Tata Capital Housing Finance Limited 'CRISIL AAA/Stable' assigned to Non Convertible Debentures
Rating Action
& Includes Non-Convertible Debentures and Subordinated Debt ^ Unlisted 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 CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to the Rs.3500 crore non convertible debentures of Tata Capital Housing Finance Limited (TCHFL) and reaffirmed its 'CRISIL AAA/CRISIL PPMLD AAA/Stable/CRISIL A1+' ratings on the bank facilities and existing debt instruments of TCHFL.
CRISIL Ratings has also withdrawn its rating on debentures of Rs 345 crore in line with its rating withdrawal policy (See 'Annexure 'Details of Rating Withdrawn' for details). CRISIL Ratings has received independent confirmation that these instruments are fully redeemed.
The overall ratings of the TCL group (Tata Capital Limited (TCL) and its subsidiaries) continue to factor in its majority ownership by, and strategic importance of the financial services business to, the parent, Tata Sons Pvt Ltd (Tata Sons; rated ‘CRISIL AAA/Stable/CRISIL A1+’). This is in line with the group's focus on domestic consumption as a key theme in their growth philosophy.
TCL group, as the principal vehicle for the lending business, plays a key role in implementing this strategy. Tata Sons support continues to be demonstrated by articulation of its intention to (i) maintain majority shareholding in the TCL group, (ii) to assist the group in organising for any shortfall in maintaining capital adequacy as per applicable regulations and (iii) conduct the business of the group in a manner that would enable it to perform its obligations to all lenders and debt holders in a full and timely manner.
Moreover, the ratings continue to factor in the comfortable capitalisation to support medium term growth plans of the group, diversified resource profile and comfortable asset quality metrics. These strengths are partially offset by improving, though moderate, earnings profile of the group.
TCL on June 04, 2024, announced that board of directors of TCL, Tata Motor Finance Ltd (TMFL) and Tata Motors Ltd (TML) have approved the merger of TMFL with TCL through National Company Law Tribunal (NCLT) scheme of arrangement. The scheme is subject to sanction by the NCLT, requisite approvals including those from respective shareholders and creditors of TMFL and TCL, as applicable and as may be directed by the NCLT and other regulatory/statutory approvals. CRISIL Ratings will continue to monitor the progress on the developments in this regard. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of TCL and its subsidiaries TCHFL, Tata Securities Ltd and Tata Capital Pte Ltd, Singapore. This is because they have significant operational and management linkages and operate under the common brand. The ratings also factor in the strong support from the parent, Tata Sons given the strategic importance of TCL and its subsidiaries as the principal vehicle of non-captive lending in the group and the Tata Sons’ strong articulation of support.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The ratings on the debt instruments of the TCL group continue to be based on the expectation of strong support that the group is expected to receive from the ultimate parent, Tata Sons. This is due to Tata Sons’ majority ownership in the TCL group, coupled with the increasing importance of the financial services business to the Tata group.
Tata Sons directly owned 92.83% of TCL's equity shares and while most of the remaining stake was held by the other Tata group companies and trusts as on March 31, 2024. TCL, in turn, holds100% stake in TCHFL. Tata Sons also has personnel from its senior management on TCL's board. Tata Sons has infused capital of Rs 6,097 crore in TCL in the last five fiscals, of which Rs 2,500 crore was infused in fiscal 2019, Rs 1,000 crore in fiscal 2020, Rs 594 crore in fiscal 2023 and Rs 2003 crore during fiscal 2024, indicating the intent of the group to step up its focus on the lending business.
The TCL group, as the Tata group’s non-captive lending vehicle, is the primary financial services arm, and remains critical to the group, given the growth opportunities in this sector over the medium to long term. The TCL group is also strategically important to the Tata group because it caters to the funding requirements of various entities associated with the group, such as its suppliers, vendors, and dealers. The shared brand and infrastructural synergies with various Tata group companies strengthen the integration of the TCL group with the overall Tata group. Business synergies should increase further as TCL taps into the Tata group ecosystem as part of its growth strategy. CRISIL Ratings believes that Tata Sons will continue to have majority ownership in, and management control of TCL and its subsidiaries, over the medium term.
TCL group has comfortable capitalisation, with consolidated net worth (including minority interest) of Rs 24,393 crore as on June 30,2024 against Rs 23,417 crore as on March 31, 2024. Group’s capitalisation has been supported by regular infusion from its parent to support growth and the same is expected going forward too.
For TCHFL, as on June 30, 2024, net worth was Rs 6866 crore and gearing stood at 7.5 times (Rs 6,711 crore and 7.3 times as on March 31, 2024). The Capital adequacy of TCHFL was comfortable with tier-1 capital level of 15.8% and total capital ratio of 18.8% as on March 31, 2024 (15.0% and 18.2% respectively as on March 31, 2023).
The consolidated gearing stood at 6.3 times as on June 30, 2024 (6.3 times as on March 31, 2024and 6.2 times as on March 31, 2023). CRISIL Ratings believes that TCL group is adequately capitalised to absorb asset-side risks. CRISIL Ratings also believes that despite its significant growth plans, TCL group's capitalisation is expected to remain comfortable, given the commitment by Tata Sons to support growth in the financial services business.
