DMI Finance Private Limited

March 26, 2019

Summary of rating action

Previous Rated Amount Current Rated Amount
Instrument Rating Action
(Rs. crore) (Rs. crore)
Commercial Paper 300.00 300.00 [ICRA]A1+; re-affirmed
Total 300.00 300.00
*Instrument details are provided in Annexure-1

Rationale
For arriving at the rating, ICRA has taken a consolidated view of DMI Finance Private Limited (DFPL) and DMI Housing
Private Limited (DHFPL, an associate of DFPL), henceforth referred to as the DMI Group.

The rating factors in the DMI Group’s experienced board and senior management team, and its healthy capitalisation
profile with consolidated gearing of 0.4 times and CRAR of 53.6% and 113.2% for DFPL and DHFPL, respectively (as on
December 31, 2018), supported by the sizeable capital raise of Rs. 1,277 crore in FY2019. Also, compulsorily convertible
debentures (CCDs) aggregating Rs. 351 crore were converted to equity, leading to a consolidated net worth of ~Rs. 2,500
crore as of December 2018 as compared to Rs. 886 crore as of March 2018. While the leverage would increase from
current low levels with incremental business being funded through fresh borrowings, ICRA expects the Group to continue
to maintain prudent capitalisation levels going forward as well. The rating also factors in the Group’s comfortable
liquidity profile, and management’s stated intention of maintaining sufficient balance sheet liquidity at all times. ICRA
has also taken note of the moderate profitability indicators (ROE of 8.7% in FY2018), owing to the Group still being in
expansion phase for the new lines of businesses.

ICRA favorably notes that the DMI Group has enhanced the portfolio diversity by expanding footprint in products such as
consumer loans and affordable housing loans. However, the overall mix continues to remain skewed in favor of secured
real estate financing (constituting 45% of total portfolio as on December 31, 2018), with the borrower and geographical
concentration risk remaining high in the real estate book. The portfolio vulnerability also remains high (though
improving) owing to relatively higher risks associated with unsecured consumer finance loans and its moderate
seasoning on the back of large share of the total portfolio (both real estate and home loans) being under moratorium or
early stage of amortisation. Consequently, there could be some impact on asset quality indicators as portfolio seasons.
However, good risk management and portfolio monitoring systems set up by the Group mitigate the risk to some extent.
Also, the Group has seen amortisation of its loan portfolio in the past owing to repayments as well as prepayments in
some cases. Going forward, while the increased focus on consumer durables financing and affordable housing is likely to
result in greater revenue diversity, the Group’s ability to maintain credit underwriting standards while growing business
volumes and maintaining the asset quality would remain a key rating sensitivity.

Key rating drivers

Credit strengths
Healthy capitalisation and liquidity profile – The DMI Group’s capitalisation profile is characterised by healthy metrics
with consolidated gearing of 0.4 times and CRAR of 53.6% and 113.2% for DFPL and DHFPL respectively (as on December
31, 2018), supported by the sizeable capital raise of Rs. 1,277 crore during FY2019. Also, CCDs aggregating Rs. 351 crore

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were converted to equity, leading to a consolidated net worth of ~Rs. 2,500 crore as of December 2018 as compared to
Rs. 886 crore as of March 2018. Going forward, given the growth plans for housing finance and consumer durables
segments, the Group may need incremental capital to maintain prudent capitalisation levels. Given the track record of
existing investors in extending support to the Group, ICRA expects support from the investors to be forthcoming as and
when required. Further, ICRA notes that over the longer term, the DMI Group plans to maintain prudent capitalization
with a gearing of 1.0-1.5x on the corporate book, ~4x on the consumer book, and ~6x on the housing book.

Experienced board and senior management team with prior experience in the relevant lines of business - The DMI
Group’s co-founders, Mr. Yuvraja C Singh and Mr. Shivashish Chatterjee, have a track record of more than two decades
each in the debt and fixed income product segment. Further, the senior management team has adequate experience in
the real estate business. Moreover, the Group has hired seasoned professionals from the financial services industry for
its new segments like consumer durables and affordable housing. The Board of Directors also includes experienced
bankers and businessmen.

Good risk management and portfolio monitoring systems – The DMI Group has good credit assessment, underwriting
and risk management processes with emphasis on cash flow visibility and adequate security cover from the project. ICRA
expects the Group to continue strengthening the systems and processes as the business grows and expands into newer
asset classes.

