Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the short term debt programme of Shriram Capital Limited (Shriram Capital; part of Shriram group). The rating continues to reflect Shriram Capital’s strong financial flexibility arising from being the principal holding company for the Shriram group’s listed operating financial services companies and unlisted insurance ventures. The rating also factors Shriram Group’s established track record in raising capital from private equity investors and strategic long term partners.  These rating strengths are partially offset by the company’s susceptibility to volatility in prices of shares of the listed operating companies

Analytical Approach

For arriving at the ratings of Shriram Capital, CRISIL Ratings has followed the holding company approach in analysing the credit risk of profile based on the equity stakes in the listed operating financial services companies.

Key Rating Drivers & Detailed Description

Strengths:

* Strong financial flexibility due to its status as the principal holding company for group’s listed operating financial services companies.

Shriram Capital has strong financial flexibility, as the principal holding company (Core Investment Company registered with the Reserve Bank of India) for the Shriram Group’s listed operating financial services companies. As on December 31, 2020, the company held 26.46% and 33.89% equity stakes in Shriram Transport Finance Company Limited (STFCL) and Shriram City Union Finance Ltd (SCUF) respectively. The total market capitalization of Shriram Capital’s stake in listed operating financial services companies was around Rs 13,156 crore as on April 9, 2021, thereby providing high cover for rated short term debt. Furthermore, Shriram Capital has a moderate gearing policy. The company had no external debt as on December 31, 2020. It had outstanding debt of Rs 152 crore of revolving credit facility from Shriram Group companies, its holding company, Shriram Financial Ventures (Chennai) Private Limited and its subsidiary, Shriram Value Services Limited. Further, Shriram Capital has outstanding liability of Rs 406 crore non-convertible cumulative redeemable preference Shares (NCCRPS) raised from ultimate holding entity, Shriram Ownership Trust. CRISIL Ratings believes that Shriram Capital has the ability to contract debt, if necessary, from internal and external sources to refinance its rated short term debt, if raised by them. However, CRISIL Ratings understands that currently the company has surplus funds and has also participated in the rights issue of STFCL by investing Rs 425 crore in August 2020 without raising any external debt. The gearing is expected to remain at low levels over the near to medium term. While the company does not have plans to raise any material quantum of debt in the near term, its overall outstanding debt at standalone level is not expected to exceed Rs 750 crore over the medium term.

 

Shriram Capital’s revenues primarily comprise dividend and service charge received from operating companies, wherein the dividend income is dependent on the performance of the operating companies. For first 9 months of fiscal 2021, the company received a dividend of Rs 331 crore in the form of dividend from group companies against Rs 468 crore in 9 months of fiscal 2020 and Rs 565 crore for fiscal 2020. The insurance subsidiary of Shriram Capital, Shriram General Insurance Company Limited has also contributed to dividends of the company on the back of their good performance. The gross premium written by Shriram General Insurance was Rs 1,558 crore and PAT was around Rs 431 crore for first 9 months of fiscal 2021. The overall premium for Shriram Life Insurance was Rs 1,256 crore and PAT was around Rs 19 crore for the first 9 months of fiscal 2021.

 

In fiscal 2021, Shriram Group acquired Way2Wealth Securities Private Limited including the broking, commodities and the insurance broking arm from Coffee Day Group. In addition to this Shriram Capital has companies in broking, asset management, advisory etc. under Shriram Credit Co. Ltd. Acquisition of Way2Wealth is expected to increase the footprint of the group in the securities and broking industry. 

 

* Strong track record in raising capital

The Shriram group has an established track record in raising equity capital from private equity investors and strategic long term partners. Between fiscal 2013 and fiscal 2017, Shriram Capital (along with subsidiaries and associates), had raised equity capital of over Rs 5,300 crore from the Piramal group and the Sanlam group. The capital infusions continue to support Shriram group’s expansion/consolidation plans in the financial services businesses over the medium term. In the past, the group has also successfully raised equity capital from several other investors including the TPG Capital group, ChrysCapital, Bessemer Venture Partners Trust, Merrill Lynch LP Holdings Inc., ICICI Venture Funds Management Company Ltd, Asiabridge Fund I LLC, the JM Financial group, LeapFrog Investments, Citicorp Finance (India) Ltd, Cambridge Place Investment Management, Valiant Capital Partners, Blue Ridge and others. The Shriram group has raised equity capital aggregating to over Rs 8,600 crore from its strategic long term partners and investors over the past 17 years through its various constituent companies engaged in financial services.

