FEB 2021 Wonder Home Finance Limited

FEB 2021

Wonder Home Finance Limited Ratings Amount Facilities Ratings1 Rating Action (Rs. crore) CARE BBB+; Stable Long Term Instruments- Non- 57.00 [Triple B Plus; Outlook: Assigned Convertible Debentures (NCD) Stable] 57.00 Total Facilities (Rupees Fifty-Seven Crore only) Details of facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The rating assigned to the proposed non-convertible debenture issue of Wonder Home Finance Limited (WHFL) takes into account its improved operating performance and healthy collection efficiency despite Covid-19 outbreak, geographical expansion of operations to three states and expansion of resource base with sanctions from various banks and financial institutions. The rating continues to derive strength from resourceful promoters with common shareholding, logo and brand name with the flag-ship company of the group; Wonder Cement Ltd (rated CARE AA-; Stable/CARE A1+) and vast experience of WHFL’s key management personnel in retail finance business. Ratings continue to derive strength from establishment of wide branch network and retail-focused loan portfolio. The rating is, however, constrained on account of WHFL’s nascent stage of operations with limited seasoning of its loan portfolio, lack of experience of the Wonder Cement Group in housing finance business, moderate credit profile of target borrowers, regionally concentrated operations and stiff competition from established players.

Key Rating Sensitivities: Positive Factors: • Assets under Management (AUM) of above Rs.250 crore along with profitable operations while maintaining the asset quality at current levels. Negative Factors: • Any negative change in the stance of promoters for providing financial support to WHFL

Detailed description of the key drivers of standalone ratings of WHFL Part of resourceful promoter group WHFL is a part of Wonder Cement group of Rajasthan run by the Patni family which comprises of two major companies viz. Wonder Cement Ltd. (WCL: Cement manufacturing company, rated CARE AA-; Stable/ CARE A1+) and R.K. Marble Pvt. Ltd. (RKMPL: marble mining & processing company, rated CARE A-/ CARE A2+; credit watch with developing implications). The credit profile of WHFL derives significant financial flexibility from being a part of the group as manifested by the upfront as well as follow-up capital infusion amounting to Rs.150 crore from the promoters along with the intended subscription of the entire proposed debenture issue allowing the company to function through the initial years with lower external borrowings.

Long standing experience of the key management personnel in housing finance business coupled with induction of industry veterans to the Board enhancing its strength Mr. Ashok Patni, Chairman and founder of the Wonder Cement group has over three decades of experience in marble industry as well as over seven years’ experience in cement industry. However, housing finance being a new area of business, WHFL has appointed professionals having vast experience in the financial sector as its key management personnel. Mr. Sanjay Singh Rajawat has been appointed as Chief Executive Officer (CEO) of WHFL. He is a Chartered Accountant by qualification and has over two decades of experience in the banking sector whereby he has held key positions in various banks. Mr. Raunak Singh Mohnot, Chief Financial Officer (CFO) & Strategy Head of WHFL is a Chartered Accountant & Company Secretary. Likewise, most of the key positions in WHFL have been filled up with personnel having prior experience in their respective areas of work. Further, recently, WHFL inducted two new members as independent directors who are the veterans of the Industry leading to strengthening of the Board.

Upfront infusion of substantial equity capital by the promoters along with regular need-based infusion The promoters have already infused Rs.150 crore as equity capital including upfront seed capital of Rs.50 crore till H1FY19; another Rs.50 crore during H2FY19 and further infused Rs.50 crore during H1FY20 as committed earlier under the equity infusion schedule. Furthermore, WHFL is expected to receive need-based support from the group as and when the same is

1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Ltd.

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required as manifested from the intended subscription of the entire proposed debenture issue amounting to Rs.57.00 crore by a promoter group entity. Leverage is expected to remain stable with proposed replacement of bank loans with NCD issuance. Thus, given the promoters commitment, capital adequacy is likely to be maintained at comfortable level going forward.

