| TVS Credit Services Limited | ||||||||
| Ratings Reaffirmed | ||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale
The ratings continue to factor in the high strategic importance of TVS Credit to TVS Motor Company Ltd (TVS Motor; the flagship company of TVS Motor group) as a key financing arm supporting the latter's vehicle sales. The ratings on TVS Credit also factors in the company’s increasing scale of operations and strong process orientation. These strengths are partially offset by average, albeit improving earnings and exposure to risks related to the inherently modest credit risk profiles of borrowers.
The rating on the perpetual bonds also reflects the adequate buffer maintained by TVS Credit over the regulatory capital adequacy requirements, and high financial flexibility enjoyed on account of being a subsidiary of TVS Motor. TVS Credit has maintained a cushion of 2-4% over the regulatory minimum capital ratio in the past few years and CRISIL Ratings believes that it will continue to maintain adequate cushion (refer to CRISIL Ratings publication 'Criteria for rating hybrid instruments of NBFCs and HFCs' for details on CRISIL Ratings approach for rating such instruments).
TVSM recorded healthy performance in fiscal 2024 driven by strong uptick in domestic volumes in the motorcycle segment which witnessed growth of 34% driven by new launches and sustained domestic demand. Following strong demand recovery in scooter segment in fiscal 2023 with 43% on- year growth, the segment registered growth of 16% in fiscal 2024 driven by healthy offtake of electric scooters. The moped segment (domestic and exports), wherein TVSM is the only major player, registered increase in volumes by 9% in fiscal 2024.
Revenue of TVSM at standalone level grew by 20% on-year in fiscal 2024 supported by higher volumes and realisations. Operating margin increased by 1% to 11% driven by cost optimisation, improved volumes and price increase to pass on the rise in input costs. At consolidated level (excluding TVS Credit), the operating profit was constrained owing to operational loss at the recently acquired entity, Norton, and lower profitability of other subsidiaries. Steady improvement in the performance of overseas subsidiaries, including Norton, will aid profitability. TVSM will continue to invest in developing EVs over the medium term with new launches across product categories. Also, its focus on new launches and stepping up products in the electric two-wheeler space augur well for its prospects
TVS Credit has a diversified presence across asset classes with an assets under management (AUM) of Rs 26,406 crore as on March 31, 2024 growing by24% y-o-y. Asset classes include two-wheeler (27% of AUM), used car (8%), tractor (22%), consumer durables (9%), used CV (12%) and personal loans (19%). Disbursements increased by 16% during FY24 and stood at Rs 25,018 cr vis-à-vis Rs 21,652 crore in FY23. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to, and expectation of strong support from, TVS Motor As a captive financing arm, TVS Credit remains integral to TVSM's plans to increase its market share. TVS Credit finances 20-22% of the parent's domestic sales by volume. TVS Credit operates through TVSM’s ~1100 strong dealer/3100+ sub-dealer network for sourcing clientele. The synchronised planning and sales efforts highlight the strategic importance of TVS Credit to TVSM.
TVSM is India's third-largest two-wheeler (including mopeds) manufacturer and second-largest exporter of motorcycles. It will continue to benefit from its strong market position and proposed launches in different two-wheeler segment. Its two-wheeler (motorcycles and scooters) volume growth outperformed the industry at 16% in fiscal 2024, compared with industry growth of 10%, supported by launch of new models. Its business risk profile benefits from technological tie-up with BMW Motorrad for manufacturing two-wheelers and expansion in export markets. The company is enhancing its presence in the electric vehicle (EV) space with major investments expected over the next 3-4 years for manufacturing vehicles across categories
TVS Credit continues to receive strong financial, operational, and management support from TVS Motor. The total shareholding (direct and indirect) of TVS Motor in TVS Credit Services Ltd stood at ~81% on fully diluted basis as on March 31, 2024. The parent has infused around Rs 1750 crore of capital since inception. Of this, Rs 500 crore was infused during fiscal 2023 and a further Rs 580 crore in fiscal 2024 Equity infusion in FY2024 was by TVS Motor and Premji Investment Fund by way of compulsorily convertible preference shares. Thus regular capital support has resulted in adequate capitalisation, with TVS Credit having a networth of Rs 3,865 crore as on March 31, 2024.
