Home Credit’s India operations, with a loan book of over Rs 6,000 crore, is helmed by 10 executives — six of whom are eastern European nationals. The non-banking finance company (NBFC) has given loans to over 80 lakh Indians, of which 50% are new to credit. That means, close to 40 lakh Home Credit borrowers have no borrowing and repayment history with credit rating agencies.
“Right now, there’s nobody in India who can underwrite no-score customers like we do,” says Ondrej Frydrych, global chief executive, Home Credit Group, which owns the India operations.
“We don’t exclude no-score individuals; we lend to them. Half of our customers are first-time borrowers, which confirms we offer a strong value proposition for customers and retailers,” Frydrych tells ET in an exclusive interview.
Home Credit India plays the volumes game like none other in the NBFC space. Its average consumer durables loan ticket size is Rs 10,000-12,000 per borrower, making it a clear retail-focused small-ticket financier.
The strategy has paid off as Home Credit is very close to logging its “first profitable year” in India. It has half-yearly profits of Rs 294 crore, mainly on account of a deferred tax reversion of Rs 472 crore, as per data sourced from Capital Line.
Home Credit reported a total income of Rs 1,497 crore and net loss of Rs 261 crore in FY18, as against net loss of Rs 426 crore in FY17.
In fact, while addressing a small group of investors at Amsterdam recently, Frydrych said India operations have turned profitable on the back of double-digit growth during July-September 2018. Home Credit’s new loan volumes increased close to 60% around the time when most NBFCs were finding it difficult to raise funds.
Frydrych refuses to share specific profit and loss figures, citing a silent period prior to quarterly results, but admits India is an “inspiring market with untapped potential. We’re very optimistic. We’ll continue expanding here.” The group is predominantly owned by Czech billionaire Petr Kellner.
The India operations are wholly owned by Home Credit Group, which is registered in Amsterdam. “We like to be in markets with rapidly growing consumer population and significant barriers to entry Our audience is those underserved by traditional financial institutions,” Frydrych quips.
A consumer durables (CD) financer, Home Credit is one of the largest financiers of mobile phones in the world – having aided over 100 million (mobile handset) purchases in 10 markets. In India, it has financed mobile phone purchases of 80 lakh customers. NEED FOR SPEED Home Credit claims to have around 30,000 partner-store linkages across 179 cities in 20 states, and employs close to 18,000 in India. It competes with Bajaj Finance, Capital First and HDFC Bank-promoted HDB Financial Services in the segment.
“Home Credit is mostly active in… low-ticket loans, which are less risky but offer high scope for growth,” says Siddharth Purohit, banking analyst, SMC Institutional Equities.
The Czech company is the smallest in the pack, mainly on account of their thin product bouquet. “We’re primarily a CD financing company, with some cross-sell into personal and two-wheeler loans. We’re planning to roll out differentiated products, but you will never see us running a housing loan or such other books,” says Martin Navratil, business development head, Home Credit India.
The NBFC’s loan book can be split into three — close to 40% attributed to CD loans, 55% to cash loans and over 2% under the newly set up two-wheeler loans vertical. Competitors with larger books reckon Home Credit as a formidable force in the CD financing space, mainly on account of their ability to disburse several batches of ‘sub-Rs 10,000 loans’ in a short span of time. The Czech company’s loan algorithm is the best in its class, they say.“Their loan turnaround time (TAT) is probably the lowest among the Big 4 CD financing companies,” says the marketing head of a competing NBFC. “They are able to disburse loans to people without any credit rating references.
That’s one thing we’re not able to do. Also, their niche is small-purchase loans, which many of us have not managed to crack.” Senior executives at Home Credit say they disburse CD loans 15 minutes from the time a customer approaches them. “We took much lesser time (than 15 minutes) when Aadhaar was a legal KYC document,” says Ankush Khosla, chief operating officer, Home Credit India. Home Credit analyses creditworthiness by checking utility service provider records and social networking sites of prospective customers but this leaves it vulnerable to higher levels of non-performing assets risk. A lion’s share of its loans are unsecured as well. Given these two factors, the company has managed to keep its gross and net NPA in check at 5.6% and 1.2%, respectively.
“Lending to first-time borrowers is in our DNA,” says Vijay Dhingra, legal head, Home Credit India. “We keep a capital adequacy ratio (CAR) of 26% — one of the highest in the space where we operate.
Higher CAR allows us to stay comfortable; it’s partly a liquidity buffer for us too.” THE BIG CHEQUE Home Credit borrows from banks and also issues commercial papers and non-convertible debentures. It has also raised funds by securitising a few batches of two-wheeler and CD loans. Foreign promoters of Home Credit India have invested close to Rs 3,000 crore in its India business, apart from giving ‘guarantees’ to its bank borrowings.
Care Ratings grades the issuance of Home Credit and the scale has moved up consistently, starting from BB+ (below investment grade) in June 2016, to BBB in September 2017 and A- in July 2018, reflecting ‘adequate safety.’
“If you look at pure-play CD loans, Home Credit is the largest financier in India currently,” says Mitul Budhbhatti, associate director, Care Ratings.
Frydrych aims to fund more of the 90 million mobile phones purchased in India every year. According to Frydrych, India may soon become the third core market for Home Credit Group, after China and Russia.
“We’ve emerged a leading player in the sub-Rs10,000 category in a short span. We’ll expand through wider and deeper penetration into cities and product categories,” says Ondrej Kubik, India chief executive, Home Credit.
The Czech surely knows – without hard work, there’s no kolach.