| BMW India Financial Services Private Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of BMW India Financial Services Pvt Ltd (BMWIFS).
On August 05, 2021, S&P Global Ratings revised outlook of Bayerische Motoren Werke AG (BMW AG) to stable from negative based on stronger margin and cash flow prospects and reaffirmed its ratings on the company at 'A/A-1. The rating continues to centrally factor in the strategic importance of BMWIFS to its ultimate parent, BMW AG and the latter's strong moral obligation to support the Indian subsidiary, both on an ongoing basis and in the event of distress. The ratings on BMW AG reflect its leadership in global premium automotive manufacturing, highly recognized brands, strong product portfolio, exclusive focus on premium segment and well-established captive finance operations. These strengths are partially offset by the risk of profitability dilution from a faster shift toward electric vehicles and increasing competition from other players, high R&D costs and exposure to trade tensions the U.S., Europe & China.
The nationwide lockdown to contain the spread of the Covid-19 pandemic impacted operational activity across the country. Sustained economic recovery is a key monitorable, given continued localised restrictions in a few states following the second wave of the pandemic, which could exert pressure on asset quality. Additionally, any change in the payment discipline of borrowers can affect delinquency.
The company’s overall asset quality witnessed deterioration, as reflected in increase in gross non-performing assets (GNPA) to 8.5% as on March 31, 2021, from 5.9% a year earlier. Under the Reserve Bank of India’s (RBI) August 2020 resolution framework for Covid-19-related stress, the company had invoked restructuring for few accounts basis the restructuring policy and procedure approved by the board of directors. Pursuant to the RBI May 2021 resolution framework 2.0, the management has indicated that they have received applications and have restructured few accounts, so far. While the company’s asset quality will remain a monitorable, comfortable capitalisation provides cushion against asset-side risks in the current difficult macro environment. |
Analytical Approach 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 S&P Global Ratings), and the latter's strong moral obligation to support the Indian subsidiary, both on an ongoing basis and in the event of distress. The expectation of strong strategic support is based on BMW AG's 100% ultimate ownership in BMWIFS, BMW AG’s brand name, and strong linkages of BMWIFS with the BMW Group. |
Key Rating Drivers & Detailed Description Strengths: * Expectation of strong support from ultimate parent, BMW AG BMWIFS, primarily a captive financier of the BMW Group, receives strategic and financial support (in the form of equity as and when required) from BMW AG, given the significant role it plays in strengthening the BMW Group’s global market share in the automotive business. BMW AG, through its subsidiaries, has been infusing equity capital in BMWIFS at regular intervals. It has infused more than Rs 700 crore in the company till date, and is likely to continue providing need-based funding, over the medium term, to support the growth plans of the Indian subsidiary. 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 adopted risk management policies, and systems and processes. CRISIL Ratings believes BMW AG will retain 100% ownership in BMWIFS. The full ownership, strong brand identity and strong operational integration of BMW Group’s Indian operations with BMWIFS will lead to high moral obligation on BMW AG to support BMWIFS.
* Comfortable capitalisation provides cushion against asset-side risks As on March 31, 2021, capitalisation was comfortable with networth of Rs 864 crore (Rs 881 crore as on March 31, 2020) and comfortable gearing of 2.6 times (3.1 times as on March 31, 2020). BMWIFS’s capital adequacy ratio was 26.1% as on March 31, 2021 (23.7% as on March 31, 2020). Networth coverage for net non-performing assets is also adequate at around 7 times as on March 31, 2021.
CRISIL Ratings believes BMWIFS will maintain comfortable capitalisation, supported by need-based equity infusion from BMW AG and adequate accrual to networth.
* Adequate asset quality metrics BMWIFS has established good underwriting practices and has in-house systems and processes to manage asset quality. The risk management practices are largely similar to those followed globally. BMWIFS’s stage 3 assets as per IND AS has increased to 8.5% as on March 31, 2021, mainly on account of slippages in commercial finance and non-BMW (Alphera) portfolio (5.9% as on March 31, 2020). While the BMW book has also witnessed some increase in GNPA, the extent has been relatively lower. On the other hand, the Alphera book has a large component of fleet owners which were severely affected during the year on account of the pandemic. Going forward, the management indicated increased focus towards BMW car segment with commercial financing through select dealers only. Also, as per management, the overall portfolio performance has been better during the second wave of the pandemic, compared to the first wave, and the company has further strengthened its credit assessment and monitoring processes for distressed borrowers.
BMWIFS's ability to manage asset quality with increase in scale of operations will be closely monitored by CRISIL Ratings.
Weakness: * Relatively small player in the overall finance market BMWIFS is a relatively small player in the overall vehicle finance market. Its loan portfolio stood at Rs 3,113 crore as on March 31, 2021 (Rs 3,552 crore as on March 31, 2020). Around 87% of the portfolio comprised financing of retail business and the remaining was largely dealer financing. While the overall market share of the company is low, it is among the leading players in the premium car financing segment. Apart from financing BMW cars, the group has ‘Alphera’ brand for financing of non-BMW cars, resulting in a diversified portfolio. As on March 31, 2021, the loan book was distributed between BMW and Alphera in the ratio of 83:17. |
Liquidity: Superior As on June 30, 2021, the asset and liability management (ALM) statement had positive cumulative mismatches in the up to 1 year bucket. As on June 30, 2021, the company had total debt repayment of around Rs 390 crore for the next five months, against which it maintains unutilised bank lines of Rs 2,078 crore and cash balance of Rs 35 crore. |
Rating Sensitivity factors Downward factors * 2 or more category downgrade in the rating of BMW AG (parent entity) by S&P |
About the Company BMWIFS is a majority-owned subsidiary of BMW International Holding BV, which is a wholly owned subsidiary of BMW AG. BMWIFS, a non-deposit-taking, non-banking financial company, which began operations in August 2010. It offers finance to customers and dealers of BMW India. Its loan portfolio stood at Rs 3,113 crore as on March 31, 2021 (Rs 3,552 crore as on March 31, 2020).
With its four brands - BMW, MINI, Rolls-Royce and BMW Motorrad, the BMW Group is the world’s leading premium manufacturer of automobiles and motorcycles and also provides premium financial and mobility services. The BMW Group production network comprises 31 production and assembly facilities in 15 countries. The company has a global sales network across more than 140 countries.
The success of the BMW Group has always been based on long-term thinking and responsible action. The company has established ecological and social sustainability throughout the value chain, comprehensive product responsibility and a clear commitment to conserving resources as an integral part of its strategy. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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