TVS Motor also provides managerial support to TVS Credit. TVS Motor’s four directors are on the board of TVS Credit and several senior management personnel have been with the TVS group for several years. These factors and the shared brand name reflect robust linkages between TVS Motor and TVS Credit and imply a strong moral obligation on the part of TVS Motor to support TVS Credit.
Improving scale of operations The scale of operations has improved significantly over the past few fiscals. Loan book grew by ~24% to Rs 26,406 crore as on March 31, 2024, from Rs 21,255 crore as on March 31, 2023 (Rs 14,403 crore as on March 31, 2022). In the last five years till fiscal 2024, the AUM has grown at a compounded annual growth rate (CAGR) of 30%. Disbursements in FY24 grew by 16% to Rs 25,018 crore with consumer durables forming ~28% and two wheeler forming ~22% of Fiscal 2024 total disbursements followed by personal loans and tractors both at 14% and 11% respectively and remainder across others. The company has consciously ventured into products like consumer durables, used commercial vehicles, cross sell (personal loans to existing customers) and business loans to enhance product diversity. As a result, contribution of two-wheeler loans, has gradually declined to 27% of the total loans as on March 31, 2024, compared to 42% as on March 31, 2020 even as this segment continues to grow. The company has also expanded its presence to 29 states with no single state having more than 15% AUM concentration.
Strong process orientation The company makes significant investments in people, processes, and systems to ensure strong origination, underwriting, and collection processes. Borrowers are categorised into multiple risk brackets based on their origination characteristics and repayment patterns to focus collection efforts on accounts that show higher propensity for delays. Furthermore, senior management members have worked with TVS Motor's dealers closely, establishing relationships and enabling better co-ordination in terms of origination and collections for two-wheeler loans. Strong systems and processes are expected to enable TVS Credit to maintain sound asset quality.
While there was an uptick in delinquencies due to impact of the Covid-19 pandemic, the same has come down in recent quarters. As a result, coupled with conservative write-off policy, the gross stage 3 assets (GS3) stood at 2.8% as on March 31, 2024 and 2.7% as on March 31, 2023. However, the total of gross stage 3 assets and write offs put together for fiscal 2024 stood at 4.9% as compared to 3.3% for fiscal 2023. This was mainly on account of the tractor portfolio which faced higher delinquencies (GS3 at 7.7% in FY24 compared to 5.0% in FY23) on account of adverse monsoons in certain geographies. As a result, the management has cautiously curtailed disbursement in the new tractor portfolio and hence the overall disbursement of the company in FY24 has grown by 16% in FY24 as compared to 73% in FY23.
Nevertheless, ability to manage asset quality via efficient processes and controls as the company scales up and diversifies into other product segments, will remain monitorable.
Weaknesses: Average but improving earnings profile Overall profitability improved in fiscal 2024 as compared to earlier years due to improvement in net interest margins of the company.
NIM stood at 13.6% for the year ended March 31, 2024, and 13.5% for fiscal 2023 (12.0% for fiscal 2022). NIM was bolstered by strong growth and presence in high yielding segments as well as competitive cost of funds. However, given the small ticket size, and large distribution and collection infrastructure, operating costs while improving still remain high with operating expense ratio of average total assets of 8.9% for the year ended March 31, 2024 and 9.7% for fiscal 2023. Credit cost also remained elevated at 4.4% in fiscal 2024 as compared to 3.3% for fiscal 2023. The credit cost have remained high mainly due to increase in new tractor portfolio write offs. Provision coverage ratio for stage 3 assets stood at 53% as on March 31, 2024.
The company reported a profit after tax (PAT) of Rs 572 crore and return on assets of 2.2% for fiscal 2024 as compared to Rs 389 crore and 2.0% in fiscal 2023.
Going forward, the ability of the company to improve its operating efficiency and manage credit costs will be a key monitorable.
