Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA-/Stable’ rating on non-convertible debenture and ‘CRISIL A/Stable’ rating on the perpetual bonds of Tata Motors Finance Limited (TMFL). CRISIL Ratings has also reaffirmed its ratings on bank facilities and debt instruments at ‘CRISIL AA-/CRISIL A/Stable/CRISIL A1+’.

 

On March 16, 2021, CRISIL has revised the outlook on the long term ratings of bank facilities and debt instruments of TMFSL from ‘Negative’ to ‘Stable’. The outlook revision follows a similar rating action on TMFL's ultimate parent, Tata Motors Limited (TML; rated 'CRISIL AA-/Stable/CRISIL A1+').

 

Ratings continue to reflect the expectation of strong support from TMFL’s ultimate parent Tata Motors Ltd (TML) to TMF Holdings Ltd (TMFHL; rated ‘CRISIL AA-/Stable/CRISIL A1+’) and its subsidiaries: Tata Motors Finance Solutions Ltd (TMFSL; CRISIL AA-/ Stable/CRISIL A1+) and TMFL. This is because of the high strategic importance of the companies to TML. The ratings also factor in the group’s strong position in the commercial vehicle (CV) finance segment. However, these strengths are partially offset by moderate, albeit improving, asset quality of the portfolio.

 

The group’s asset quality is expected to be reflective of key customer segments of the parent i.e. TML such as super-strategic customers, strategic customers and first-time users of CVs. Given the customer profile, the collection efficiencies had dropped considerable for the group post the imposition of the lockdown. In April’20, the collection efficiency[1] dropped to 32% for TMFL and 25% for TMFSL. However, on a month on month basis there has been considerable improvement with a substantial improvement post September 2020. The collection efficiency crossed 100% in January 2021 for both the entities and has continued to remain strong, touching almost the pre-Covid levels. The gross NPA for TMFL stood at 5.6% as on March 31, 2021 as against 5.9% as on March 31, 2020. For TMFSL, the gross NPA stood at 3.5% as on March 31, 2021 against 4.6% as on March 31, 2020. The sustenance of the collection efficiencies and the consequent impact on asset quality remains a key monitorable.

 

On the liquidity front, however, the group remains comfortable. On a consolidated basis, as on March 31, 2021, the group had repayments of Rs 7985 crore for the three months till June 2021 (of which Rs 2811 crore of CC/WCDL limits are expected to be rolled over). Against the same, the group had cash and equivalents of Rs 5691 crore, unutilised working capital bank lines of Rs 2246 crore and ICD lines of Rs 1000 crore from TML. Additionally, the group has Rs 750 crore of liquidity back as of March 31, 2021 to support its liquidity profile.

 

CRISIL Ratings has also withdrawn its rating on the non-convertible debentures of Rs 20 crore (See Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL has received independent confirmation that these instruments are fully redeemed.

 

[1] Collection Efficiency = Total Collections / Scheduled Billing

Analytical Approach

CRISIL’s ratings on the debt instruments and bank facilities of TMFL continue to be based on the expectation of strong support from TML. This is because of TMFL’s strong strategic importance to TML and the latter’s ownership through TMFHL. CRISIL has also combined the business and financial risk profiles of TMFHL and its subsidiaries, TMFL and TMFSL, given the integration of operations and commonality of management.              

 

The ratings on the perpetual bonds additionally take into account the deeply subordinated nature of these instruments whereby TMFL is restricted from servicing these instruments if it breaches the minimum regulatory capital requirement, or if the regulator denies permission to the company to make payments of interest and principal, if it reports losses.

 

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:

• High strategic importance to and expectation of strong support from TML

CRISIL’s ratings on the debt instruments and bank facilities of TMFL are based upon the expectation of strong support from the ultimate parent TML. This is because of the high strategic importance of TMFL to its parent and also the latter’s majority ownership in TMFL through its wholly owned subsidiary, TMFHL.

 

Post the restructuring in fiscal 2017, TMFHL became the holding company for the financial services business of TML. TMFL undertakes financing of new vehicles and is the captive financier for TML’s vehicles. TMFSL provides financing for pre-owned vehicles and has strong operational linkages with TML’s pre-owned vehicles business and corporate lending, wherein it provides both short-term and long-term financing to dealers and suppliers of TML. The three companies are expected to receive significant business, financial and managerial support from TML.

 

In the past, TML has been infusing equity capital into TMFHL (including in its earlier form as TMFL, the operating company) at regular intervals. TML infused Rs 300 crore in fiscal 2018, Rs 600 crore in fiscal 2019 and Rs 150 crore in fiscal 2020. CRISIL believes TML will continue to provide similar support through TMFHL, enabling the companies to maintain their capital adequacy above the minimum requirement.