 

CRISIL Ratings believes that the Shriram group has demonstrated its ability to raise equity capital from private equity and other external investors as well as from strategic long term partners, to support its growth plans in various businesses in the financial services space.

 

Weakness:

* Exposure to volatility associated with movement in share prices of listed operating companies

The rating, however, remains subject to market risks, as Shriram Capital‘s financial flexibility, in terms of share cover available, will be partially dependent on the prevailing market sentiments and market capitalization of the listed operating companies. The market environment and movements in share prices of the listed operating companies will remain rating sensitivity factors. The volatility in share price of STFCL and SCUF has been high in fiscal 2021 owing to economic uncertainties with share price for STFCL varying between a low of ~ Rs 500 to a high of ~ Rs 1,535 per share and for SCUF varying between a low of ~ Rs 625 to a high of ~ Rs 1,729 per share.

Liquidity: Strong

End December 2020, the company’s standalone liquidity remained adequate with cash and mutual fund investments of ~Rs 106 crore. Shriram Capital had no external debt on its books. The company receives regular dividends from its operating companies wherein the dividend income is dependent upon the performance of the operating companies. For first 9 months of fiscal 2021, the company received a dividend of Rs 331 crore in the form of dividend from group companies against Rs 468 crore in 9 months of fiscal 2020 The company also had investments to the tune of Rs 5,522 crore largely in associates and subsidiaries of Shriram Capital.

Rating Sensitivity Factors

Downward factors:

• If external debt availed exceeds Rs 750 crore based on the current market capitalisation of its holdings in STFCL and SCUF.
• Sharp deterioration in the operating performance of the subsidiaries thereby leading to a downward revision in their credit risk profile

About the Company

Shriram Capital is the principal holding company/Promoter for the Shriram group’s financial services businesses. Shriram Ownership Trust and Shriwell Trust (not part of Promoter/Promoter group) hold an effective stake of 29.7% and 13.2%, respectively in the company, with the remaining held by Sanlam group (26%), the Piramal group (20%), the TPG Capital group (9.4%) and individuals (1.7%) as on March 31, 2021. The Shriram group has been in the financing business for over four decades, with a leadership position in the pre-owned commercial vehicle finance through STFCL and a strong market position in businesses like two-wheeler and small enterprise financing through SCUF. The other major focus area of the Group is Insurance and the group has a presence in the life insurance business through Shriram Life Insurance and in the general insurance space through Shriram General Insurance. The group also has a presence in equipment financing, refurbishment and auctioning of pre-owned vehicles, housing finance, distribution of financial products, retail stock broking and mutual funds segments.

 

On a standalone basis, for fiscal 2020, Shriram Capital’s profit after tax (PAT) was Rs 594.0 crore on total income (excluding finance costs) of Rs 655.6 crore, against a PAT of Rs 327.7 crore on total income of Rs 456.1 crore for the previous fiscal. For nine months ending December 31, 2020, the company’s standalone net profit stood at Rs 266.4 crore.

Key Financial Indicators -Shriram Capital (Standalone and as per Ind-AS)

As on/for the nine months ending December 31	Unit	2020	2019
Total assets	Rs.Cr	5,654	5,404
Total income (net of interest expenses)	Rs.Cr	369	543
Profit after tax	Rs.Cr	266	502
Gross NPA	%	-	-
Adjusted Gearing (excluding preference shares)	Times	0.03	0.02
Return on assets (annualized)	%	6.4	13.3

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN No.	Instrument	Date of issuance	Coupon rate (%)	Maturity Date	Issue Size (In.Cr)	Complexity Level	Rating assigned
NA	Short-Term Debt Programme	NA	NA	7-365 days	200	Simple	CRISIL A1+