NIDO Home Finance Limited: A Review of Bond Public Issue

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NIDO Home Finance Limited (formerly known as Edelweiss Housing Finance Limited) has come up with a Senior Secured, Rated, Listed, Redeemable Non-Convertible Debentures from June 13, 2024, to June 27, 2024, which holds a credit rating of CRISIL A+ / Watch Negative (Placed on Rating Watch with Negative Implications). This blog discusses the company’s background, the current issue, and its financial performance. The details of the NCD are given below.

Issue Highlights

Issuer Name NIDO Home Finance Ltd.
Nature of Instrument Senior Secured Rated Listed Redeemable Non-Convertible Debentures
Rating CRISIL A+/Watch Negative
Seniority Senior Secured
Face Value Rs. 1,000 per NCD
Base Issue Size Rs.500 crores  
Option to retain oversubscription Rs. 500 crores
Coupon Up to 10.75%
Tenor 24/36/60/120 months
Issue Date June 13, 2024, to June 27, 2024

Company Profile

  • NIDO Home Finance Ltd. is a non-deposit-taking housing finance company registered with the National Housing Bank, specializing in providing small ticket-size home loans. It is a part of Edelweiss group which is one of the leading diversified financial services groups in India. It was renamed NIDO (Formerly Edelweiss Housing Finance Ltd.) on May 4, 2023.
  • Mr. Rajat Avasthi is the Managing Director and CEO who has over 25 years of experience in sales and corporate marketing. 
  • As of March 31, 2024,  the company’s pan-India network spans a total of  67 offices in 67 cities in India supported by  646 employees, having a retail customer base of approximately 20,000. 
  • As of March 31, 2024, the company’s Promoters Edelweiss Financial Services Limited, Edelweiss Rural and Corporate Services Limited, and Edel Finance Company Limited hold 5.00%, 55.23%, and 39.77% of our paid-up share capital, respectively.
  • The company’s portfolio of products includes:
  • Home Loans
  • Loans against Property (LAP)
  • Home Improvement Loans
  • Plot + Self-construction Loans
  • Balance Transfer of existing loans from other banks/ Housing Finance Companies/ NBFCs

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Performance Highlights of NIDO Home Finance Ltd. for the FY 24 (Rs in million) 

Key Operational and Financial Parameters (Rs in million)

Particulars FY2024 FY2023 FY2022
Net worth 8,147.88 7,944.68 7,776.32
Profit after tax 193.05 160.63 138.07
Interest Income 4,143.38 4,163.11 4,453.13
% Stage 3 Loans on Loan (Principal Amount) 1.49% 1.75% 1.83%
% Net Stage 3 Loans on Loan (Principal Amount) 0.98% 1.29% 1.28%
Tier I Capital Adequacy Ratio (%) 39.05% 32.06% 28.28%

Strengths

  • Established brand and corporate lineage

The Edelweiss Group is a well-recognized brand in India. By capitalizing on the existing relationships and synergies with it, the company focuses on growing its loan portfolio, introducing new products, and achieving greater heights. It also helps in cross-selling their products through customer reference.

  • Access to a variety of cost-effective funding sources

The company meets funding needs through credit facilities from banks and the NHB, as well as by issuing redeemable NCD via private placements or public issuances. The Total Borrowings were ₹ 18,474.38 million and ₹ 18,403.37 million as at March 31, 2023 and April 5, 2024, respectively. The average cost for borrowing for FY 2024 is 10.12%.

  • Capitalization

The company operates under an HFC license which is subject to capital-to-risk assets ratio (CRAR) requirements as per NHB/RBI. The minimum regulatory CAR as of on and before March 31, 2024, was 15% and it maintained 39.05%.

Rating Rationale:

CRISIL, in its rating rationale, has highlighted  the following primary factors that impact the ratings of NIDO Home Finance  Limited:

Strengths

  • Strong capitalization, supported by multiple capital raises

Edelweiss Group had Rs 4,400 crore since 2016 across lending, wealth management, and assets from global investors across the business. This has helped in maintaining the capital position, despite higher credit costs and mitigating the asset-side risks.

  • Proven ability to build a strong competitive position across various businesses

The Edelweiss Group is a diversified financial services provider with operations across four verticals: credit (both wholesale and retail), insurance (life and general), asset management, and asset reconstruction. The group has achieved leading positions in the alternate asset and asset reconstruction sectors and is working to strengthen its market position in other areas, which should enhance earnings stability over time.

Weaknesses

  • Modest profitability given the current size and scale despite presence in multiple businesses

The Edelweiss Group’s profitability has been lower compared to other large financial sector groups. Nevertheless, most of its businesses have been reporting profits since the last quarter of fiscal 2021.

Differences between a Non-Banking Financial Company (NBFC) and a Housing Finance Company (HFC). 

