Deal focus: India’s Shubham sees opening to accelerate

India’s affordable housing market has seen significant uplift since the government’s Housing For All initiative was launched in 2015. The pandemic is seen as having accelerated things further, with the phenomenon of multiple unrelated workers sharing a flat to be close to jobs now less common. The market is estimated to be worth around USD 200bn.

This has resulted in a proliferation of specialist financing providers, which have generally proven nimbler than banks at serving low-income clientele. The most established among them are attracting significant international investment.

Most recently, Shubham raised USD 112m led by British International Investment (BII) with support from Asian Development Bank (ADB) and longstanding local backer Premji Invest, which continues to hold an almost 40% stake. This provided exits for US-based Elevar Equity and Motilal Oswal Private Equity.

“While credit availability appears abundant in the INR 1.5m-plus (USD 18,900) ticket size segment, the space has seen greater crowding from larger HFCs [housing finance companies] and from regional banks, with greater competition on pricing,” said Gaurav Malhotra, a director at BII who focuses on South Asia financial services.

“We see potential for growth and scale in the sub-INR 1m ticket size with emerging specialised players focusing on niche customer segments in tier-two and tier-three cities through their ability to appraise these customers with informal property, security and incomes.”

Shubham has INR 24.1bn in assets under management and around 100 branches across nine states. The company believes the affordable housing finance space is at an inflection point and projects its business will grow at 50-60% a year for the next 3-4 years, at which time it will be IPO ready.

Managing risk has been a big part of the story and helped the company achieve a loan-to-value ratio of 55%. The lending rate is 14-15%, which can easily wipe out a delinquent customer’s equity in a couple of years. Education is therefore key to the process.

So is technology. Shubham’s underwriting is based on a two-tier assessment with a digital rule-based credit engine and document management system. Data analytics provide support on the monitoring front, including regular insights on portfolio mix, delinquency rates, origination trends, static pool analysis, and branch performance.

None of this is proprietary, however, and comes mostly courtesy of third-party vendors. Shubham’s differentiation derives from a relative longevity (founded in 2010), which has delivered it a relatively outsized data pool on customer behaviour. To date, the company has provided about 70,000 loans, half of which are still live.

“Having a lot of datapoints across a large number of loans has helped us build some very sharp scorecards for applications and onboarding customers, as well as collections and predicting bounce propensity. We are also tracking and recording property valuations and prices across some 10,000 micro-markets,” said Rupa Basu, an executive director at Shubham.

“We’re looking at aggressive growth, so these tools will help us sharpen our strategy as the portfolio size increases and our volumes increase.”

Part of the strategy behind the latest investment is about staying on-mission during this growth spurt. Historically, Shubham’s investors have been traditional financial players, and continued involvement from the likes of Premji Invest is expected to ensure IPO planning is pursued with due rigour. But impact appears to be a more formal aspect of the agenda now.

In addition to BII and ADB, the latest round included LeapFrog Investment, which aims for a double bottom line of profit and purpose. For Shubham CEO Sanjay Chaturvedi, this incoming class of investor represents a chance to nail down the company’s original goal of promoting financial inclusion while still scaling at speed.

“Serving the underserved is how we as individuals thought of our business, but I think now with these investors coming in, that is going to get institutionalised. They’re going to make sure we focus on doing the right things, like giving loans to women who are disadvantaged, especially in poorer families,” Chaturvedi said.

“Those things were more in our hearts than on the developmental agenda. This will help us fulfil our social objectives while being commercially successful.”

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• Topics
• South Asia
• Financials
• Trade sale
• Expansion
• India
• CDC Group
• LeapFrog Investments
• Asian Development Bank
• Premji Invest
• Elevar Equity
• Motilal Oswal Private Equity
• Financial Services