Establishment of wide branch network in a short span of time WHFL received its registration certificate from National Housing Bank (NHB) in May 2018 and within a very short span of time (by end H1FY19) it had set up 26 branches in the state of Rajasthan. Each branch has been vested with required credit, legal, technical, sales, collection and admin personnel. Its existing branch network is expected to cover major part of the state. Further, recently, WHFL has expanded its operations to three states now viz. Rajasthan, Gujarat and Uttarakhand. The company has recently opened 5 branches in Gujarat and 2 branches in Uttarakhand taking the total number of branches to 35. Going forward, it has plans to expand its operations to one or more states every year would again require a lot of understanding about new geographies.

Detailed credit policy, operational manual and sourcing strategy put in place WHFL has prepared a detailed credit policy and operational manual, approved by its board of directors which helps to streamline the whole home loan process. The same is also being regularly updated by WHFL. The company has its own sales team and is not reliant on any intermediary or direct selling agent (DSA) for the sourcing of loans and generation of leads. WHFL generates majority of the leads through the referral model. WHFL has also put in place a very clear delegation of authority to take decisions based on ticket size. Credit norms are also reasonably conservative with maximum ticket size of Rs.35 lakh, no builder loans and defined limit of maximum Loan to Value (LTV) ratio as well as Fixed Obligation to Income Ratio (FOIR). WHFL has further tightened its credit norms post Covid to maintain its health asset quality on sustained basis.

Profitable operations along with expansion of the resource base The operations of WHFL started generating operating profits (pre-provisioning and depreciation) from Q3FY20. During 9MFY21, the total loan portfolio grew by 57.62% to Rs.210 crore resulting in about 51% increase (annualized) in total income for the same period. The company reported a Profit before tax (PBT) of Rs.1.46 crore for 9MFY21 as against a loss of Rs.3.20 crore for FY20 on a pre-tax basis. The credit cost (provisions as a % of average total assets) remained low at 0.15% aiding the profitability. WHFL has received sanction from multiple financial institutions with latest sanction has been received with a repayment terms of about 7 years which shall partly mitigate the ALM mismatches.

Healthy collection efficiency despite the Covid-19 outbreak Despite the Covid-19 related stress, the collection efficiency for August 2020 was 95% while the same for September month onwards has been 100% barring 4 cases where the insurance claim is to be received post the demise of the borrower. Further, WHFL has not seen delinquency beyond 10 days in its portfolio since inception with the bounce ratio rate around 3%-4% ranges so far as articulated by management.

Liquidity: Adequate As on December 31; 2020, the free cash and cash equivalents balance was about Rs.7.48 crore as against the repayments of about Rs.13.25 crore for the next one year. Further, the company had on-demand working capital lines amounting to Rs.22 crore along with the proposed fund-raising from the promoters to the tune of Rs.57 crore with a tenor of about 8.50 years thus plugging the ALM gap if any. For the longer run, the company is planning to avail the term debt with repayment terms of 7 years and above which would support their ALM.

No prior experience of the group in housing finance business The Wonder Cement group has no prior experience in retail lending segment. Also, housing finance is an altogether different asset class compared to conventional financing which requires a deep understanding and experience in this domain. Accordingly, going forward, ability of the promoters to successfully establish their presence in housing finance business would be critical.

Early stage of operations with lower seasoning of loan portfolio WHFL received certificate of registration from NHB on May 29, 2018 to operate as a non-deposit accepting HFC. Due to initial stage of operations, the size of business is small. Consequently, the seasoning of its loan portfolio is limited. As a result, its asset quality performance through different economic cycles and geographies is yet to be tested. However, portfolio quality has been maintained even as more than 2 years have passed and the portfolio has been resilient during Covid which provides some comfort.

Sub-optimal credit profile of target borrowers

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Borrowers with good credit profile & credit history have easy access to banks w.r.to their housing finance requirement. Accordingly, the borrowers approaching small to mid-sized HFCs have relatively sub-optimal credit profile. Estimation of the income level of the borrowers in unorganized sector is challenging. At times, such borrowers have no credit history. Accordingly, ability of WHFL to assess the credit worthiness of such borrower class would be extremely critical for its success.