Exposure to risks related to the inherently modest credit risk profiles of borrowers The borrowers in most of the operational segments have inherently modest credit risk profiles and limited access to bank finance. Industry delinquency levels in the two-wheeler finance business, the company's dominant product, have historically remained higher on account of weaker borrower profiles and low resale value of the used asset. Having said that, for TVS Credit, GS3 in the two-wheeler portfolio remained comparatively lower. Furthermore, the tractor book, which accounts for 22% of the portfolio as on March 31, 2024, is linked to the performance of the agriculture segment and the rural economy. Thus, as a result of the inherently moderate credit risk profile of this borrower segment as well as higher disbursements across segments, the ability to maintain asset quality over the near to medium term will remain a key monitorable. |
Liquidity: Strong TVS Credit's liquidity profile remains strong. The company's asset liability maturity (ALM) profile on March 31, 2024, remains well matched with cumulative positive gap in all maturity buckets. The company had liquidity of Rs 3,410 crore comprising of Rs 1,060 crore in cash, and undrawn bank lines Rs 2350 crore as on May 31, 2024. This is against the debt repayment of Rs 4,980 crore for the period Jun’24 to Aug’24 Liquidity is also supported by the company being part of TVS – Venu Srinivasan group. |
Outlook: Stable CRISIL Ratings believes TVS Credit will remain strategically important to TVS Motor, and will continue to scale up operations significantly over the medium term. |
Rating Sensitivity factors
Downward factors
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About the Company TVS Credit, based in Chennai is a captive finance company and subsidiary of TVS Motor. TVS Credit was incorporated in 2008 as a subsidiary of TVSMS (and was a step-down subsidiary of TVS Motor). However, in line with TVS Motor’s plan to increase its direct shareholding in the entity, they have invested equity directly into TVS Credit since fiscal 2017. TVS Credit is now a direct subsidiary of TVS Motor, which held 80.53% stake in the company on fully diluted basis as on March 31, 2024, while the remaining was held by TVS Motor Services Ltd & its nominees (0.44%), Lucas-TVS Ltd (4.60%; rated ‘CRISIL AA+/Negative/CRISIL A1+’), HDFC Ltd (2.03%; rated ‘CRISIL AAA/Stable/CRISIL A1+’), Phi Research Pvt Ltd (1.42%), PI Opportunities Fund I Scheme II (10.79%), and PI Individuals (0.19%)
TVS Credit commenced operations as a non-deposit taking NBFC in May 2010. It has scaled up its business and had a loan book of Rs 26,406 crore as on March 31, 2024. The company currently finances two-wheelers (of TVS Motor), new tractors, used tractors, used cars, consumer durables, used commercial vehicle and personal loans (cross sell). It caters largely to customers who have little or no access to bank financing and have a high share of cash collections. For fiscal 2024, TVS Credit reported PAT of Rs 572 crore on total income (net of interest expense) of Rs 4,141 crore, as against Rs 389 crore and Rs 2,984 crore, respectively, for the previous fiscal. Notably gearing has remained over 6.0 times in four of the last five fiscals however the same has reduced to 5.8 times for fiscal 2024 (6.8 times as on March 31, 2023) and is expected to remain at or below 6.0 times on steady state basis in the near term to support the company’s business expansion plans. |
Incorporated in 1983, TVS Motor is part of the Chennai-based TVS group, which is a leading automotive manufacturer. TVS Motor was originally incorporated in 1983 as Indian Motorcycles Pvt Ltd, a joint venture between the TVS group and Suzuki Motor Corporation of Japan (SMC). The company went public in 1984 and changed its name to TVS-Suzuki Ltd. In 2002, SMC exited the joint venture and the company was renamed TVS Motor Company Ltd. TVS Holdings Ltd (promoted by Mr Venu Srinivasan and part of the TVS group) holds 50.26% stake in TVS Motor.
TVS Motor has three plants in India: in Solan district, Himachal Pradesh; Hosur, Tamil Nadu; and Mysuru, Karnataka. It also has a manufacturing subsidiary in Indonesia, PT TVS Motor Co.
TVS Motor (standalone) reported a net profit of Rs 2083 crore on total operating income of Rs 31,776 crore in fiscal 2024, compared to Rs 1491 crore and Rs 26,378 crore, respectively, previous fiscal. |
Key Financial Indicators: TVS Credit
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued %Includes sub debt loans of Rs 100.0 crore comprising Aditya Birla Finance **Interchangeable with short term bank facilities &For SBI: Rs.75.15 Cr Exchange Rate |
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%Includes sub debt loans of Rs 100.0 crore comprising Aditya Birla Finance
**Interchangeable with short term bank facilities
&For SBI: Rs.75.15 Cr Exchange Rate
Criteria Details
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