Rating Rationale
August 30, 2019 | Mumbai
SHRI Trust AA 2019
(Originator: Sundaram Finance Limited)
'CRISIL AAA (SO)' converted from provisional rating to final rating for Series A PTCs
 
Rating Action
Trust Name Instrument
Details		 Amount Rated (Rs Cr) Outstanding Amount
(Rs Cr)^		 Original Tenure (Months) Balance Tenure (Months)^ Credit Collateral (Rs Cr) Ratings/ Credit Opinions Rating Action
SHRI Trust AA 2019 Series A PTCs 556.10 502.52 53 50 46.16 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
^After July 2019 payouts
#Tenure computed from the first payout date is 53 months. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option.
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A pass-through certificates (PTCs) issued by 'SHRI Trust AA 2019' to final rating of 'CRISIL AAA (SO)'. The transaction is backed by receivables from new and used medium and heavy commercial vehicles (MHCV), light and small commercial vehicles (LSCV), and tractors and new farm equipment, originated by Sundaram Finance Ltd (SFL; rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'). The ratings are based on credit support available to PTCs, credit quality of the underlying pool receivables, SFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
CRISIL has received the final legal documents executed for this transaction. These executed documents are in line with terms of the transaction when provisional rating/credit opinion was assigned. Hence, CRISIL has converted the provisional rating/credit opinion to a final rating/credit opinion.
 
Please click on the following link for detailed information on CRISIL's policy on provisional rating:
Revision in CRISIL policy for assigning 'provisional' ratings
 
SFL assigned the pool to 'SHRI Trust AA 2019', settled by IDBI Trusteeship Services Ltd (ITSL), which issued the PTCs to investors.The transaction has a 'Par with Excess Interest Spread (EIS)' structure, where scheduled payouts to investors have been arrived at, assuming a staggered basis of transfer of collections by the servicer, i.e. of all receivables comprising the principal amount due in a particular month (say, month M), 80% of the said principal amount shall be credited to the collection and payout account on the ascertained date of month M+1, and 20% of the said principal amount shall be deposited in the collection and payout account on the ascertained date of month M+2.
 
The PTCs are supported by credit collateral in the form of fixed deposits and EIS. The total credit support available in the transaction at the time of securitization was as follows:

  • Internal credit support in the form of scheduled EIS, aggregating Rs 17.71 crore (3.2% of pool principal securitised)
  • External credit enhancement of Rs 46.16 crore (8.3% of pool principal securitised) in the form of fixed deposit

Series A PTCs are entitled to receive timely interest and timely principal on a monthly basis.
 
As required, CRISIL has received the following final executed legal documents and other documents relevant to the transaction:

  • Trust deed
  • Deed of assignment
  • Power of attorney
  • Information memorandum
  • Legal opinion
Key Rating Drivers & Detailed Description
Supporting factors
  • Credit support available in the structure at the time of securitisation
    • Credit collateral of Rs 46.16 crore (8.3% of the pool principal securitised) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS, aggregating Rs 17.71 crore (3.2% of pool principal securitised).
  • Seasoning profile of contracts in the pool at the time of securitisation
    • The contracts in the pool had a weighted average seasoning of 13.8 months and amortisation of 29.8% as of the cut-off date.
Constraining factors
  • Moderate presence of one-month overdue contracts
    • At the time of securitisation, 5.0% of the assigned pool principal was from the contracts which are up to one month past due on payment as on February 28, 2019.
Liquidity Position
The credit'cum-liquidity enhancement, available in the transaction at the time of securitization was Rs 46.16 crore (8.3% of pool principal securitised), which is in the form of a fixed deposit placed with Axis Bank Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'). At the time of securitisation, the enhancement fully covered two months of promised principal and interest payout, even with no collections from underlying receivables.
 
Liquidity: Strong
* Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls
 
Rating Sensitivity factors
Downward factor:
* Credit enhancement falling below 2.0 times the estimated base case shortfalls
* A sharp downgrade in the rating of the servicer/originator
* Non-adherence to the key transaction terms envisaged at the time of the rating
 
About the pool
The securitised pool comprises receivables from new and used MHCVs, LSCVs, tractors, and new farm equipment. The pool had a moderate seasoning profile, as evidenced by its weighted average net seasoning of 13.8 months and amortisation of 29.8% at the time of securitisation. Geographic concentration was moderate, with the top three states accounting for 56.7% of the pool principal at the time of securitisation. Average ticket size was Rs 13.4 lakh, with moderate loan to value ratio of 85.3% at the time of securitisation. The pool had low interest rate contracts, with weighted average interest rate of 10.5% at the time of securitisation. The pool also had a moderate proportion of one-month overdue contracts as on the cut-off date (February 28, 2019). CRISIL has adequately factored all these aspects into its rating analysis.
 

Rating Assumptions
To assess the base case shortfalls for the transaction, CRISIL has analysed static pool information of various asset classes provided by SFL for originations between fiscal 2011 and the third quarter of fiscal 2019 (with performance data until December 2018). CRISIL has also analysed the performance of previously rated securitisation transactions and the performance of SFL's portfolio. 90+ days past due stood at 1.6% for the CV portfolio and 5.3% for the tractor portfolio as of December 2018.
 