Regional concentration of operations WHFL has commenced its operations from Rajasthan and in first place its target is to stabilize itself in Rajasthan market. Group also has an established presence in Rajasthan market. During FY20, the operations of WHFL were restricted to the Rajasthan market only which results in regional concentration of its operations. However, recently, WHFL has expanded its operations to three states now with the aim of reducing the proportion of business generated from Rajasthan to 75% in FY21 from the earlier 100%. Going forward, the ability of WHFL to successfully expand its operations across geographies while maintaining its asset quality would be critical to its credit profile.

Stiff competition from established players There are many large sized established players in housing finance sector with large portfolio and diversified operations. WHFL has decided to currently restrict its operations within the state of Rajasthan whereby also it faces stiff competition from other established HFCs who have a better penetration in the market with their long-standing presence.

Analytical approach for WHFL: Standalone while factoring in linkages with the Wonder Cement Group.

Applicable Criteria CARE’s methodology for Housing Finance companies Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition Rating Methodology: Factoring Linkages in Ratings Financial Ratios – Financial Sector

About the Company- WHFL WHFL, incorporated on November 11, 2017 is a Jaipur (Rajasthan) based housing finance company (HFC) promoted by Mr. Ashok Patni and his family members. Mr. Ashok Patni and his family members / relatives held 100% equity stake in the company as on March 31, 2020. WHFL is a part of the Wonder Cement Group of Companies (promoted by the Patni family of Rajasthan), which also comprises of R.K. Marble Private Limited (RKMPL: marble mining & processing company) and Wonder Cement Limited (WCL: cement manufacturing company). WHFL received certificate of registration from National Housing Board (NHB) on May 29, 2018 to operate as a non-deposit accepting HFC. The company plans to venture into affordable housing loan segment for low-medium income section of the society. It will also provide non housing loans like Loan against Property (LAP) to individuals. Consequently, company will target low ticket size loans (min. Rs.5 lakh and max. Rs.35 lakh). WHFL is targeting customers of diverse income background such as salaried, self-employed professional (SEP) and Self-employed non- professional (SENP). At present the operations of the company are concentrated in Rajasthan, Gujarat and Uttarakhand with a total branch network of 35. The promoter group has infused a total equity capital of Rs.150 crore.

Brief Financials (Rs. crore) 2019 2020 For the period ended / as at March 31, (12m, A) (12m, A) Working Results Interest Income 2.23 12.00 Other Income 3.91 6.76 Total Income 6.15 18.76 Interest Expended 0.03 0.48 Net Interest Income 2.21 11.52 Operating Expenses (incl. Depreciation) 16.57 20.96 Provisions & Write-Offs 0.15 0.52 PBT (10.60) (3.20) PAT (10.44) 0.16 Financial Position Net Worth 88.95 135.60 Total Debt 8.21 28.01

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2019 2020 For the period ended / as at March 31, (12m, A) (12m, A) Loan Portfolio (AUM) 49.56 133.19 Total Assets 99.70 166.87 Total Capital Employed 97.16 163.61 Key Ratios Solvency Overall gearing ratio(times) 0.09 0.21 Interest coverage(times) NM NM CAR (%) 121.43 133.05 Tier-1 CAR (%) 121.23 132.40 Profitability Net Interest Margin 3.55 8.64 Operating Expenses/ Avg. total assets 26.65 15.72 ROTA (16.78) 0.12 PAT Margin (169.79) 0.86 RONW (18.39) 0.14 Asset Quality Gross NPA Ratio Nil Nil Net NPA Ratio - - Net NPA to Net-worth - - A: Audited; NM- Not Meaningful

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure-2

Covenants of rated facilities: Detailed explanation of covenants of the rated facilities is given in Annexure-3

Complexity level of various instruments rated for this company: Annexure-4

Annexure-1: Details of Instruments/Facilities Size of the Name of the Date of Coupon Maturity Rating assigned along Issue Instrument Issuance Rate Date with Rating Outlook (Rs. crore) Debentures-Non-Convertible June 2029 - - 57.00 CARE BBB+; Stable Debentures (Assumed)

