Rating Rationale
January 09, 2020 | Mumbai
CNH Industrial Capital (India) Private Limited
'CRISIL A1+' assigned to CP 
 
Rating Action
Rs.210 Crore Commercial Paper Programme CRISIL A1+ (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A1+' rating to Rs 210 of crore commercial paper programme of CNH Industrial Capital (India) Private Limited (CNHI Capital).
 
CRISIL's ratings on CNHI Capital centrally factors in the strategic importance to its ultimate parent, CNH Industrial N.V. (CNH Industrial; rated 'BBB/Stable/A-2' by S&P Global), and CNH Industrial'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), engaged in manufacturing and selling of tractor and other agricultural equipment in India. The rating is also driven by comfortable capitalization. However, these rating strengths are partially offset by CNHI Capital being relatively smaller player with limited track record of operations and modest asset quality & earnings profile.

Analytical Approach

CRISIL's rating on CNHI Capital is based on S&P's counterparty credit rating on CNH Industrial. This is because CRISIL's rating on the Indian affiliates of global financial institutions (GFIs) centrally factor in the strong expectation of support from their ultimate parents. The rating framework for such affiliates considers the following factors: CRISIL's assessment of the global operating environment and its impact on the credit risk profiles of GFIs; ratings of S&P Global on GFIs; CRISIL's translation of the ratings of S&P Global on the parents' into CRISIL's 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 market share of the group's two major business segments conducted through two subsidiary companies in India namely 'CNH Industrial (India) Pvt Ltd' for agricultural equipment and 'Case New Holland Construction Equipment (India) Pvt Ltd (Case NHC)' for construction equipment business. Moreover, the group has made a significant initial investment of Rs 297 crore in CNHI Capital and has approved capital infusion of about Rs 100 crore over the next two years. Further capital may also be infused to support growth in future, as and when required.

The risk management policies, systems, and processes of CNHI Capital are in line with those globally followed 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 CNHI Capital, works closely with the global treasury team in planning and managing funding requirements. Benefits from the global relationships of CNH Industrial with foreign banks operating in India support the business, too. CNHI Capital's senior management team has significant experience in the financial services industry. Its board of directors also has representation from other businesses vertical 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 lead to strong support from CNH Industrial. The extent of ownership of, and support likely to be extended by, the parent, therefore, remains a key credit sensitivity factor.
 
* Comfortable capitalisation
Capitalisation is comfortable, with networth of Rs 296 crore and capital adequacy ratio of 25.51% as on September 30, 2019. The parent has infused Rs 297 crore in CNHI Capital so far and is likely to infuse about Rs 100 crore over the next two years to support the latter's growth. Though gearing was 2.6 times as on September 30, 2019, it is expected to increase over the medium term to steady state levels of 4-5 times as the entity scales its portfolio.

Weakness
* 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 1,136 crore as on September 30, 2019, a 153% year-on-year increase from Rs 448 crore. While the current size of the company's operations is small, it is expected to scale up its portfolio to ~Rs 2,000 crore in the short to medium term. Being a captive player, its growth trajectory is intrinsically linked to CNHI India's & Case NHC's position in the Indian market.

The company provides loans and financial services to customers and dealers for purchase of tractor and construction equipments. As on September 30, 2019, wholesale dealer financing comprised 51% of total book and the balance was in the form of retail financing. However, the company is expected to significantly ramp up its retail portfolio, which is likely to comprise 70% of the total book over the medium term.

* Modest asset quality and earnings profile
Given nascent stage of operations, CNHI Capital had very low delinquencies with GNPA of 0.47% (Rs 4 crore) as on March 31, 2019. However, 90+ dpd as on September 30, 2019 surged to 2.57% (Rs 29.2 crore) due to seasonal nature of business where collection comes during the harvesting period. CNHI Capital has strong focus on underwriting practices and the risk management practices, which are similar to those followed globally.

It had reported net loss of Rs 2.4 crore in its first full year of operations, i.e. fiscal 2019, since the company has been spending on hiring professional senior management and setting up other infrastructure essential for a financial services firm, including system and processes for underwriting and collection. However, based on provisional financials, company has reported net profit as on September 30, 2019 and its earnings profile is expected to improve going forward.

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 ALM buckets. CNHI Capital had total repayments of Rs 564 crore as on September 2019 over next 6 months. Against the same, CNHI Capital had Rs 11 crore of cash and bank balance and unutilised bank lines of Rs 573 crore as on September 30, 2019. The repayments would be further supported by inflows of Rs 622 crore over next six months. Despite relatively short track record of operations, CNHI Capital has raised funds via masala bonds and loan from banks at competitive rates, which indicates the strong ability of the company to raise funds. Also, the company is in talks with banks to enhance its bank lines and plans to tap capital markets for future requirements.

Rating sensitivity factors
Downward factor
* Downward revision in the rating of its ultimate parent 'CNH Industrial N.V.' by S&P Global by one category or decline in support from CNH Industrial by way of decline 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 the Reserve Bank of India (RBI) on April 02, 2018, to function as a captive financier. The NBFC finances to dealers and customers of CNHI India's tractors & agricultural equipment and Case NHC's construction equipment business. CNHI India has been present in India since 1992 and is primarily involved in manufacturing agriculture 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 loss of Rs 2.4 crore and total income of Rs 50.0 crore in fiscal 2019 (first full year of operations).

CNH Industrial, based in Europe, is a leading manufacturer of agricultural and construction equipment, and trucks, commercial vehicles, and specialty vehicles. It has strong brands, such as IVECO for trucks and Case IH and New Holland for agriculture and construction equipment, respectively. Furthermore, it offers engines, transmissions, and axles not only for its own equipment and vehicles, but also for marine and power generation. It also provides financing solutions through its captive finance subsidiaries. CNH Industrial had a consolidated net income of USD 1.3 billion (approx. Rs 9183 crore ) on net sales of USD 20.4 billion (approx. Rs 1.4 lac crore1) for the nine months ended September 30, 2019.

1Exchange rate as on September 30, 2019, 1USD = 70.6409 INR.

Key Financial Indicators*
As on/for the year ended March 31 Units 2019 2018
Total assets Rs crore 892 6.6
Total income Rs crore 50 NA
PAT Rs crore -2.4 -0.2
GNPAs % 0.4 NA
Adjusted gearing Times 1.4 NA
Return on assets % -0.5 NA
*Commenced operations on April 2018

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Rating Assigned with Outlook
NA Commercial paper programme NA NA 7-365 days 210 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  210.00  CRISIL A1+    --    --    --    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

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