Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the Rs 210 crore commercial paper programme of CNH Industrial Capital (India) Pvt Ltd (CNHI Capital).

 

The rating centrally factors in the strategic importance of the company to its ultimate parent, CNH Industrial N.V. (CNH Industrial; rated 'BBB/Stable/A-2' by S&P Global) and the parent’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 also based on CNH Industrial’s 100% ultimate ownership in CNHI Capital, through its wholly owned subsidiary, CNH Industrial India Private Ltd (CNHI India), which manufactures and sells tractors and other agricultural equipment in India. The rating is also driven by comfortable capitalisation and improvement in earning profile. However, these rating strengths are partially offset by CNHI Capital being a relatively smaller player with limited track record of operations and modest asset quality.

 

CRISIL Ratings understands that CNHI Capital has not opted for any moratorium from lenders and continues to service the debt as per schedule.

Analytical Approach

The rating on CNHI Capital is based on S&P's counterparty credit rating on CNH Industrial. This is because ratings on Indian affiliates of global financial institutions (GFIs) by CRISIL Ratings centrally factor in strong expectation of support from their ultimate parents. The rating framework for such affiliates considers the following factors: CRISIL Ratings’ assessment of the global operating environment and its impact on the credit risk profiles of GFIs; ratings of S&P on GFIs; CRISIL Ratings’ translation of S&P ratings on the parents into CRISIL Ratings’ rating scale; and the standalone credit quality of the Indian operations.

Key Rating Drivers & Detailed Description

Strengths:

• Strong support of CNH Industrial

CNHI Capital is strategically important to CNH Industrial, given the role the former plays in strengthening the market share of the group’s two major business segments conducted through two subsidiary companies in India, namely, CNH Industrial (India) Pvt Ltd for tractor & agricultural equipment and Case New Holland Construction Equipment (India) Pvt Ltd (Case NHC) for construction equipment business. Moreover, the group has made a cumulative investment of Rs 363.7 crore in CNHI Capital till 31 March 2021 (Additional Rs 33.50 crore has been infused in Aug 2021). Further capital may also be infused to support growth in the future, as and when required.

 

The risk management policies, systems and processes of CNHI Capital are in line with those followed globally by CNH Industrial. The operations are closely integrated with those of other CNH Industrial businesses in India, as well as globally. Furthermore, the Indian group treasury team responsible for funding and liquidity management at CNHI Capital, works closely with the global treasury team in planning and managing funding requirement. Benefits from the global relationships of CNH Industrial with foreign banks operating in India also support the business. CNHI Capital’s senior management team has significant experience in the financial services industry. Its board of directors has representation from other business verticals of CNHI Industrial group. Furthermore, the Indian parent (CNHI India) has provided a credit line of Rs 500 crore to CNHI Capital.

 

The ownership, shared brand and strong operational integration leads to strong support from CNH Industrial. Therefore, the extent of ownership and support extended by the parent, remains a key credit sensitivity factor.

 

• Comfortable capitalisation

Networth was Rs 366.72 crore and capital adequacy ratio was 20.4% as on March 31, 2021 as compared to Rs. 286.1 crores and 23.3% as on March 31, 2020. The parent has infused Rs 363.7 crore in CNHI Capital till 31st March 2021. Additional Rs 33.5 crore infused in August 2021. Gearing stood at 3.8 times as on as on March 31, 2021, and is expected to be at, steady-state levels of 4-5 times as the entity scales its portfolio.

 

Weaknesses

• Limited track record of operations

CNHI Capital commenced operations in April 2018. It is a relatively small player with a modest loan portfolio of Rs 2008 crore as on September 30, 2021 (Rs 1,872 crore as on March 31, 2021). Being a captive financier, its growth trajectory is intrinsically linked to the market positions of CNHI India and Case NHC in the Indian market.

 

The company provides loans and financial services to customers and dealers for purchase of tractor and construction equipment. As on September 30, 2021, wholesale dealer financing comprised 25% of the total book and the balance was in the form of retail financing. On a steady-state basis, the company is expected to maintain its retail portfolio at 70-75% over the medium term.