Annexure-2: Rating History of last three years Current Ratings Rating history Date(s) & Date(s) & Name of the Type Date(s) & Date(s) & Sr. Amount Rating(s) Rating(s) Instrument/Bank Rating(s) Rating(s) No. Outstanding Rating assigned assigned Facilities assigned in assigned in (Rs. crore) in 2018- in 2017- 2020-2021 2019-2020 2019 2018 1)CARE BBB; 1)Withdrawn Fund-based - LT- Stable 1. LT - - - (17-Sep-19) - Term Loan (26-Nov-

18)

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Current Ratings Rating history Date(s) & Date(s) & Name of the Type Date(s) & Date(s) & Sr. Amount Rating(s) Rating(s) Instrument/Bank Rating(s) Rating(s) No. Outstanding Rating assigned assigned Facilities assigned in assigned in (Rs. crore) in 2018- in 2017- 2020-2021 2019-2020 2019 2018 1)Provisional CARE A- (CE) (CWD) (31-Dec-20) 1)Provisional Provisional 2)Provisional CARE A- (CE); Term Loan-Long CARE A- (CE) CARE A- (CE); 2. LT 10.00 Stable - - Term (CWD) Stable (09-Oct-19) (08-Dec-20)

3)Provisional CARE A- (CE); Stable (15-May-20) 1)Withdrawn Un Supported (31-Dec-20) 1)CARE BBB; Rating-Un 2)CARE BBB+ Stable 3. LT - - - - Supported Rating (08-Dec-20) (09-Oct-19) (Long Term) 3)CARE BBB (15-May-20) 1)CARE A- (CE) (CWD) (31-Dec-20) CARE A- (CE) 2)CARE A- (CE); Fund-based - LT- 4. LT 78.00 (CWD) Stable - - - Term Loan (08-Dec-20) 3)CARE A- (CE); Stable (15-May-20) 1)CARE BBB+; Stable CARE BBB+; Term Loan-Long (31-Dec-20) 5. LT 150.00 Stable - - - Term 2)CARE BBB+;

Stable (08-Dec-20) CARE A- (CE) 1)CARE A- (CE) Fund-based - LT- 6. LT 12.00 (CWD) (CWD) - - - Cash Credit (31-Dec-20) Debentures-Non CARE BBB+; 7. Convertible LT 57.00 - - - - Stable Debentures

Annexure-3: Detailed explanation of the terms of rated facilities Name of the Facility Detailed explanation A. Financial covenants Not Applicable B. Non-financial covenants Not Applicable

Annexure-4: Complexity Level of various facilities rated for this company Sr. No. Name of the Instrument Complexity Level 1. Term Loan-Long Term Simple

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Sr. No. Name of the Instrument Complexity Level 2. Fund-based - LT-Term Loan Simple 3. Fund Bases-LT- Cash Credit Simple 4. Term Loan- Long Term Simple 5. Debentures-Non Convertible Debentures Simple

Annexure-5: Details of Rated Instrument Type Terms of the issue Issue size (Proposed) Rs.57.00 crore Rated, unlisted, Un-Secured Non-Convertible debentures for cash at par in Instrument dematerialized form to certain identified investors on a private placement basis ranked pari-passu with other lenders inter se Rate of Interest (%) 9.00 % p.a. 88 structured monthly installments post 13 months of moratorium from February Redemption 2021 The purpose of the Company is to augment long term resources of the company. The proceeds from the issue will be utilized for general business purpose including for Purpose various financing activities, to repay the existing loans, investment for liquidity requirements, capital expenditure and working capital needs.

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Analyst Contact Name - Mr. Maulesh Desai Contact no.: 079- 4026 5605 Email ID - [email protected]

Business Development Contact Name - Mr. Deepak Prajapati Contact no. +91-79-4026 5656 Email ID - [email protected]

(This follows our brief rationale for the entity published on February 15, 2021) About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

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