile of GIL could warrant a rating downgrade.

Analytical approach

Analytical Approach Comments

Rating Methodology for Housing Finance Companies Applicable Rating Methodologies Impact of Parent or Group Support on an Issuer’s Credit Rating ICRA expects GIL to extend financial support to GHF for the growth of the business. Both GHF and GIL also share a common name, which in ICRA’s opinion would Parent/Group Support persuade GIL to provide financial support to GHF to protect its reputation from the consequences of a Group entity’s distress. Consolidation/Standalone Standalone

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About the company

Godrej Housing Finance Limited (GHF) was incorporated in October 2018 and registered as a housing finance company (HFC) with the National Housing Bank (NHB) in October 2020. It is currently owned by the Godrej family through Anamudi Real Estates LLP (AREL). The entire shareholding of GHFL is proposed to be taken over by Godrej Industries Limited (GIL) through Pyxis Holdings Private Limited (PHPL). The company reported a net loss of Rs. 32.6 crore in 9MFY2021. The net worth stood at Rs. 67.66 crore as on December 31, 2020.

Godrej Industries Limited

A conglomerate with interests and leadership positions across diverse areas, GIL is a part of the Godrej Group. The Godrej Group held a 66.37% equity in the company as on December 31, 2020. GIL is one of the Group’s holding companies, which is involved in the oleochemicals business on a standalone basis. It has significant interests in real estate, agriculture and consumer goods (through its subsidiaries, associate companies and JV companies). As on December 31, 2020, GIL's investment portfolio stood at ~Rs. 2,639 crore (market value of listed investments remaining at ~Rs. 41,893 crore), with key investments in Godrej Consumer Products Limited (23.8% stake), Godrej Agrovet Limited (59.5% stake) and Godrej Properties Limited (a 49.4% stake). The company’s manufacturing facilities are located in Ambernath (Thane, Maharashtra), Dombivali (Thane, Maharashtra), Wadala (Mumbai) and Valia (Gujarat). GIL also generates income from its premises in Vikhroli, Mumbai, which are given out to various corporates on a leave-and-license basis. During 9M FY2021, GIL, on a standalone basis, reported a net loss of Rs. 66.1 crore on an OI of Rs. 1,308.0 crore, against a profit after tax of Rs. 30.8 crore on a OI of Rs. 1,502.5 crore in 9M FY2020. Anamudi Real Estates LLP

Anamudi Real Estate LLP is a 100% Godrej family owned entity. AREL was formed on March 12, 2014 by conversion of the erstwhile Anamudi Real Estates Limited into a Limited Liability Partnership. AREL owns 1,83,009 sq. ft of leasable area in “Godrej One” commercial property in Vikhroli, Mumbai which is leased out to corporate tenants, and 31,249 sqft of leasable area in Godrej BKC commercial property in BKC, Mumbai, of which 43% of the leasable area is leased out to retail tenants and LOI is signed for remaining 51% of the leasable area with a corporate client. Key financial indicators Godrej Housing Finance Limited (In Rs. crore) FY2019 FY2020 9MFY2021 Audited Audited Provisional Profit after Tax (Rs. Crore) -1.9 -18.8 -32.7 Net Worth (Rs. Crore) 10.1 52.3 67.7 Total Managed Portfolio (Rs. Crore) - - 27.9 Total Assets (Rs. Crore) 11.5 54.8 95.1 Gearing (times) - - 0.3 Gross stage 3 (%) - - - Net stage 3 (%) - - - Source: Company, ICRA Research; All ratios as per ICRA calculations Godrej Industries Limited (standalone) (In Rs. Crore) FY2019 FY2020 Operating income (Rs. Crore) 2,144.4 1,968.7 PAT (Rs. Crore) -101.4 30.8 OBITDA/OI (%) 19.3% 15.5% PAT/OI (%) -4.7% 1.6% Total Outside Liabilities/Tangible Net Worth (times) 2.2 2.1 Total Debt/OPBDIT (times) 7.7 9.5 Interest Coverage (times) 1.7 1.3 PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation Source: Company, ICRA Research; All ratios as per ICRA calculations

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Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for past three years

Current Rating (FY2021) Chronology of rating history for the past 3 years Amount O/s Date & Rating in Date & Rating in Date & Rating in Date & Rating Instrument Amount rated as of Dec- FY2020 FY2019 FY2018 Type (Rs. crore) 31-20 (Rs. Mar-25-21 NA NA NA crore) Commercial Paper [ICRA] 1 Short Term 300 0.00 - - - Programme A1+ Source: Company, ICRA Research Complexity level of the rated instrument

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument details Amount Current Date of Issuance ISIN Instrument Name Coupon Rate Maturity Date Rated Rating and / Sanction (Rs. crore) Outlook Commercial Paper NA NA NA 7-365 days 300 [ICRA]A1+ Programme Source: Company

Annexure-2: List of entities considered for consolidated analysis: Not applicable

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ANALYST CONTACTS Karthik Srinivasan Manushree Saggar +91 22 6114 3444 +91 124 4545 316 [email protected] [email protected]

Sandeep Sharma Deep Inder Singh +91 22 6114 3472 +91 124 4545 830 [email protected] [email protected]

RELATIONSHIP CONTACT

L. Shivakumar +91 22 6114 3406 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

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