Credit challenges
High sectoral and borrower concentration - Notwithstanding the favourable portfolio diversification in FY2019, on
account of the increased focus on affordable housing and consumer durables financing, the DMI Group’s portfolio
continues to be concentrated towards real estate financing, which accounted for 45% of the total portfolio as on
December 31, 2018. Given the sizeable share of real estate financing in the portfolio of the DMI Group, borrower and
geographical concentration also remains moderately high. As on December 31, 2018, the top-10 borrowers accounted
for 28% of the combined portfolio and net worth. ICRA however notes that the Group’s diversity in revenues is likely to
improve further over the medium term, given its focus on affordable housing and consumer durables financing. The
declining credit concentration post the increased focus on housing finance and consumer durables segments, good credit
underwriting and adequate capital buffers mitigate the risk to some extent.

Relatively unseasoned loan book; asset quality remains comparatively weak, albeit improving - Incorporated in 2008,
the DMI Group built up its loan book gradually to Rs. 1,654 crore as on March 31, 2018, before expanding it to about Rs.
2,500 crore as on December 31, 2018. While the group has seen a few repayment/amortisation cycles over the last 10
years, it is noted that principal repayment/amortisation for a large share of the Group’s outstanding book started
recently or is yet to start, reflecting moderate portfolio seasoning. Thus, there could be some impact on asset quality
indicators as portfolio seasons. Further, while the Group’s asset quality indicators adjusted for assets under settlement
have improved in FY2019 due to sizeable decline in assets under settlement, the overall level remains weak with gross
NPA of 2.6% and assets under settlement aggregating 3.5% of the gross advances. Nevertheless, a sizeable decline in the
assets under settlement to ~Rs. 89 crore as of December 31, 2018 (declined further to ~Rs. 70 crore as of January 31,
2019) from ~Rs. 144 crore as on March 31, 2018 provides comfort. Going forward, the Group’s ability to maintain credit
underwriting standards while growing business volumes and maintaining asset quality would be a key rating sensitivity.

Moderate profitability indicators – Given the early stage of operations in affordable housing and consumer durables
financing, the DMI group’s operating expenses remain high and hence, a drag on profitability. While the consolidated
return on assets stood at 4.1% in FY2018, the return on equity remained subdued at 8.7%. ICRA, however, notes that the

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diversification into consumer durables loans and affordable housing, which are relatively higher yielding segments, is
likely to support the profitability indicators of the group, provided it is able to maintain control on fresh slippages.

Liquidity position
The DMI group’s liquidity position has been augmented by the sizeable equity infusion (~Rs. 1,277 crore) in 9MFY2019,
following which it had cash & liquid balances aggregating ~Rs. 1,040 crore (as on December 31, 2018), in addition to
unutilised cash credit limits of Rs. 95 crore. In comparison, the Group had outstanding borrowings of Rs. 1,084 core as on
December 31, 2018 (payable over the next three years). Even in September 2018, before the latest round of equity
infusion, the Group had comfortable asset-liability position with a modest negative mismatch vis-à-vis the available cash
credit limits. Going forward, the Group’s ability to grow while maintaining adequate liquidity will remain imperative. ICRA
notes that the management intends to keep six months of liabilities and expenses available in the form of cash &
equivalents or sanctioned and immediately drawable limits to cover any kind of liquidity mismatch.

Analytical approach
Analytical Approach Comments
ICRA’s Credit Rating Methodology for Non-Banking Finance Companies
Applicable Rating Methodologies
ICRA’s credit Rating Methodology for Housing Finance Companies
Parent/Group Support Not applicable
For arriving at the rating, ICRA has taken a consolidated view of DFPL and
Consolidation / Standalone DHFPL (an associate of DFPL). The list of entities consolidated is provided in
annexure 2.

About the company – DMI Finance Private Limited:

DMI Finance Private Limited (DFPL), incorporated in 2008, is a private financial services company registered as an NBFC-
loan company with the Reserve Bank of India (RBI). It is mainly engaged in secured corporate lending, largely towards
real estate, though it has diversified into consumer lending wherein it provides consumer durables and consumption
loans to individuals.

DMI Ltd, Mauritius held 76.27% shareholding in DFPL as of December 31, 2018. DMI Ltd, Mauritius is, in turn, backed by New
Investment Solution (NIS), a Zurich-based alternative asset manager with over $2 billion of deployed capital. NIS is led by
Takashi Sato, who was Head of Private Wealth and Asset Management at Nomura Bank (Europe). The fund focuses on
Japanese equities, US asset-backed debt and emerging market debt.

DFPL reported a consolidated1 profit after tax (PAT) of Rs. 74.0 crore in FY2018 on an asset base of Rs. 1,996.2 crore as
on March 31, 2018 as against a consolidated PAT of Rs.67.7 crore in FY2017 on an asset base of Rs. 1,581.4 crore, as on
March 31, 2017. It reported a net profit of Rs. 48.0 crore in 9M FY2019. As on December 31, 2018, DFPL’s reported
capital adequacy was 53.6%.

