Rating Rationale
August 15, 2018 | Mumbai
Tata Capital Limited
'CRISIL AAA/Stable' assigned to NCD ; Long-term rating upgraded to 'CRISIL AAA/Stable'
 
Rating Action
Total Bank Loan Facilities Rated Rs.25 Crore
Long Term Rating CRISIL AAA/Stable (Upgraded from 'CRISIL AA+/Stable')
 
Rs.750 Crore Non Convertible Debentures  CRISIL AAA/Stable (Assigned) 
Non-Convertible Debentures Aggregating Rs.1750 Crore    CRISIL AAA/Stable (Upgraded from 'CRISIL AA+/Stable') 
Preference Shares Aggregating Rs.2530 Crore    CRISIL AAA/Stable (Upgraded from 'CRISIL AA+/Stable') 
Rs.40 Crore Preference Shares  CRISIL AAA/Stable (Upgraded from 'CRISIL AA+/Stable') 
Rs.2000 Crore Commercial Paper   CRISIL A1+ (Reaffirmed) 
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its long-term rating on the bank facilities and debt instruments of Tata Capital Ltd (TCL) and its subsidiaries, including Tata Capital Financial Services Ltd (TCFSL), collectively referred to herein as the TCL group to 'CRISIL AAA/Stable' from 'CRISIL AA+/Stable'. The rating on the commercial paper programmed has been reaffirmed that 'CRISIL A1+'. CRISIL has also assigned the rating of 'CRISIL AAA/Stable' on Rs.750 crore of non-convertible debentures.

The rating action is driven by the increased strategic importance of the financial services business to Tata Sons Limited (Tata Sons; rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'). This is in line with the Tata group's focus on domestic consumption as a key theme in their growth philosophy. The TCL group, as the principal vehicle for non-captive lending, plays a key role through which this strategy will be implemented.

Tata Sons has already infused Rs 1250 crore of equity capital in fiscal 2019 till date and is committed to infuse additional Rs 1250 crore by March 2019. This equity capital infusion in fiscal 2019 is almost equal to the Rs 2800 crore of total equity capital infused from inception till March 31, 2018, and is a strong indicator of the focus on the lending business.

The rating action also factors in the strong support by the parent Tata Sons demonstrated by articulation of its intention to (i) to maintain majority shareholding in the TCL group, (ii) assist TCL group in organizing for any shortfall in maintaining capital adequacy as per applicable regulations and (iii) to conduct the business of TCL group in a manner that would enable TCL group to perform its obligations to all lenders and debt holders in full and timely manner.

TCL group's business performance has also improved, with significant scale-up and diversification in its portfolio over the past few years. Asset quality and earnings are also on an improving trend, with the group discontinuing businesses which have posed asset quality challenges in recent years. The TCL group is also further strengthening its risk function- both in people and in processes, which should hold it in good stead. Capital position will remain comfortable, with continued capital infusion from Tata Sons.

Analytical Approach
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of TCL and its subsidiaries TCFSL, Tata Capital Housing Finance Limited (TCHFL), and Tata Cleantech Capital Limited (TCCL). They have significant operational and management linkages, and operate under the common Tata Capital brand. Furthermore, most of TCL's earnings (on a consolidated basis; excluding one-offs) are accounted for by its two main subsidiaries, TCFSL and TCHFL.
Key Rating Drivers & Detailed Description
Strengths
* Strategic importance to, and expectation of strong support from the ultimate parent, Tata Sons
CRISIL's ratings on debt instruments of 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 owns 93.22% of TCL's equity shares and most of the remaining stake is held by the other Tata group companies and trusts. TCL in turn holds 100% stake in its two main subsidiaries- TCFSL and TCHFL. Tata Sons also has personnel from its senior management on TCL's board. Tata Sons has infused equity capital of around Rs.4050 crore in TCL since TCL's inception; Rs 1250 crore of this has been infused just in fiscal 2019 till date indicating the intent of the group to step up its focus on the lending business.
 
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. 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 are set to increase further as TCL taps into the Tata group ecosystem as part of its growth strategy. CRISIL believes that Tata Sons will continue to have majority ownership in, and management control of TCL and its subsidiaries, over the medium term.
 
