| Mercedes-Benz Financial Services India Private Limited | ||||
| Ratings Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/'CRISIL A1+' ratings on the long-term bank facilities and debt instruments of Mercedes-Benz Financial Services India Pvt Ltd (MBFSI) formerly known as Daimler Financial Services India Pvt Ltd (DFSI).
Out of the total commercial paper rated of Rs 2500 crore, CRISIL Ratings has withdrawn its rating on Rs.1500 crore on the request of the issuer in line with its withdrawal policy (See Annexure 'Details of Rating Withdrawn').
MBFSI is expected to continue to benefit from the strong management, operational and financial support from its ultimate parent, Mercedes-Benz Group AG (rated ‘A/Stable/A-1’ by S&P Global)
The company commenced operations in 2011 and has grown its portfolio to Rs 6,599 crore as on March 31, 2023 (Rs 6,290 crore a year earlier). The portfolio outstanding comprises passenger vehicle (PV) loans (76% of assets under management [AUM]) as well as legacy commercial vehicle (CV) loans (10 % of AUM), which are gradually being rundown. While there was healthy PV loan growth during the fiscal (+30% year-on-year growth in retail PV book), rundown of the CV book resulted in moderate overall AUM growth of 5% year-on-year in fiscal 2023.
The ratings continue to factor in the strategic importance of MBFSI as a captive financier, to its ultimate parent Mercedes-Benz Group AG, and the latter's strong moral obligation to support the Indian subsidiary on an ongoing basis and in the event of distress. The expectation of support is based on Mercedes-Benz Group AG's 100% ultimate ownership in MBFSI, its shared brand and strong operational linkages. The ratings also factor in the adequate capitalisation of MBFSI. These strengths are partially offset by weak asset quality of the legacy CV book that forms about 10% of the total portfolio of which, the non-performing assets (NPAs) are fully provided for and by moderate, albeit improving profitability. |
Analytical Approach CRISIL Ratings' rating on MBFSI is based on S&P Global’s counterparty credit rating of ‘A/Stable/A-1’on Mercedes-Benz Group AG. This is because CRISIL Ratings' rating on the Indian affiliates of global financial institutions (GFIs) centrally factor in the expectation of strong 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, S&P Global’s ratings on GFIs, CRISIL Ratings' translation of the S&P Global ratings on the parents into CRISIL Ratings' rating scale, and the standalone credit quality of the Indian operations. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to, and strong support from the parent Mercedes-Benz Group AG views India as a key market, as reflected in its presence across manufacturing (through Mercedes-Benz India Pvt Ltd; rated ‘CRISIL AAA/Stable), sales and marketing, financing, and research and development sectors. MBFSI, being the captive financier of Mercedes-Benz Group AG, receives significant financial and managerial support given the strategic role it plays in strengthening the parent's market share and sales in India. Mercedes-Benz Group AG has regularly infused equity capital in MBFSI so far. MBFSI also benefits from the parent’s global linkages with foreign banks operating in India. MBFSI's risk management policies, systems, and processes are in line with those globally approved by the parent. Mercedes-Benz Group AG is expected to maintain its 100% ownership in MBFSI. The ownership, shared brand, and strong operational integration lead to a high moral obligation on Mercedes-Benz Group AG to support MBFSI.
Adequate capitalisation Capitalisation is comfortable, as reflected in networth of Rs 1,833 crore as on March 31, 2023. CRISIL Ratings notes that the company had filed a proposal for reduction in capital by Rs 611 crore with the National Company Law Tribunal (NCLT), following which share capital would reduce from Rs 1,440 crore to Rs 829 crore. The approval for the same was received from NCLT in June 2023. This is considering the revised business strategy and thus capital remains adequate for the current scale of operations. Adjusted gearing stood at 2.4 times as on March 31, 2023 (2.1 times a year earlier) and should remain steady in the near-to-medium term.
Weaknesses: Weak asset quality of the legacy CV book, which forms about 10% of the total portfolio of which, the NPAs are fully provided for Gross NPAs (GNPAs) declined to 11.0% as on March 31, 2023 from 14% a year earlier. For the same comparative period, the company’s 90+dpd increased to 9.8% from 5.3% mainly owing to the legacy CV book due to implementation of the Reserve Bank of India (RBI) circular dated November 12, 2021 on Asset Classification and Provisioning Norms. Majority of the NPAs are from the CV portfolio, which has reduced substantially. MBFSI carried restructured portfolio of around 9% as on March 31, 2022, primarily consisting of wholesale dealer accounts, which were sanctioned additional working capital finance to manage operational difficulties in working capital cycle. These accounts were all closed as on March 31, 2023. The GNPAs pertaining to the focus portfolio of PV remain low at ~1% compared favourably with the industry. Furthermore, all CV portfolio NPAs are fully provided for. The company’s GNPA ratio and overall asset quality is expected to improve over the medium term as the PV book grows and the CV book fully runs down. Moderate, albeit, improving earnings profile MBFSI generated profit after tax (PAT) of Rs 115 crore in fiscal 2023, as against Rs 214 crore the previous fiscal. The profitability was partly supported by lower credit costs and decent growth in PV portfolio, even though lower interest margins were earned from this portfolio. Going ahead, net interest margins (NIMs) are expected to moderate due to focus towards a modest yielding portfolio, which is expected to be offset by lower credit costs driven by low risk PV portfolio. Thus, the company’s ability to manage its operating and credit costs, and hence maintain steady profitability, will remain a key monitorable.
Gross advances increased to Rs 6,599 crore as on March 31, 2023 from Rs 6,290 crore a year earlier. |
Liquidity: Superior Liquidity is supported by the parent, in case of any contingency. It remains adequate, with unutilised bank lines of Rs 3,614 crore as on June 30, 2023. This is sufficient to cover the upcoming debt obligation of Rs 878 crore for the four months through October 2023. The asset liability management profile was comfortable as on March 31, 2023, with no material negative cumulative mismatches in any of the segments. |
Outlook: Stable CRISIL Ratings believes MBFSI will continue to benefit from the strong financial, managerial, and operational support from Mercedes-Benz Group AG. |
Rating Sensitivity Factors Downward factors:
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About the Company MBFSI started operations in India in 2011. It is a 100% captive set up to augment the sales of Mercedes-Benz vehicles in India. The company has a corporate office in Pune, and sales representatives are based out of Mercedes-Benz dealership locations. It primarily provides financing options to customers of Mercedes-Benz cars. Furthermore, it provides automotive insurance services as well. It supports the unit sales of the Mercedes Benz Group in India and helps increase brand loyalty among customers. The company has stopped financing commercial vehicles since December 2021. MBFSI's portfolio stood at Rs 6,599 crore as on March 31, 2023. The company reported PAT of Rs 115 crore for fiscal 2023. |
About the Group Mercedes-Benz Group AG, headquartered in Stuttgart, Germany, is a leading global auto manufacturer focused on the premium and luxury car and van segment. Business units are divided into Mercedes-Benz AG, for supply of cars and vans and Mercedes-Benz Mobility AG, a captive finance operation that supports the former.
In February 2021, Mercedes-Benz Group AG’s board had announced its decision to spin off its truck and bus business and prepare for a separate listing of the truck entity. This was completed in December 2021.
Mercedes-Benz Group AG is a listed company. The biggest shareholders as of June 30, 2023, were investors, Chinese BAIC Group (9.98%); Mr. Li Shufu (Tenacio3 Prospect Investment Ltd. 9.69%); Kuwait Investment Authority (5.57%). The rest is free float. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued ^interchangeable with short-term bank facility
Annexure - Details of Rating Withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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