TCL group also has access to funding from a diverse base of lenders; the funding profile is balanced with a mix of NCDs, bank borrowings, and short-term debt. The borrowing mix of TCL (consolidated basis) as on March 31, 2024, was composed of NCDs (39% share), term loans (42% share), working capital loans (4% share), commercial papers (7% share) and external commercial borrowing (7% share). TCL and its subsidiaries can mobilise debt at competitive costs due to their association with the Tata group.
The asset quality metrics have improved marginally, with consolidated Gross Stage III (GSIII) ratio of 1.5% as on March 31, 2024, against 1.7% as on March 31, 2023. The provision coverage ratio at a consolidated level stood at 74%, translating into net stage III ratio of 0.4% as on March 31, 2024. The overall standard restructured book stood at less than 0.90% of the portfolio as on March 31, 2024. As on June 30, 2024, standalone GSIII of TCL was 1.8% and NSIII was 0.4% (1.71% and 0.4% as on March 31, 2024).
TCHFL reported improved GSIII ratio of 0.8% as on June 30, 2024, against 1.0% as on March 31, 2024. The Provision Coverage Ratio for TCHFL stood at 57.3% as on June 30, 2024, against 58% as on March 31, 2024, translating to Net Stage III ratio of 0.36% and 0.40%. Additionally, standard restructured book in TCHFL was 2% (Rs 1,022 crore) of the portfolio as on March 31, 2024. Performance of the same will be monitorable.
While asset quality has improved, however, the group’s ability to contain the slippages and maintain its asset quality metrics as the portfolio continues to scale remains a key monitorable.
Weakness
TCL’s consolidated Profit after tax (PAT) grew 13% to Rs 3,327 crore in fiscal 2024 from Rs 2,946 crore for fiscal 2023 (includes one-time item of Rs 729 crore). Excluding one-time item in fiscal 2023, PAT grew by 50% in fiscal 2024 and return on average assets (ROA) stood at 2.1% for fiscal 2024 as against 1.9% for fiscal 2023. TCL reported consolidated profit of Rs 871 crore for the first quarter of fiscal 2025.
The overall credit costs (as a proportion of average total assets) on a consolidated basis have also improved to 0.4% for fiscal 2024 from 0.5% in fiscal 2023 and 1.2% in fiscal 2022. Going forward, with expectation of improvement in asset quality and healthy provisioning levels, credit costs are expected to remain controlled.
The PAT of TCHFL on a standalone basis grew ~40% in fiscal 2024 while RoMA was 2.4% in fiscal 2024 as against 2.3% in fiscal 2023. The group’s ability to maintain healthy profitability while controlling credit costs will remain monitorable. The company reported PAT of Rs 390 crore for the first quarter of fiscal 2025. |
Liquidity: Superior Consolidated asset liability management (ALM) as on June 30, 2024, shows no cumulative negative mismatches upto 1 year maturity bucket (the inflows include existing bank limits). Also, Asset Liability Management (ALM) of TCL and TCHFL show no cumulative negative mismatches upto 1 year maturity bucket, as on June 30, 2024.
In terms of liquidity, as on June 30, 2024, TCL group had total liquidity of Rs. 17,853 crore (cash equivalents, liquid investments and unutilised working capital bank lines), which is sufficient to meet debt obligations (including interest) for the two months ending August 2024. Furthermore, healthy monthly collections as well as available undrawn term loans of around Rs. 3600 crore, as on June 30, 2024, also provide comfort. |
Outlook: Stable CRISIL Ratings believes that TCL group will remain highly strategically important to Tata Sons, and continue to benefit from the strong parent support over the medium term. |
Rating Sensitivity factors Downward factors
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About the Company TCHFL is engaged in mortgage finance. The fee-based services distribution of mutual funds and insurance products, stock broking, and investment banking are offered through the wholly owned subsidiary, Tata Securities Ltd.
TCL is the holding company for the financial services businesses of the Tata Capital group and is registered with the Reserve Bank of India as a systemically important, non-deposit-taking, Core Investment Company. TCL has a diversified product portfolio with a presence in both the wholesale and retail finance segments.
It had sizeable AUM of Rs 1,65,649 crore as on June 30, 2024 against 1,58,479 crore as on March 31, 2024 (Rs 119,950 crore as on March 31, 2023, Rs 94,349 crore as on March 31, 2022). The fund-based products and services were primarily offered by erstwhile subsidiaries TCFSL (both wholesale and retail finance segments) and TCCL (infrastructure finance).
Note: June 2024 financials are as per limited review as reported by the company. |
Key Financial Indicators: Tata Capital Limited (Consolidated)
*excludes one-off item Note: These are CRISIL Ratings’ adjusted figures
Key Financial Indicators: Tata Capital Housing Finance Limited (Standalone)
Note: These are CRISIL Ratings’ adjusted figures |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@rated but unutilized *retail bonds -Includes Non-Convertible Debentures and Subordinated Debt ^unlisted
Annexure - Details of Rating Withdrawn
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Annexure – List of entities consolidated
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Criteria Details
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