CRISIL has also factored in pool-specific characteristics and estimated the base case peak shortfalls in the pool, in the range of 3-5% of pool cash flows.

  • CRISIL has assumed a stressed monthly prepayment rate of 0.2-0.5% in its analysis.
  • CRISIL does not envisage any risk arising from commingling of cash flows, since CRISIL's short-term rating on the servicer is 'CRISIL A1+'
  • CRISIL has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)
  • CRISIL has run sensitivities based on various shortfall curves (front-ended, back-ended, and normal) and has adequately factored these into its analysis.
  
Counterparty details

Capacity

Counterparty Name

Counterparty Rating/ Track record

Effect on credit ratings in case
of non-performance

Originator and seller SFL Rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'  
No effect
 
Servicer SFL Rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+' Significant effect because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL given CRISIL's rating on the servicer). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank The Hongkong and Shanghai Banking Corporation Ltd Not rated by CRISIL Negligible effect. Account bank can be changed without impacting the rating.
Cash collateral in the form of fixed deposit Axis Bank Ltd Rated 'CRISIL AAA/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee ITSL Adequate track record Negligible effect. Can be replaced at minimal cost.
 
About the Originator
Sundaram Finance, the flagship company of the group, commenced operations in 1954 as a wholly owned subsidiary of Madras Motor and General Insurance Company Ltd, a member of the TVS group of companies. Listed in 1972, when TVS sold its ownership to the public, Sundaram Finance is registered with the Reserve Bank of India (RBI) as a deposit-taking NBFC, and is classified by the RBI as an asset financing company. Core business is CV and car financing, which accounted to 78.3% of overall disbursements of Rs.17,170 crore for fiscal 2019 (81.1% and Rs.15,712 crore, respectively in fiscal 2018). The company had a nationwide network of 658 branches and 4055 employees as on March 31, 2019.
 
The group also has presence in housing finance, asset management, and non-life insurance segments. The housing finance business is conducted through a joint venture (JV) with BNP Paribas (49.9% equity stake; through BNP Paribas Personal Finance, a wholly owned subsidiary). Post recent proposed acquisition of 49.9% stake from BNP Paribas Personal Finance in Sundaram Home, Sundaram Finance will hold 100% stake in the company and will become a wholly-owned subsidiary. The asset management business is conducted through Sundaram Asset Management Company Ltd, a wholly owned subsidiary of Sundaram Finance. Insurance business is carried through Royal Sundaram and recently Ageas International NV bought 40% stake in the Royal Sundaram General Insurance Company Ltd (RSGI), post which Sundaram Finance holds 50% stake in the RSGI.
 
For fiscal 2019, Sundaram Finance reported total income and net profit of Rs. 3418.2 crore and Rs. 1126.3 crore, respectively, against Rs. 2855.4 crore and Rs. 563.4 crore, respectively, for the previous year. The net profit of Rs.1126.3 crore for the year is after considering the exceptional profit (Rs.522.26 cr.) on sale of 25.9% stake in Royal Sundaram General Insurance Co. Ltd.
 
The group reported total income and net profit of Rs. 3788.2 crore and Rs. 1160.9 crore, respectively, for fiscal 2019, against Rs. 6344 crore and Rs. 729.9 crore, respectively, for the previous year.

Past rated pools
CRISIL has ratings outstanding on three transactions originated by SFL. CRISIL is receiving monthly performance reports pertaining to the transaction.
Key Financial Indicators - (Consolidated)
As on / for the period ended March 31 Unit 2019 2018
Total assets Rs. Cr. 33,671 33,986
Total income (excluding interest expense) Rs. Cr. 2,022 5,000
Profit after tax Rs. Cr. 1,161* 730
Gross NPA (Standalone) %  1.33  1.27
Gross NPA (Housing subsidiary) % 2.95 3.27
Gearing Times 4.0 3.7
Return on assets %  3.7*  2.9
*Includes a one-time profit Rs.522.26 Cr. from sale of stake in Royal Sundaram general insurance.

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)
Type of Instrument Rated Amount
(Rs Cr)		 Date of Allotment Maturity Date# Coupon Rate (%) (p.a.p.m) Outstanding
Ratings/credit opinions		 Credit collateral
(Rs Cr)^
Series A PTCs 556.10 29-Mar-19 25-Sep-23 7.30% CRISIL AAA (SO)$ 46.16
#Indicates door-to-door tenure. Actual tenure will depend on the level of prepayments in the pool and exercise of the clean-up call option
^Scheduled EIS amounting to Rs 17.71 crore at the time of securitisation (assuming zero prepayments) also provides credit support to PTCs.
$Series A PTC-holders are entitled to receive timely interest and timely principal.
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs LT 502.52 CRISIL AAA (SO) 12-04-19 Provisional CRISIL AAA (SO)               
All amounts are in Rs.Cr
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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