Rating Rationale
March 20, 2019 | Mumbai
SHRI TRUST Z 2019
(Originator: Sundaram Finance Limited)
'Provisional CRISIL AAA (SO)' assigned to Series A PTCs  
 
Rating Action
Trust Name Details Amount Rated (Rs Cr) Pool Principal (Rs Cr) Original Tenure (Months) Credit Collateral (Rs Cr) Ratings/ Credit Opinions@ Rating Action
SHRI Trust Z 2019 Series A PTCs 411.77 411.77 54# 36.65 Provisional CRISIL AAA (SO) Provisional Rating Assigned
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
# Tenure computed from first payout date is 54 months. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option
@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, Securities and Exchange Board of India (SEBI) directive, 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/ provisional/ in-principle ratings assigned by CRAs'.
Detailed Rationale

CRISIL has assigned its 'Provisional CRISIL AAA (SO)' to Series A pass-through certificates (PTCs) issued by 'SHRI Trust Z 2019'. The transaction is backed by receivables from new and used medium and heavy commercial vehicles (MHCV) and light and small commercial vehicles (LSCV), and new and used tractors and new farm equipment, originated by Sundaram Finance Limited (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.
 
SFL will assign the pool to 'SHRI Trust Z 2019', settled by IDBI Trusteeship Services Ltd (ITSL), which will issue 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 amounts shall be credited to the collection and payout account on the ascertained date of month M+1 and 20% of the said principal amounts shall be deposited in the Collection and Payout Account on the ascertained date of month M+2
 
The PTCs are supported by the credit collateral - in the form of fixed deposit and excess interest spread. The total credit support available in the transaction is as below:

  • Internal credit support in the form of scheduled excess interest spread (EIS), aggregating Rs 22.94 crore (5.6% of pool principal securitised)
  • External credit enhancement of Rs 36.65 crore (8.9% 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.
 
This is a 'provisional' rating and will be converted into a 'final' rating on receipt of all the relevant transaction transaction-related documents required by CRISIL including, but not limited to, the following:

  • Trust deed
  • Deed of assignment
  • Power of attorney
  • Information memorandum
  • Legal opinion

Additional documents, if any, executed for the transaction, should also be provided. A rating rationale/report, indicating the conversion of the 'provisional' rating to 'final', post the receipt of all the required final legal documents, will be published on the CRISIL website. Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' rating.

Key Rating Drivers & Detailed Description
Supporting factors
  • Credit support available in the structure
    • Credit collateral of Rs 36.65 crore (8.9% of the pool principal securitised) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS, aggregating Rs 22.94 crore (5.6% of pool principal securitised).
  • Moderate seasoning of contracts in the pool
    • The contracts in the pool have a weighted average seasoning of 11.3 months and amortization of 29.9% as of the cut-off date
Constraining factors
  • Moderate presence of one-month overdue contracts
    • At the time of securitisation, 7.3% of the assigned pool principal was from the contracts which are 1 month overdue on payment as on January 31, 2019
About the pool
The securitised pool comprises receivables from new and used MHCVs), LSCVs, tractors and new farm equipment. The pool has a moderate seasoning profile, as evidenced by its weighted average net seasoning of 11.3 months and amortisation of 29.9%. Geographic concentration is moderate, with the top three states accounting for 44.1% of the pool principal. Average ticket size is moderate at Rs 7.9 lakh, with moderate loan to value ratio of 79.9%.The pool has low interest rate contracts, with weighted average interest rate of 12.7%. The pool had a moderate proportion of one-month overdue contracts, as on the cut-off date (January 31, 2019). CRISIL has adequately factored all these aspects in its rating analysis.
Liquidity

The credit'cum-liquidity enhancement, available in the transaction, is Rs 36.65 crore (8.9% of pool principal securitised), which is in the form of fixed deposit placed with Axis Bank Limited (rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+'). The enhancement fully covers two months of promised principal and interest payout, even with no collections from underlying receivables.

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 till December 2018). CRISIL has also analysed the performance of past-rated securitisation transactions, and performance of SFL's portfolio. 90+ dpd for the CV portfolio, stood at 1.6%, and for the tractor portfolio was 5.3% 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 the same in 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 IDFC First Bank 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 Limited Rated 'CRISIL AAA/CRISIL AA+/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 80.7% of overall disbursements of Rs.8329 crore for H1FY19 (81.5% and Rs.15,632 crore, respectively in fiscal 2018). The company had a nationwide network of 622 branches and 3,880 employees as on March 31, 2018.
 
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). The asset management business is conducted through Sundaram Asset Management Company Ltd, a wholly-owned subsidiary of Sundaram Finance. Recently, the company has entered into agreement with Ageas International NV to sell 25.9% stake in the Royal Sundaram General Insurance Company Ltd (RSGI), post which it will continue to hold a 50% stake in the company.
 
For fiscal 2018, Sundaram Finance reported total income and net profit of Rs.2696 crore and Rs.533 crore, respectively, against Rs 2,426 crore and Rs 495 crore, respectively, for the previous year. The group reported total income and net profit of Rs 6,105 crore and Rs.712 crore, respectively, for fiscal 2018, against Rs. 5596
crore and Rs.683 crore, respectively, for the previous year.
 
For the first half fiscal 2019, the company reported total income and net profit of Rs.1569 crore and Rs.295 crore, respectively as against Rs.1285 crore and Rs.265 crore, respectively for the corresponding period previous fiscal.

Past rated pools
CRISIL has ratings outstanding on 1 transaction originated by SFL. CRISIL is receiving monthly performance reports pertaining to the transaction.
Key Financial Indicators
As on / for the period ended March 31 Unit  2018 2017
Total Assets Rs crore 36,396 30,749
Total income (excl interest expenses) Rs crore 4,272 3,861
Profit after tax Rs crore 712 683
Gross NPA (Standalone) % 1.3 1.5
Gross NPA (Housing subsidiary) % 3.3 2.9
Gearing Times 5.0 4.2
Return on assets % 2.1 2.3

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 411.77 28-Feb-19 22-Sep-23 7.75% Provisional CRISIL AAA (SO)$ 36.65
#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 excess interest spread (EIS) amounting to Rs. 22.94 Cr (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 411.77 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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