1 Till FY2018, consolidated financials of DFPL included the performance of DHFPL. However, as DHFPL is no longer a subsidiary of DFPL,
its 9M FY2019 performance doesn’t include DHFPL’s results.

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About the company – DMI Housing Finance Private Limited:
DMI Housing Finance Private Limited (DHFPL), incorporated in 2011, is a private financial services company registered as
a housing finance company (HFC) with National Housing Board (NHB). It primarily provides housing finance for the
purchase of residential units, construction of new units as well as additional units, and the repair and modification of
existing units. The company commenced operations in FY2014 and had an outstanding loan portfolio of Rs. 318 crore as
on December 31, 2018, with home loans accounting for 87% of the portfolio.
DHFPL is promoted by DMI Ltd, Mauritius, which along with DMI Finance Private Limited held 100% stake in the company
as of December 31, 2018.

DHFPL reported a profit after tax (PAT) of Rs. 1.2 crore in FY2018, compared to net loss of Rs. 0.9 crore in previous year.
It reported net loss of Rs. 1.5 crore in 9M FY2019. As on December 31, 2018, DHFPL’s reported capital adequacy was
113.2%.
Key financial indicators
DFPL* DHFPL DMI Group&
FY2017 FY2018 9MFY19 FY2017 FY2018 9MFY19 FY2017 FY2018 9MFY19
Audited Audited Provisional Audited Audited Provisional Audited Audited Estimate
PAT 67.7 74.0 48.0 (0.9) 1.2 (1.5) 67.7 74.0 46.5
Net Worth 812.3 886.3 2192.8 71.6 114.9 523.0 812.3 886.3 2,525
Assets under Management 1387.0 1654.6 2224.4 63.0 171.7 318.3 1387.0 1654.6 2,542.7
Total Assets 1581.4 1996.2 3318.8 75.3 177.8 592.9 1581.4 1996.2 3,750.6
Return on Average Assets (%) 4.5% 4.1% 2.4% -1.7% 1.0% -0.5% 4.5% 4.1% 2.2%
Return on Average Equity (%) 9.5% 8.7% 4.1% -2.0% 1.3% -0.6% 9.5% 8.7% 3.6%
Gearing^ (times) 0.3 0.6 0.5 0.0 0.5 0.1 0.3 0.6 0.4
CRAR 72.4% 61.2% 53.6% 158.3% 113.9% 113.2% 72.4% 61.2% 59.7%
Gross NPAs (%) 0.1% 0.2% 3.0% 0.0% 0.1% 0.3% 0.1% 0.2% 2.6%
Net NPAs (%) 0.0% 0.0% 0.4% 0.0% 0.1% 0.2% 0.0% 0.0% 0.4%
Net NPA/Net Worth (%) 0.0% 0.0% 0.4% 0.0% 0.2% 0.2% 0.0% 0.0% 0.4%
Source: DMI Group, ICRA research
*Consolidated financials of DFPL; till March 2018, DHFPL was a subsidiary of DFPL
&
ICRA has taken a consolidated view on DFPL and DHFPL, referred to as DMI Group
^ Assuming compulsorily convertible debentures as equity

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years
Chronology of Rating History for
Current Rating (FY2019)
the Past 3 Years
Date & Date &
Date &
Rating Rating
Instrument Amount Amount Date & Rating Rating in
in in
Type Rated Outstanding FY2016
FY2018 FY2017
(Rs. crore) (Rs. crore)
Mar Aug Aug
- -
2019 2018 2017
Commercial
1 ST 300.00 - [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ - -
Paper
Note: ST: Short-term

Complexity level of the rated instrument

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument details
Date of Issuance / Coupon Maturity Amount Rated Current Rating
ISIN Instrument Name
Sanction Rate Date (Rs. crore) and Outlook
NA Commercial Paper NA NA 7-365 days 300.00 [ICRA]A1+
Source: DMI Finance Private Limited

Annexure-2: List of entities considered for consolidation

Company Name Ownership Consolidation Approach
DMI Finance Private Limited Rated Entity Rated Entity
DMI Housing Finance Private Limited 31% Full Consolidation
DMI Management Services Private Limited 100% Full Consolidation
DMI Capital Private Limited 100% Full Consolidation
DMI Consumer Credit Private Limited 90% Full Consolidation

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ANALYST CONTACTS
Karthik Srinivasan Manushree Saggar
+91 22 6114 3444 +91 124 4545 316
karthiks@icraindia.com manushree@icraindia.com

Deep Inder Singh Deepak Narang

+91 124 4545 830 +91 124 4545 442
deep.singh@icraindia.com deepak.narang@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
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jayantac@icraindia.com

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Ms. Naznin Prodhani
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communications@icraindia.com

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+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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For more information, visit www.icra.in

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