Sammaan Finserve reoriented as Affordable Housing Financier

Sammaan Capital Limited (SCL), previously known as Indiabulls Housing Finance Limited, has reported a strong operating performance for the first half of FY25, marked by a significant rise in cash collections from its legacy loan book. As of September 30, 2024, the company’s net worth surged to approximately

₹20,000 crore, with the parent entity alone registering a rise of ₹3,000 in its net worth. This increase in net worth translates to a rise in capital adequacy, which improved by 300 basis points to around 26% in the parent, well above the regulatory requirement of 15%. This is a key milestone, particularly given that approximately 95% of the company’s borrowings are held by the parent entity, reinforcing its strong financial foundation.

In a major strategic move, Sammaan Capital has acquired the ₹5,500 crore legacy loan book from its subsidiary, Sammaan Finserve Limited (SFL). The transaction, conducted at arm's length and at fair market value complying with regulatory requirements, is supported by legal, audit, and valuation firms including Deloitte, BDO, Vishal Leheri, CAM, and IndusLaw.

Consistent with fair market value, in the subsidiary SFL out of the retained earnings of the legacy book in the subsidiary, provisions have been made. With the transfer of legacy loans, these provisions are now available in the parent against the entire legacy book, and is in line with portfolio scrub and analysis of the entire legacy loan book.

As a result, the net worth in the subsidiary stands right-sized to ~₹ 3,000 Crs, in line with peers such as Aavas, Aptus, Home First, Aadhar etc. The subsidiary now positioned as an Affordable Housing Financier, gives the parent the option of monetization at rich valuations. Eventually the parent will benefit both from the provision cushion as well as valuation upside from the subsidiary, if it chooses monetize. With the shift of the legacy loan book, the capital adequacy in the subsidiary has also significantly risen to ~50%, again against regulatory requirement of only 15%.

Thus, a key development during this period was the strategic shift in the focus of Sammaan Finserve Limited. The subsidiary has been repositioned to become an affordable housing financier, a move designed to unlock significant value. Companies in the affordable housing finance sector typically trade at valuations of more than four times their net worth, making this pivot an important growth opportunity for both Sammaan Finserve and Sammaan Capital.

On the asset quality front, Sammaan Capital has made significant strides in addressing risks associated with its legacy loan book. While market expectation was a one-time credit hit of around ₹6,000 crore, the company has provisioned ₹4,500 crore, in line with external valuations and internal assessments. The company anticipates recovering this provision—and more—over the coming periods.

Importantly, the company has successfully reduced its SMA loans, including non-performing assets (NPAs) and loans in stages 2 and 3, bringing these indicators to their best levels in years. This reduction in troubled assets signals the company’s strong track record in managing its legacy portfolio and bodes well for future growth.

Looking to the future, Sammaan Capital is positioned for continued operational growth, with business-as-usual credit costs expected to remain at approximately 80 to 100 basis points per annum. With healthy capital levels, improved asset quality, strong cash collections, and a well-managed run-down of its legacy loan book, the company is on solid footing.

The strategic repositioning of Sammaan Finserve into the affordable housing finance space, along with the successful resolution of its legacy portfolio, positions Sammaan Capital for long-term growth. With a robust financial base and a clear growth trajectory, the company is poised to capitalize on the opportunities in the affordable housing sector, further strengthening its market position and creating value for its stakeholders.