CARE reaffirms rating of Weizmann Homes Ltd

May 18, 2007: CARE has retained the ‘CARE A- (FD) [Single A Minus]’ rating of the FD programme of Weizmann Homes Ltd. (WHL) for the outstanding amount of Rs.2.89 crore. Instruments with this rating are considered to offer adequate safety for timely servicing of debt obligations. Such instruments carry low credit risk.

The above rating shall remain under rating watch with developing implications in view of the proposed acquisition of controlling stake by AIG Capital India Pvt Ltd. The implication of the acquisition on WHL will be examined once the exact terms of the acquisition are decided. CARE will closely follow the developments relating to the acquisition and will consider taking appropriate rating action.

The rating factors WHL's satisfactory track record over the years, benefits that will be derived due to proposed acquisition by AIG Capital, housing loan portfolio consisting mainly of individual housing loans and reduction in exposure to securitization transactions towards the end of FY06. The rating also factors in low growth and fall in profitability in FY’06 and H1’07, high but declining NPAs and declining capital adequacy.

Established in 1995, WHL is a Housing Finance Company based at Bangalore. WHL offers long term financial assistance for purchase, construction, repairs and renovation of residential units to individuals and corporates. It also provides consumer finance on a very small scale. The operations of the company are looked after by Shri B.M. Ramachandra, Managing Director, and is assisted by experienced and qualified professionals with Banking/Finance background. As at the end of Sep’06, WHL had 33 branches and 4 satellite/ outreach offices.

Housing loan disbursements, which had registered a growth of 22% in FY’06 over FY’05 showed an annualized decline of 5% during Apr’06-Sep’06 period. The funding profile of WHL mainly consists of term loans from banks and refinance from NHB. Total income grew by a low 2% in FY’06 over FY’05, in spite of 10% growth in interest on individual housing loans, due to decline in securitization income. However, growth in total income was 6% in H1’07 as compared to H1’06. PAT declined by 27% in FY’06 over FY’05. Further, PAT declined substantially by 96% in H1’07 as compared to H1’06.

Asset quality sharply improved in FY06 with Gross NPA% declining from 8.21 as on March 31, 2005 to 5.10 as on March 31, 2006 and Net NPA% declining from 5.59 to 4.38 during the same period. Capital Adequacy Ratio (CAR) declined sharply from 19.18% as on March 31, 2005 to 15.99% as on March 31, 2006 mainly due to increase in risk weight of housing loans by NHB. As on September 30, 2006, CAR declined further and stood at 12.95%.

WHL, being a small player, faces competition from other leading HFCs and banks. WHL is to be acquired by AIG Capital due to which WHL will derive benefits like strong parentage and much needed capital for maintaining requisite CAR, reduced cost of capital due to availability of cheap funds from AIG etc. Timely completion of actual transfer of shares and successful integration of WHL with AIG Capital would be critical for WHL’s operations. Apart from fructification of assumptions relating to increase in capital adequacy, protection of margins and maintaining good asset quality are critical factors as the volume of business increases and would be key rating sensitivities.

Source: moneycontrol.com