BMW India Financial Services Private Limited

'CRISIL AAA/Stable' assigned to Bond Issue

Rs.5 Billion Bond Issue CRISIL AAA/Stable (Assigned) Rs.8 Billion Bond Issue CRISIL AAA/Stable (Reaffirmed) Rs.2.5 Billion Bond Issue CRISIL AAA/Stable (Reaffirmed)

CRISIL has assigned its 'CRISIL AAA/Stable' rating to the Rs.5.0 billion bond issue of BMW India Financial Services Pvt Ltd (BMWIFS), and has reaffirmed its rating on the company's existing debt instruments at 'CRISIL AAA/Stable'.

The rating continues to centrally factor in the strategic importance of BMWIFS to its ultimate parent, Bayerische Motoren Werke AG (BMW AG; rated 'A+/Stable/A-1' by Standard & Poor's [S&P]), and BMW AG's strong moral obligation to support the Indian subsidiary, both on an ongoing basis and in the event of distress. The expectation of strong support is based on BMW AG's 100 per cent ultimate ownership in BMWIFS, its shared brand name, and strong operational linkages between the two companies.

BMWIFS, being a captive financier of BMW India Pvt Ltd (BMW India), receives significant business, financial, and managerial support from BMW AG, given the strategic role it plays in strengthening BMW AG's market share in the automotive business in India. BMWIFS and BMW AG have significant managerial and operational integration and BMW AG extends management support through representation of its senior management on BMWIFS's board. BMW AG has been infusing equity capital in BMWIFS at regular intervals and is likely to continue doing so to support the latter's growth plans over the medium term. Till date, BMW AG has infused more than Rs.6.0 billion in the Indian subsidiary; it is likely to continue to infuse additional capital to support the growth plans of the Indian subsidiary over the medium term. BMWIFS further benefits from the common treasury and resource operations of the parent across Asia as well as from BMW AG's product suite, globally approved risk management policies, and systems and processes. CRISIL believes that BMW AG will continue to maintain its 100 per cent ownership in BMWIFS. The full ownership, shared brand name, and strong operational integration lead to a high moral obligation on BMW AG to support BMWIFS.

BMWIFS had a loan portfolio of Rs.25.8 billion as on March 31, 2014 (Rs.22.3 billion as on March 31, 2013; growth of 15.6 per cent), with around 70 per cent of the portfolio comprising financing of new cars and the remaining comprising largely dealer financing. While BMWIFS is a relatively small player in the overall vehicle finance market, it is a leading player within the premium-car financing segment. The company's gross non-performing assets (NPAs) increased to around 1.94 per cent as on March 31, 2014, from 0.85 per cent as on March 31, 2013, and 0.68 per cent as on March 31, 2012. The company's gross NPAs have increased over the past year due to the seasoning of the loan book as well as the challenging macroeconmic conditions. However, the gross NPAs has improved marginally to 1.52 per cent as on June 30, 2014. BMWIFS's management of its asset quality with increase in its scale of operations will be closely monitored by CRISIL. As on March 31, 2014, BMWIFS had a comfortable capital position, with net worth of Rs.6.8 billion (Rs 5.6 billion in March 31, 2013) and low gearing of around 2.9 times (3.0 times as on March 31, 2013). Its capital adequacy ratio was 25.9 per cent as on March 31, 2014 (24.7 per cent in March 31, 2013). Given the strong capital position,  BMWIFS is unlikely to require capital infusion from the parent over the next one to two years. The company's profitability remains low with reported return on assets ratio declining to 0.72 per cent during 2013-14 from 1.26 per cent in 2012-13 (refers to financial year, April 1 to March 31) primarily because of a substantial increase in credit costs.

CRISIL believes that BMWIFS will continue to benefit over the medium term from the strong financial, managerial, and operational support from BMW AG. The outlook may be revised to 'Negative' in case of significant deterioration in BMW AG's credit risk profile, or in case of material decline in the extent of BMW AG's ownership in BMWIFS, and in the attendant support that BMW AG is likely to extend to BMWIFS.

BMWIFS is a wholly owned subsidiary of BMW International Investment BV, which is a wholly owned subsidiary of BMW AG. BMWIFS, a non-deposit-taking non-banking financial company, began operations in October 2010. It offers finance to customers and dealers of BMW India; it also offers finance for non-BMW premium cars through the Alphera brand.

BMWIFS had a loan portfolio of Rs.25.8 billion as on March 31, 2014 (Rs.22.3 billion as on March 31, 2013). It reported profit after tax (PAT) of Rs.183.9 million on total income (net of interest expenses) of Rs.1.0 billion for 2013-14 against PAT of Rs.242.1 million on total income (net of interest expenses) of Rs.0.85 billion for the previous year.

BMW AG is a leading global automotive company based in Germany. It manufactures premium-segment vehicles. The company has three main leading brands: BMW, Rolls Royce, and MINI. BMW Group is present in more than 50 countries, including major markets such as China, the US, Germany, and the UK, and emerging economies such as Brazil, Russia, India, South Korea, and Turkey. To strengthen its market position, the company has established its captive financing arm in all the major global markets.

As on June 30, 2014, the total assets of BMW Group's business stood at EUR144.6 billion. For the first six months of 2014 (refers to calendar year, January 1 to December 31), BMW AG reported PAT of around EUR3233 million against PAT of EUR2704 million for the corresponding period of the previous year.