3/11/2020 Courses

Enrolno : 19BSP1038

Name : Mr. MEHTA HARSHIL KAUSHIK

Proposed : The main aim is to learn the basics of equity research which is based on the housing
finance sector of India.

Description : The housing finance sector was badly hit due to the IL&FS crisis in 2018, there were
defaults in loan payments and even the banking sector got badly hit. There were rising
GNPAs of housing finance companies which created a situation of liquidity crunch, the
NBFCs reduced their lending to the HFC companies in India, which created a panic
situation in the housing sector market in India. The research is mainly based on the
housing finance sector of India. This research will help the firm to know the current
situation of housing finance sector in India after the 2018 crisis in India. The companies
are segregated as per their loan book size as low, medium and high, below 25000 Cr.
loan book size as low, between 25000-75000 Cr. as medium, and above 75000 Cr. as
high book size companies. Then, the companies are evaluated based on the important
ratios such as, 1. Return on Asset. 2. Net Interest Margin. 3. Return On Equity. 4. Gross
Non Performing Assets. 5. Cost to Income Ratio. 6. Debt to Equity Ratio. 7. Capital
Adequacy Ratio. All these ratios are considered while analyzing the HFCs with each other
and evaluated accordingly. The borrowing mix of each company is analyzed as how they
raise their capital in terms or debt or equity. Generally HFCs have high debt borrowing.
The types of loans provided by the company consisting of LAP(Loan against property),
HL(Housing Loan),developer loans and LRD(Lease Rental Discounting). The business
model of the leading HFC is studied and compared with other companies. The growth in
loan book size is monitored and growth rate is calculated accordingly. The loan book
refers to the amount of loan the HFC is giving out from its loan portfolio just for housing
loans, only the loans related to housing sector are taken into consideration, the analysis is
done by finding out the compounded growth rate of the loan book size year by year. A
detailed study is done on the borrowing mix of each HFCs about how they are raising
their capital in terms of NHB refinancing, CPs, NCDs, or from financing from financial
institutions. The spreads are studied which is the difference between the rate of borrowing
and rate of lending, a compounded growth rate is considered in terms of spreads over the
years which depicts the overall growth of the HFCs . A certain grading model has been
designed to assign scores to each HFC as per the ratios mentioned above. The highest
scored HFC is the market leader in the segment differentiated by loan book size. While
rating the HFCs there are different kinds of weightage given to different ratios, and then
accordingly the company is rated and the score is given. Here the weightage breakup is,
Return on Equity = 25% Net Interest Margin = 20% Return on Asset = 15% Gross Non
Performing Assets = 15% Cost to Income Ratio = 15% Debt to Equity Ratio = 5% Capital
Adequacy Ratio = 5% Based on the above breakup of ratios analysis is done and the
most efficient company is selected as the market leader in that particular loan book size
segment. The research is concluded by providing reasons for the ratings given to the
companies, it helps to know the current situation of fundamentals of each company in the
housing finance sector. The Companies taken for this research are as follows: 1. HDFC 2.
LIC Housing 3. PNB Housing Finance 4. India Bulls Housing Finance. 5. Can Fin Homes.
6. Repco Homes. 7. Aavas Financiers. 8. Gruh Finance. 9. Aptus Housing. 10. Aadhar
Housing. The research started by taking 21 companies of the housing finance sector of
India, but due to the unavailability of data the companies were scaled down to 10 HFC
companies mentioned above.So the companies belonging to the low loan book size are

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Aavas Financiers, Gruh Finance, Can Fin Home, Repco Homes, to the medium loan book
size are Indiabulls Housing Finance and PNB housing finance, and high loan book size
consists of HDFC and LIC Housing. According to the scores obtained and the different
types of borrowing mix and the business model followed by the HFCs, a graphical
representation is done, which provides a clear picture about the current situation (2019) of
the HFC compared to the crisis situation in year 2018. Factors for rating HFCs are as
follows: Core Parameters The Core Parameters have a high influence on credit risk profile
of a finance company. The interplay of these parameters determines the ability of HFCs to
underwrite, price and manage its risks, and maintain adequate capital to absorb losses
during times of stress and ensure profitable growth. It includes, 1. Asset Quality 2.
Capitalisation 3. Earnings Supplementary Parameters The supplementary parameters
considers the characteristics of the HFCs they are, 1. Market Position 2. Resource
Raising Ability 3. Management 4. Liquidity/Asset Liability Maturity This research helped
the company to gain meaningful insights into the housing finance sector of India, about
how the sector has grown over the years in spite of the crisis in the year 2018, there is
always a growing demand for home loans in India so the future looks bright as the Indian
government and the regulator have taken concrete steps to improve the conditions in the
housing sector. With rapid urbanisation, low mortgage penetration, nuclearization of
families and having two-thirds of our population below 35 years of age, there is a positive
demand for housing in the coming years.

Objective : The main objective of this research is to help the firm to know the current situation of the
crisis hit housing finance sector in India. Through this research the firm will know about
the market leader, the strategy followed by the leader in this segment, the borrowing mix
of other HFC companies, the loan portfolio used by major leading HFCs, the types of
loans given by other companies, selecting the target market as per the demands of loans
in Tier I, Tier II and Tier III cities in India. It will help the company on about how to diversify
its AUM(Assets under management) and even comparing the schedule of charges and
interest rates charged by various HFCs in India

Methodology : The method used is Secondary Research. It consists of collecting and analyzing data of
last 3 years(2016-2019) of financial statements, income statements, balance sheets,
annual reports released by the housing finance companies, and even checking their
investor presentation to collect and analyse the important ratios needed to conduct the
research.

Schedule : 18th February 2020 - 18th May 2020

Limitations : The data regarding the various profitability ratios, the GNPAs, the net interest margins,
everything was not available on the company's sites. Some ratios were calculated as per
the data available and some were left out due to unavailability of data. The research is
limited to only 10 housing finance companies of India, due to unavailability of data. The
research conducted is based on the data of past 3 years.

Faculty Guide : Dr. Swaha Shome

Company Guide : Mukesh Chaliha

Provided On : 11/03/2020 11:07:00

Last Modified : 11/03/2020 14:15:00

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