Rating agency India Ratings said Hinduja Leyland Finance Ltd (HLF) may see rise in non-performing loans (NPLs) in industry-wide weak operating environment.
However, the company has adequate operating profits and capital buffers to manage business in adverse environment, it said.
India ratings has assigned it a long term issuer rating of “A+”.
The Chennai-based non banking finance company's total asset base rose to Rs 2,974 crore at end of March 2013 from Rs 2,068 crore March 2012.
The seasoning of HLF’s loan portfolio may lead to asset quality pressures, amid a weak industry-wide operating environment. The NPLs are expected to remain elevated in coming quarters, India Ratings said.
The ratio of gross NPL to managed loan assets for six months ended September 2013 was 3.4%, up from 2.3% for year 2012-13.
Besides adequate operating profit and capital buffers, the company’s ratings are driven by expected improvements to its funding profile, it said.
The benefits derived in the ordinary course of business from its parent, Ashok Leyland Limited (which holds 67% stake in HFL), also have a bearing on ratings. HLF has preferential access to the Ashok Leyland’s dealers and added flexibility in raising bank loans through its association with the parent company.
The finance firm has high core capitalisation. Its tier I ratio of 15.95% at FYE13 is high. The capital base has been strengthened by compulsory convertible preference shares (about Rs 200 crore) issued to EVERFIN Holdings, a private equity firm in Q2FY14. These are likely to be converted within FY14.
The agency said if the aggressive loan growth continues (loan book rose by 45% in FY13 and 109% in Fy12), HLF will need regular equity injections in coming years.
The net interest margins (9.3% for FY13) and operating profits before provisions may moderate on rising delinquencies and increase in low risk-low yield borrowers in portfolio. However, pre-operating buffers are expected to remain adequate in the near-to-medium term, it added.