 

Consequently, TMFHL infused Rs 300 crore of equity into TMFL and subscribed to Rs 370 crore of Compulsorily Convertible Preference Shares issued by TMFL and Rs 150 crore of subordinated debt issued by TMFL in fiscal 2019. Furthermore, in the first quarter of fiscal 2020, TMFHL has infused Rs 150 crore of equity and subscribed to Rs 300 crore of subordinated debt in TMFL.  The total capital ratio of TMFL was comfortable at 19.36% as on March 31, 2021 (16.85% as on March 31, 2020). CRISIL Ratings believes TMFL will continue to receive need-based support from TML through TMFHL, to maintain their capital adequacy above the minimum requirement.

 

TMFHL and its subsidiaries have a high level of managerial and operational integration, where the parent extends management support through representation of its senior management on the boards of TMFL and TMFSL. CRISIL believes TML will continue to have majority ownership in TMFL through the holding company structure. This, along with operational integration and a shared brand name, makes TML morally obligated to support TMFL.

 

• Leading position in CV finance

The TMFHL group is a leading vehicle financier in India and TMFL is among the top five CV financiers with consolidated assets under management (AUM) of Rs 39738 crores as on December 31, 2020 (Rs 35,946 crore as on March 31, 2020). The disbursements were impacted in the first half of fiscal 2021; however, have improved since September 2020, in line with the gradual opening up of the economy. As on December 31, 2020, TMFSL had a standalone portfolio of Rs 6,390 crore (Rs 5,205 crore as on March 31, 2020).

 

Weakness:

• Moderate asset quality

TMFHL’s consolidated asset quality is expected to be reflective of the nature of the subsidiaries’ businesses, which are tilted predominantly in favour of financing TML’s key customer segments such as super-strategic customers, strategic customers and first-time users of CVs. First-time users are generally not catered to by traditional CV financiers as the inherent credit risk in some of the customer segments is relatively high. In the past couple of years, TMFL has revised its business strategy with increasing share of strategic and super-strategic customers who are expected to have better risk profiles than first-time users.

 

Given the customer profile, the collection efficiencies had dropped considerable for the group post the imposition of the lockdown. In April’20, the collection efficiency[1] dropped to 32% for TMFL and 25% for TMFSL. However, on a month on month basis there has been considerable improvement with a substantial improvement post September 2020. The collection efficiency crossed 100% in January 2021 for both the entities and has continued to remain strong, touching almost the pre-Covid levels The gross NPA for TMFL stood at 5.6% as on March 31, 2021 as against 5.9% as on March 31, 2020.. For TMFSL, the gross NPA stood at 3.5% as on March 31, 2021 against 4.6% as on March 31, 2020.. The sustenance of the collection efficiencies and the consequent impact on asset quality remains a key monitorable.

 

[1] Collection Efficiency = Total Collections / Scheduled Billing

Liquidity: Strong

CRISIL's analysis of TMFL’s asset liability maturity (ALM) profile as on March 31, 2021, shows cumulative negative mismatches in over 6 months bucket up to 1-year bucket with inclusion of committed lines of credit. Given the ability of the TMFHL group to raise funds and expectation of strong support from the ultimate parent TML, any negative mismatch would be manageable.

 

On a consolidated basis, as on March 31, 2021, the group had repayments of Rs 7985 crore for the three months till June 2021 (of which Rs 2811 crore of CC/WCDL limits are expected to be rolled over). Against the same, the group had cash and equivalents of Rs 5691 crore, unutilised working capital bank lines of Rs 2246 crore and ICD lines of Rs 1000 crore from TML. Additionally, the group has Rs 750 crore of liquidity back as of March 31, 2021 to support its liquidity profile.

Outlook: Stable

The rating outlook on TMFL is closely linked to the rating outlook on TML. CRISIL believes TMF Group will be strategically important to TML, being captive financiers, and will benefit from the financial and management support extended by TML. CRISIL will continue to closely monitor any development that can significantly alter the extent of support by TML. Changes in the rating outlook or ratings on TML may lead to similar changes in the rating outlook or ratings on TMF Group.