These days, loans are readily accessible to borrowers who meet the required eligibility criteria. However, the borrower’s key decision lies in choosing between loans offered by traditional banks and non-banking financial companies (NBFCs).

In India, major providers of home loans include banks, NBFCs, and home finance companies. Moreover, there are other lenders such as private finance companies and cooperative credit societies offering home loans.

A Non-Banking Financial Company (NBFC) is a registered entity under the Companies Act, of 1956 engaged in loans and advances but does not offer traditional banking services like deposit acceptance, fund transfers, etc. 

Housing Finance Companies, or HFCs, are a part of NBFCs that provide home loans and opportunities to home buyers and businesses who want to monetize their real estate assets and developers. Additionally, many NBFCs have their Housing Finance subsidiaries that provide only home loans. These entities are governed by the Companies Act 1956. They were initially regulated by the National Housing Bank (NHB). Later, the regulatory power was transferred to the RBI in 2019.

NBFCs rely on market dynamics for their financing; so they do not accept deposits, instead, they raise funds through securities or borrowing. HFCs also operate like NBFCs regarding funding mechanisms.

Interest rates for NBFCs and HFCs may be tied to benchmark prime lending rates, potentially leading to slower adjustments which may provide stability under certain economic conditions.

Why should you invest in Housing Finance Companies?

Initially, the housing finance sector in India was dominated by traditional banks. Now this sector has undergone a transformation, where housing finance companies have increasingly taken center stage largely attributed to their flexible lending practices.

As per the current market research conducted by the CMI Team, the India Housing Finance Market is anticipated to reach a compound annual growth rate ( CAGR ) of 24.1% from 2024 to 2033. In 2024, the market size is forecasted to reach a valuation of USD 385.14 Billion, driven by continued demand from the affordable housing segment and a rising need for house ownership

Investor Categories 

The investor categories in a bond public issue can be defined as the various segments or types of investors who are eligible to partake in the offering. The issuer allocates the ratio as per guidelines set by regulatory bodies such as SEBI, aiming to distribute the existing bonds among these investor categories. Below is the allocation ratio for the Nido Home Finance Limited Public Issue across these categories.

Category I- Institutional Portion- 10% of the overall issue size- Public Financial Institutions, Insurance companies, Scheduled Banks, Provident Funds, AIFs, etc.

Category II– Non-institutional Investors- 10% of the overall issue size- Companies, Co-operative Banks, Trusts, Partnership Firms, Association of Persons, etc.

Category III– High Net-worth Individual Investors- 40% of the overall issue size- Resident Indian individuals or Hindu Undivided Families through the Karta applying for an amount aggregating to above Rs. 10,00,000 across all options of NCDs in the Issue.

Category IV– Retail- 40% of the overall issue size- Resident Indian Individuals or Hindu Undivided Families through Karta applying for an amount aggregating up to and including Rs. 10,00,000.   

Information Memorandum:

An Information Memorandum (IM) is an extensive document providing investors with detailed information about the bond public issue. It provides insights into the issuer’s business, financial background, management team, details of offerings, associated investment risks, and fund allocation from the issue, alongside regulatory and legal disclosures.

The link to the Information Memorandum of bond public issue of Nido Home Finance Limited is given below:

https://www.thefixedincome.com/storage/bondprimary_imfiles/1718172427NIDOIM.pdf

How to Apply through TheFixedIncome.com?

Conclusion

Summing up, the bond public issue by NIDO Home Finance Limited provides a unique opportunity for those investors interested in investing in Secured Rated Listed Redeemable Non-Convertible Debentures. Investors can participate in this offering and reap the returns associated with it. However, investors must read the Information Memorandum (IM) thoroughly and take into account their risk appetite and investment objectives before making a decision.

Disclaimer: This article is based on publicly available information and other sources believed to be reliable. Nido Home Finance Limited (formerly known as Edelweiss Housing Finance Limited), subject to market conditions, and other considerations, is proposing a public issue of secured redeemable non-convertible debentures (“NCDs”) and has filed a prospectus dated June 07, 2024 (“Prospectus”) with the Registrar of Companies, Maharashtra at Mumbai (“RoC”), BSE Limited (“BSE”) and Securities and Exchange Board of India (“SEBI”). The Prospectus is available on the website of the Company at https://www.nidohomefin.com, on the website of BSE at www.bseindia.com, on the website of the lead managers at www.tipsons.com and www.nuvama.com and on the website of SEBI at www.sebi.gov.in. Investors proposing to participate in the Issue should invest only on the basis of the information contained in the Prospectus. Investors should note that investment in the NCDs involves a high degree of risk and for details in relation to the same, refer to the Prospectus, including the section titled “Risk Factors”, “Material Developments” and “Other Regulatory and Statutory Disclosures (for Disclaimer)” beginning on page 16, 149 and 213 to 217  respectively of the Prospectus. The issuer and Lead Managers accept no responsibility for the statement made otherwise than in the Prospectus. 
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