Rating Rationale
July 22, 2020 | Mumbai
SHRI Trust AA 2019
(Originator: Sundaram Finance Limited)
Rating Reaffirmed
 
Rating Action
Trust Name Details Amount Rated
(Rs Crore)		 Outstanding Pool Principal $ (Rs Cr) Original Tenure* (Months) Credit Collateral^ (Rs Cr) Ratings/ Credit Opinions& Rating Action
Shri Trust AA 2019 Series A PTCs 556.10 335.80 56 46.16 CRISIL AAA (SO) CRISIL AAA (SO)
[Ratings reaffirmed]
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
$ After June 2020 payout
*Tenure will depend on the level of prepayments in the pool, extension of tenure due to moratorium and exercise of the   clean-up call option.
^ Additionally scheduled excess interest spread after June 2020 payout (EIS) amounting to Rs. 9.48 crore    (assuming zero prepayments and post servicer fee payment) also provides credit support to PTCs.
& Series A PTC holders are entitled to receive timely interest and ultimate principal.
Detailed Rationale

CRISIL has reaffirmed its ratings on Series A pass-through certificates (PTCs) issued by 'SHRI Trust AA 2019'. The transaction is backed by receivables from new and used medium and heavy commercial vehicles (MHCV), light and small commercial vehicles (LSCV), tractors and new farm equipments 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.
 
The investor has granted consent for extending payment moratorium to the underlying borrowers from March 2020 to May2020. Accordingly the investor payout schedule had been redrawn. CRISIL is given to understand that the investor consent on extension of moratorium to the PTC payouts for the period of July 2020 to September 2020 is expected to be received shortly.
 
Furthermore, the transaction structure has been amended with effect from April-20 payouts. The PTC holders are now promised principal on an ultimate basis and timely interest on a monthly basis.

Key Rating Drivers & Detailed Description
Supporting Factors
* Credit support available in the structure
  -  As after June 2020 payouts, Credit collateral of Rs 46.16 crore (13.7% of the outstanding pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS aggregating to Rs 9.48 crore (2.6% of the future investor payouts)
*  High collection efficiencies
  -  14 months post securitisation, cumulative collection efficiency has increased to 98.8%. As of June 2020 payout, the monthly collection efficiency was around 110% and 3-month average monthly collection efficiency was 89.3%.

Constraining factors
*  Potential impact of Covid 19 pandemic
   -  In the medium term, there would be pressure on collections and asset quality of the pool of receivables backing the PTCs on account the Novel Coronavirus (Covid-19) pandemic and the ongoing lockdown.

Rating Sensitivity Factors
Upward factors:
* None, given that the credit ratings on Series A PTCs are currently at the highest level.
Downward sensitivity factors:
* Credit enhancement (both internal and external credit enhancement) falling below 2 times the estimated base case peak shortfalls over the residual tenure of the transaction
* A sharp downgrade in the rating of the servicer/originator
* Non-adherence to the key transaction terms envisaged at the time of the rating
* Other factors including but not limited to disruptions in the servicer's functioning and legal risks pertaining to true sale and bankruptcy remoteness etc.

These aspects have been factored by CRISIL in its rating analysis.

Liquidity: Strong
Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is above 1.50 times the estimated base shortfalls on the residual pool cash flows.

Parameter (After June 2020 payouts) Values
Months Post Securitisation 14
Pool Amortisation 39.6%
Cumulative Collection Ratio (CCR) 96.5%
3 months average MCR 89.3%
90+ delinquencies 1.0%
180+ delinquencies 0.5%
Credit collateral utilisation Nil
Available credit collateral as a percentage of scheduled future payouts 12.5%

About the pool
The securitised pool comprises receivables from new and used MHCVs and LSCVs, tractors and new farm equipments. The pool has a high seasoning profile, as evidenced by its weighted average net seasoning of 25.8 months and amortisation of 39.6%. Geographic concentration is moderate, with the top three states accounting for 57.6% of the pool principal. The pool has a moderate LTV ratio (at the time of disbursement) of 86.9 %. The pool has contracts, with weighted average interest rate of 10.2%.

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 AA+/Stable/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 Limited (SFL), 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, SFL 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. The company had a nationwide network of 610 branches and 4213 employees as on March 31, 2020. SFL's AUM primarily consisted of Commercial Vehicles (52.5%), Car loans (24.9%), Construction Equipment (10.4%), Tractors (6.2%) and other loans (6.0%) as on March'20. Further, SFL's disbursements declined by 11.6% y-o-y to Rs 15,175 crore in fiscal 2020 from Rs 17,170 crore in earlier fiscal, given weak macro-economic environment.
 
The group also has presence in housing finance, asset management, and non-life insurance segments. The housing finance business was conducted through a joint venture (JV) with BNP Paribas (49.9% equity stake; through BNP Paribas Personal Finance, a wholly-owned subsidiary). Post-acquisition of 49.9% stake from BNP Paribas Personal Finance in Sundaram Home, SFL holds 100% stake in the company and has become a wholly-owned subsidiary. The asset management business is /conducted through Sundaram Asset Management Company Ltd, a wholly-owned subsidiary of SFL. 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 SFL holds 50% stake in the RSGI.
 
For fiscal 2020, SFL reported total income and net profit of Rs 3,926.9 crore and Rs 723.9 crore, respectively, against Rs 3,342.1 crore and Rs. 1126.3 crore, respectively, for the previous fiscal. The net profit of Rs.1126.3 crore in fiscal 2019 is after considering the exceptional profit (Rs 522.26 crore) on sale of 25.9% stake in Royal Sundaram General Insurance Co. Ltd.
 
The group reported total income and net profit of Rs. 4722.5 crore and Rs. 845.4 crore, respectively, for fiscal 2020, against Rs. 3712.5 crore and Rs. 1,258.5 crore, respectively, for the previous fiscal.

Past rated pools
CRISIL has ratings outstanding on five transactions originated by SFL. CRISIL is receiving monthly performance reports pertaining to the transactions.
Key Financial Indicators
As on / for the period ended March 31 Unit  2020 2019
Total Assets Rs crore 44,721 33,671
Total income (excluding interest expenses) Rs crore 2,295 2,022
Profit after tax Rs crore 791 1,161*
Gross NPA (Standalone) % 2.47 1.33
Gross NPA (Housing subsidiary) % 3.77 2.95
Gearing Times 5.2 5.3
Return on assets % 2.2 3.7*
*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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
Type of Instrument Rated Amount
(Rs Cr)		 Date of Allotment Maturity Date# Coupon Rate (%) (p.a.p.m) Outstanding
Rating		 Complexity Level Credit collateral (Rs Cr)
Series A PTCs 556.10 March 29,  2019 December 25, 2023 7.3% CRISIL AAA (SO) Highly Complex 46.16
#Indicates door-to-door tenure. Actual tenure will depend on the level of prepayments, extension of pool on account of moratorium and exercise of the clean-up call option
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
Series A PTCs LT  335.8 CRISIL AAA (SO)     30-08-19 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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