Shriram Housing Finance, a fast-growing Housing Finance Company (HFC) in India, has revealed its plans for fundraising and the factors impacting its financial performance in an exclusive interview on August 2, 2024. The company’s Chief Financial Officer, GS Agarwal, shared insights on their strategy to raise capital, the increasing cost of funds, and the shifts in the loan portfolio.
Fundraising Plans: NHB Refinancing and Debt Capital Market Instruments
Shriram Housing Finance plans to raise Rs 300-500 crore through the refinancing scheme of the National Housing Bank (NHB) in Q2FY24. This initiative comes after the company successfully raised Rs 740 crore through NHB refinancing in the previous quarter, out of a total borrowing of Rs 2,000 crore. NHB refinancing has been a significant source of funds for the company throughout the financial year.
Apart from NHB refinancing, the company aims to raise around Rs 1,000-1,100 crore through bank loans, NHB refinance, and debt capital market instruments. While the percentage of bank borrowings has reduced, the absolute amount has increased as the company seeks to diversify its sources of funds and meet the growing requirements of funds due to increased disbursements.
Impact of Rising Interest Rates on Cost of Funds
The global trend of rising interest rates has led to an increase in the cost of funds for Shriram Housing Finance. Despite this, the company has managed to contain its cost of funds to some extent by booking fixed-rate loans at lower levels and/or loans with annual resets. However, with higher-cost debt, raised 2-3 years ago, now due for maturity, the company expects the cost of funds to rise by 15-20 basis points (bps) in Q2FY24.
Asset Quality and Loan Portfolio
The company’s Gross Stage 3 assets increased marginally from 0.93 percent in March 2024 to 1 percent in June 2024. This slight increase is attributed to the industry’s cyclicality, where delinquencies tend to be higher in Q1 as Q4 numbers represent the best performance. However, the company is confident that asset quality will improve in the next 2-3 quarters.
Regarding the changes in the loan portfolio, the company’s housing loans, top-up, construction financing, and corporate loans’ share of the total loan book decreased in the June quarter, while the share of loans against property (LAP) increased. This shift is a result of significant investments in human capital, with the induction of a new mortgage team primarily focusing on LAP. The company aims to stabilize the HL-LAP ratio by training the new team to source both home loans and LAP.
Outlook for FY24 and IPO Plans
Shriram Housing Finance expects its net interest margins (NIMs) to remain stable between 7.50 and 7.75 percent during the current fiscal year. They have successfully passed on rate hikes to borrowers without negatively impacting the loan book.
The company has crossed the Rs 9,500 crore Assets Under Management (AUM) mark ahead of their planned timeline. They anticipate the current run rate of over 40 percent Compounded Annual Growth Rate (CAGR) to continue over the next 2-3 years. However, as of now, the company has not finalized any plans for an Initial Public Offering (IPO).
Conclusion
Shriram Housing Finance’s fundraising plans through NHB refinancing and debt capital market instruments reflect the company’s efforts to diversify funding sources. While facing the challenge of rising interest rates, the company aims to stabilize its loan portfolio and maintain net interest margins. With a robust growth trajectory, the company is well-positioned in the Indian HFC market. However, it remains to be seen when they will make their IPO debut as they continue to focus on their strategic growth plans.