Rating Sensitivity factors

Upward factors:

• Changes in the rating outlook or ratings on TML by 1 notch or higher may lead to similar changes in the rating outlook or ratings on TMF Group

 

Downward factors:

• Downgrade in the rating of TML by 1 notch or higher
• Any change in the support philosophy of TML, resulting in reduced support to the TMFHL group
• Sharp deterioration in the consolidated asset quality, impacting the profitability and capital level of the TMFHL group

About the Company

In March 2016, TMFHL acquired 100% stake in TMFL (earlier Sheba Properties Ltd), a non-banking finance company registered with RBI, for Rs 405 crore from TML. As on March 31, 2016, TMFL had total assets of Rs 205 crore, of which the investment portfolio constituted 94% of the assets or Rs 193 crore.

 

With the implementation of the scheme of arrangement effective January 2017, the entire new vehicle finance business has been transferred from TMFHL to TMFL. Post transfer, TMFL is a non-deposit taking, systemically important, non-banking financial and asset financing company and will be one of the major financiers of CVs and cars for TML’s customers and channel partners. In fiscal 2021, the company reported profit after tax (PAT) of Rs 250 crore on total income (net of interest expenses) of Rs 1780 crore, as against a net profit of Rs 59 crore and total income (net of interest expenses) of Rs 1372 crore in the previous fiscal.

Key Financial Indicators

As on /for the  year ended		March 31,  2021	March 31,  2020	March 31,  2019
Total assets	Rs crore	36,815	31,744	32,917
Total income (net of interest expenses)	Rs crore	1,780	1,372	1208
Profit after tax (PAT)	Rs crore	250	59	204
Total capital ratio	%	19.4	16.85	15.25
Gross NPA	%	5.6	5.89	2.92
Net NPA	%	4.0	5.10	1.52

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the Instrument	Date of Allotment	Coupon rate (%)	Maturity Date	Amount (Rs crore)	Complexity Levels	Rating assigned with Outlook
NA	Perpetual Debt	NA	NA	NA	500	Highly complex	CRISIL A/Stable
NA	Non-convertible debentures -(Rated and unutilized)	NA	NA	NA	3000	Simple	CRISIL AA-/Stable
NA	Non-convertible debentures -(Rated and unutilized)	NA	NA	NA	1600	Simple	CRISIL AA-/Stable
INE601U08200	Non-convertible debentures	20-Apr-21	7%	27-Feb-23	400	Simple	CRISIL AA-/Stable
INE601U07202	Non-convertible debentures	07-Jul-20	7.50%	03-Jan-22	50	Simple	CRISIL AA-/Stable
INE601U07210	Non-convertible debentures	30-Sep-20	7%	31-Mar-22	100	Simple	CRISIL AA-/Stable
INE601U07228	Non-convertible debentures	29-Oct-20	7%	28-Oct-22	180	Simple	CRISIL AA-/Stable
INE601U07236	Non-convertible debentures	29-Oct-20	6.75%	28-Apr-22	100	Simple	CRISIL AA-/Stable
INE909H07CZ9	Non-convertible debentures	10-Jun-16	Zero Coupon	10-Jun-21	5	Simple	CRISIL AA-/Stable
INE909H07CT2	Non-convertible debentures	13-May-16	9.20%	13-May-21	10	Simple	CRISIL AA-/Stable
INE909H07CX4	Non-convertible debentures	10-Jun-16	9.20%	10-Jun-21	42	Simple	CRISIL AA-/Stable
INE909H07DF9	Non-convertible debentures	28-Jun-16	9.30%	28-Jun-21	22	Simple	CRISIL AA-/Stable
INE909H07DJ1	Non-convertible debentures	28-Jul-16	9.00%	28-Jul-21	1	Simple	CRISIL AA-/Stable
INE601U07194	Non-convertible debentures	25-Jun-20	7.30%	30-Jun-21	75	Simple	CRISIL AA-/Stable
NA	Non-convertible debentures -(Rated and unutilized)	NA	NA	NA	1137.40	Simple	CRISIL AA-/Stable
INE909H08063	Subordinated debt	19-Sep-11	11.00%	17-Sep-21	75.3	Complex	CRISIL AA-/Stable
INE909H08071	Subordinated debt	02-Mar-12	11.00%	02-Mar-22	69.15	Complex	CRISIL AA-/Stable
INE909H08089	Subordinated debt	26-Mar-12	11.00%	26-Mar-22	10	Complex	CRISIL AA-/Stable
INE909H08097	Subordinated debt	22-May-12	11.00%	22-May-22	37.4	Complex	CRISIL AA-/Stable
INE909H08121	Subordinated debt	03-Aug-12	10.65%	03-Aug-22	25	Complex	CRISIL AA-/Stable
INE909H08139	Subordinated debt	28-Dec-14	10.46%	28-Dec-22	28	Complex	CRISIL AA-/Stable
INE909H08147	Subordinated debt	28-May-13	10.15%	28-May-23	55.1	Complex	CRISIL AA-/Stable
INE909H08170	Subordinated debt	24-May-13	9.85%	24-May-23	100	Complex	CRISIL AA-/Stable
INE909H08196	Subordinated debt	12-Sep-15	10.60%	12-Sep-24	25	Complex	CRISIL AA-/Stable
INE909H08204	Subordinated debt	26-Sep-14	10.35%	26-Sep-24	60	Complex	CRISIL AA-/Stable
INE909H08212	Subordinated debt	19-Dec-14	9.70%	19-Dec-24	150	Complex	CRISIL AA-/Stable
NA	Subordinated debt- (Rated and unutilised)	NA	NA	NA	265.1	Complex	CRISIL AA-/Stable
INE909H08105	Perpetual Debt	30-May-12	11.50%	30-May-22	26.9	Highly complex	CRISIL A/Stable
INE909H08113	Perpetual Debt	28-Jun-12	11.25%	28-Jun-22	73.1	Highly complex	CRISIL A/Stable
INE909H08162	Perpetual Debt	23-May-13	11.33%	23-May-23	22.3	Highly complex	CRISIL A/Stable
INE909H08154	Perpetual Debt	28-May-13	11.03%	28-May-23	52.7	Highly complex	CRISIL A/Stable
INE909H08188	Perpetual Debt	05-Sep-14	11.10%	05-Sep-24	50.3	Highly complex	CRISIL A/Stable
NA	Perpetual Debt- Rated and unutilised	NA	NA	NA	39.7	Highly complex	CRISIL A/Stable
NA	Commercial paper- Rated and unutilised	NA	NA	NA	8,000.00	Simple	CRISIL A1+
NA	Cash Credit & Working Capital Demand Loan **@%<*	NA	NA	NA	6057.17	NA	CRISIL AA-/Stable
NA	Long Term Bank Facility $*!	NA	NA	NA	14196.94	NA	CRISIL AA-/Stable
NA	Bank Guarantee*	NA	NA	NA	424.83	NA	CRISIL A1+
NA	Proposed Long Term Bank Loan Facility++	NA	NA	NA	3509.06	NA	CRISIL AA-/Stable
NA	Proposed Bank Guarantee++	NA	NA	NA	812	NA	CRISIL A1+