 

• Modest asset quality 

Given the nascent stage of operations, CNHI Capital had delinquencies with gross non-performing assets (GNPAs) of 6.4% as on March 31, 2021 (GNPAs of 5.4% as on March 31, 2020). Collections of Retail Portfolio were impacted in the second-wave of Covid-19 and dipped in the month of April 2021. Consequently, the GNPAs in the first half of fiscal 2022, increased to 8.54% as on September 30, 2021. Nevertheless, the collections started to improve from June onwards and collection efficiency reached 91% in September 2021.  Company doesn’t have any significant restructured portfolio in the books. Wholesale book doesn’t have any moratorium impact, primarily moratorium impact remains in retail book due to long term financing.

 

CNHI Capital has strong focus on underwriting and risk management practices, which are similar to those followed globally.

 

The company reported net profit of Rs 18.9 crore in fiscal year ended March 2021 compared with net loss of Rs 4.2 crore in the fiscal year ended March 2020. Improvement in profitability can be attributed to ability to raise funds at lower cost and controlled credit costs. Nevertheless, the impact of seasoning on the portfolio will be visible only over the medium term. Hence, the ability to manage asset quality and profitability while ramping up scale of operations will be a key monitorable.

Liquidity: Strong

The liquidity profile of CNHI Capital is strong with positive cumulative mismatches across all Asset-Liability Management buckets. CNHI Capital had total debt repayment of Rs 288.9 crore as on December 31, 2021 over next three months, against which it had Rs 57.2 crore of cash and bank balance and unutilised bank lines of Rs 1378.38 crore on the same date. The debt repayment will be further supported by collections during this period.  

Rating Sensitivity factors

Downward factors

• Downward revision in the rating of its ultimate parent, CNH Industrial, by S&P by two or more notches or decline in support from CNH Industrial by way of reduction in majority ownership or in the strategic importance of the parent to CNHI Capital
• Significant weakening of asset quality and earnings profile of CNHI Capital on a continuous basis

About the Company

CNHI Capital is a wholly owned subsidiary of CNHI India, which in turn, is indirectly wholly owned by CNH Industrial. CNHI Capital was incorporated in October 2017 and obtained its non-deposit-taking non-banking financial corporation (NBFC) license from RBI on April 02, 2018, to function as a captive financier. The NBFC finances to dealers and customers of CNHI India and Case NHC’s construction equipment business. CNHI India has been present in India since 1992 and is primarily involved in manufacturing agricultural equipment, such as tractors and farm mechanisation solutions, such as pneumatic planters, boom sprayers, mowers, rotavators, balers and rakes with strong profitable record. Case NHC has been present in India since 1998 and manufactures construction equipment, including compactors and loader backhoe with a strong profitable track record.

 

CNHI Capital reported net profit of Rs 18.9 crore and total income of Rs 188.9 crore in fiscal 2021.

 

CNH Industrial NV is a Europe-based global leading manufacturer of agricultural and construction equipment, as well as trucks, commercial vehicles, specialty vehicles and power trains. The Company provides the strategic direction, R&D capabilities, and investments that enable the success of its five core Brands: Case IH, New Holland Agriculture and STEYR, supplying 360° agriculture applications from machines to implements and the digital technologies that enhance them; and CASE and New Holland Construction Equipment delivering a full lineup of construction products that make the industry more productive. It also offers engines, transmissions, and axles, mainly for its own equipment and vehicles, but also for marine and power generation. In addition, it offers financing solutions through its captive finance subsidiaries. CNH Industrial had a consolidated net income of USD 1.4 billion (Rs 10.39 thousand  crore[1]) on net sales of USD 24.4 billion (Rs 1.81 lakh crore[1]) for the nine months ended September 30, 2021.

 

CNH Industrial N.V. has proceeded with its plans to spin off its on-highway (IVECO) activities effective from January 01, 2022. The spin-off will fully separate the group's trucks, buses, and powertrain activities from the agricultural and construction machinery businesses (off-highway), via a public listing of the on-highway business. After the separation, effective January 2022, CNHI comprises agricultural and construction equipment division, while the trucks and power trains were spun off as IVECO.

 

1Exchange rate as on September 30, 2021, 1USD = 74.24 INR

Key Financial Indicators

As on/for the year ended March 31	Units	2021	2020	2019
Total assets	Rs crore	1,827	1,310	866
Total income	Rs crore	189	138	50
Profit after tax (PAT)	Rs crore	18.9	-4.2	-6.2
GNPAs	%	6.4	5.4	0.5
Adjusted gearing	Times	3.8	3.5	1.4
Return on assets	%	1.2	-0.4	-1. 4

*As per INDAS

Any other information: Not applicable