Rating Rationale
August 31, 2018 | Mumbai
SHRI TRUST W 2018
(Originator: Sundaram Finance Limited)
'CRISIL AAA (SO)' converted from provisional rating to final rating for Series A PTCs 
 
Rating Action
Trust Name Details Amount Rated (Rs Cr) Outstanding rated amount (Rs Cr)^ Pool Principal (Rs Cr) Original Tenure (Months) Balance Tenure (Months)^ Credit Collateral (Rs Cr) Ratings/ Credit Opinions Rating Action
SHRI Trust W 2018 Series A PTCs 523.08 453.63 523.08 54 50 39.23 CRISIL AAA (SO) Converted from provisional rating to final rating
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
^ Data as after Jul- 2018 payouts
Detailed Rationale

CRISIL has converted the provisional rating assigned to Series A pass-through certificates (PTCs) issued by 'SHRI Trust W 2018' to final rating of 'CRISIL AAA (SO)'. The pool is backed by receivables from new and used Medium and Heavy commercial vehicles (MHCV) and Light and Small commercial vehicles (LSCV), New Tractors and New Farm Equipment originated by Sundaram Finance Limited (SFL; rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'). CRISIL has received the final legal documents executed for the transaction. The executed documents are in line with the transaction terms at the time of provisional rating. Hence, CRISIL has converted the provisional rating to final rating.
 
As required, CRISIL has received all the relevant transaction-related documents including but not limited to the following. Accordingly, the 'provisional' ratings have been converted into 'final' ratings.

  • Trust Deed
  • Deed of Assignment
  • Power of Attorney
  • Information Memorandum
  • Legal Opinion
  • Trustee Awareness Letter

Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' ratings.
 
The ratings are based on the credit support available to the PTCs, credit quality of underlying pool receivables, SFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
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 at the time of securitisation was as below:

  • Internal credit support in the form of scheduled Excess Interest Spread (EIS), aggregating Rs 28.93 crore (5.5% of pool principal securitised)
  • External credit enhancement of Rs. 39.23 crore (7.5% of pool principal securitised) in the form of fixed deposit.

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 amounts 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. SFL will continue to service the pool contracts as the servicing agent. The Trust is settled by IDBI Trusteeship Ltd (ITSL).

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure at the time of securitisation
    • Credit collateral of Rs 39.23 crore (7.5% of the pool principal securitised) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS aggregating Rs 28.93 crore (5.5% of pool principal securitised).
  • Moderate seasoning of contracts in the pool
    • The contracts in the pool had a weighted average seasoning of 8.85 months and amortization of 24.2% as of the cut-off date
Constraining Factors
  • Moderate presence of 1 month overdue contracts
    • At the time of securitisation, 2.3% of the assigned pool principal was from the contracts which are 1 month overdue on payment as on January 31, 2018
About the Pool
The pool securitised comprises receivables from New and Used Medium and Heavy commercial vehicles (MHCV), Light and Small commercial vehicles (LSCV), New Tractors and New Farm Equipment. At the time of securitisation, the pool had a moderate seasoning profile as evidenced by its weighted average net seasoning of 8.85 months and amortisation of 24.2%. The pool had moderate geographic concentration with top three states accounting for 62.8 per cent of the pool principal. Average ticket size was high at Rs.10.3 lakhs with moderate loan to value ratio of 81.3%.The pool had low interest rate contracts with weighted average interest rate of 11.3 per cent. Pool had moderate proportion of one-month overdue contracts as on the cut-off date (January 31, 2018). CRISIL has adequately factored all these aspects in 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 during the period FY2011 to FY2018 (with performance data till December 2017). CRISIL has also analysed performance of past rated securitisation transaction, and the performance of SFL's portfolio. As of Dec-17, 90+ dpd for MHCV, LCV/SCV, Tractor and Farm equipment is 1.4%, 1.6%, 7.0% and 4.9% respectively.
 
CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 3 to 5 per cent of pool cash flows.
  • CRISIL has assumed a stressed monthly prepayment rate of 0.2 to 0.5 per cent in its analysis.
  • CRISIL does not envisage any risk arising on account of 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 The Hongkong and Shanghai Banking Corporation Limited Not rated by CRISIL Negligible effect. Account bank can be changed without impacting the rating.
Cash collateral in the form of Fixed Deposit State Bank of India Rated 'CRISIL AAA/CRISIL AA+/FAAA/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
ICICI Bank Limited Rated 'CRISIL AAA/Stable'
Axis Bank Limited Rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+'
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 82% of overall disbursements of Rs 15,632 crore 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. The non-life insurance business [Royal Sundaram General Insurance Co. Ltd (Royal Sundaram)] was earlier operated through a JV between Sundaram Finance and the RSA group, one of the largest general insurers in the UK, wherein Sundaram Finance had 49.9%equity stake. However, Sundaram Finance acquired the RSA group's 26% equity stake in Royal Sundaram in fiscal 2016, thereby making the company a subsidiary of Sundaram Finance. 

For fiscal 2018, Sundaram Finance reported total income and net profit of Rs 2696 crore and Rs 533 crore, respectively, against Rs 2426 crore and Rs 495 crore, respectively, for the previous year. The group reported total income and net profit of Rs 6105 crore and Rs 712 crore, respectively, for fiscal 2018, against Rs 5596 crore and Rs 683 crore, respectively, for the previous year.

Past Rated Pools
CRISIL has rated one transaction originated by SFL in the past. CRISIL received monthly performance reports pertaining to the transaction originated by SFL in a timely manner. There was no shortfall in payouts to investors in the past rated 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 523.08 28-Feb-18 25-Sep-22 6.30% CRISIL AAA (SO)$ 39.23
#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. 28.93 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 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs LT 453.63 CRISIL AAA (SO) 21-03-18 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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