*Sanctioned bank facilities as on March 31, 2021 (Note- Long-Term Bank Facilities are net of repayments)

++Rated and proposed limits as on March 31 , 2021

**Central Bank of India's CC Limit is Rs 40 Crs and WCDL limit is of Rs 160 Crs
%Out of IDFC First Bank's Limit of Rs 300 Crs,  Rs 50 Crs  is  sublimit of CC/OD. The limit is fungible with BG. FX limit is of Rs 30 crs which is over and above Rs 300 Crs. IDFC Rs 200 Crs WCDL, is FCNR, fully hedged
Indusind Bank’s limit of Rs 10Crs is with CC sublimit of Rs 4 Crs

@Rs 200 Crs of Canara Bank's CC/WCDL limit includes BG subliit of Rs 1 Cr
*Rs 500 Crs have been earmarked as CP for SBI's CC/WCDL limit of Rs 1000 Crs
<For DBS Bank, CC Limit of Rs 25 Crs is a sublimit of WCDL Limit is Rs 200 cr

   DBS Rs 200 Crs is unsecured limit

   ICICI Rs 200 Crs is CC/WCDL/OTSTL facility

   Barclays Rs 2 Crs is multi optional facility

   Bank of India;s Rs 500 Crs is unsecured demand loan

   Axis Bank’s Rs 200Crs facility is unsecured WCDL

  HDFC’s Rs 100 Crs is WCL facility
$Secured loan from CITI bank of Rs 171 Crores is a USD 25 Million loan which is fully hedged

!ECB from Barclays Bank PLC & DBS Bank of USD 30 Million each; Australia and New Zealand Banking Group Limited  is USD 60 Mn, CTBC is USD 20 Mn, Korean Development Bank is USD 10 Mn  and International Finance Corporation of USD 100 Mn

 

Annexure - Details of Rating Withdrawn

ISIN	Name of the Instrument	Date of Allotment	Coupon  rate (%)	Maturity Date	Amount  (Rs crore)	Complexity Level
INE909H07CP0	Non-convertible debentures	07-Apr-16	9.20%	06-Apr-21	20	Simple

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
TMF Holdings Ltd	Full	Holding
Tata Motors Finance Solutions Ltd	Full	Co-subsidiary