* Comfortable capitalization to support medium term growth plans, supported by regular infusion from parent
TCL group has comfortable capitalisation, with absolute networth (on a consolidated basis) of Rs 6647 crore as March 31, 2018 (Rs 6044 crore as on March 31, 2017). The capital infusion in fiscal 2019 will further strengthen the networth. As on March 31, 2018, both TCFSL and TCHFL remained adequately capitalised with overall capital adequacy ratio of 16.68% and 17.22% respectively (16.07% and 16.01% respectively as on March 31, 2017 respectively) The gearing of TCFSL and TCHFL stood at 6.3 times and 10.3 times respectively as on March 31, 2018 (6.7 times and 11.9 times respectively as on March 31, 2017). TCL group's consolidated gearing stood at 8.0 times as on March 31, 2018. CRISIL believes that TCL group is adequately capitalised to absorb asset-side risks. CRISIL also believes that despite its significant growth plans, TCL group's capitalisation is expected to remain comfortable, given Tata Sons' commitment to support growth in the financial services business.
 
* Diversified resource profile
TCL group also has access to funding from a diverse base of lenders; the funding profile is fairly balanced with a mix of non-convertible debentures, bank borrowings, and short-term debt. As on March 31, 2018, overall market borrowings stood at about 60% of total borrowings. TCL and its subsidiaries have the ability to mobilize debt at competitive costs, given their association with the Tata group. 
 
Weaknesses
* Average asset quality; expected to improve with strengthened risk management systems and processes
Asset quality is expected to improve going ahead with the group exiting segments such as infrastructure lending in which they have faced asset quality challenges in the past, as well as the strengthening of the risk management infrastructure.
 
On a consolidated basis, TCL group's gross non-performing assets (NPAs) and net NPAs stood at 2.4% and 0.7% respectively as on March 31, 2018, lower than the 3.4% and 0.9% respectively as on March 31, 2017. In case of TCFSL, gross NPAs have come down to 3.3% as on March 31, 2018 from 4.9% in March 2017 and 5.3% in March 2016; a large part of this has been driven by write-offs in discontinued businesses. Asset quality in the continuing businesses is better and with the enhanced focus on risk management, is expected to improve going ahead. However, the impact of seasoning as well as the ability to manage the unsecured loan book, whose share is expected to increase, will need to be seen over time. 
 
TCHFL's gross NPA, while remaining low, has inched up to 1.2% March 31, 2018 from 0.9% as on March 31, 2017 and 0.7% as on March 31, 2016. However, excluding proactive early recognition of a large account, gross NPA would have been 0.9% as on March 31, 2018, in line with industry average. Given TCHFL's strong growth, the impact of seasoning will be visible only over the medium term. TCCL had no gross NPAs as on March 31, 2018.
 
CRISIL will monitor the ability of these companies to maintain low delinquency levels across asset classes over economic cycles.
 
* Moderate, though improving earnings profile
TCL group's profitability has been subdued in the past due to high credit costs.  Net interest margins (based on total income) have been relatively stable at over 5% for the past 3 years. Reduction in credit costs in fiscal 2018, though partially offset by an increase in operating expenses, has led to an increase in the consolidated RoA to 1.3% in fiscal 2018 from 0.9% (reported; excluding impact of one-time write-offs through reserves) in fiscal 2017. TCFSL's RoA in fiscal 2018 improved to 1.3% as compared to 0.7% (reported) last year while TCHFL's RoA stood at 1.1%, almost unchanged from 1.2% last year.
 
With expected improvement in asset quality, earnings metrics are also expected to move up. The healthy CRISIL-adjusted provision coverage ratio (PCR), at around 73% for TCFSL and 61% for TCHFL, also support profitability. CRISIL will continue to monitor TCL group's profitability, especially credit costs and operating efficiencies over the medium term.
Outlook: Stable

CRISIL 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. The outlook may be revised to 'Negative' in case of a decline in Tata Sons' credit quality or in CRISIL's view, a diminution in expected support to TCL group. The outlook may also be revised to 'Negative' in case of significant pressure on the TCL group's asset quality, impacting the group's earnings.

About the Company

TCL is the holding company for several of the financial services businesses of the Tata group and is registered with the Reserve Bank of India as a systemically important, non-deposit-taking, core investment company. Tata Capital has a diversified product portfolio with a presence in both the wholesale and retail finance segments. It had sizeable AUM of Rs 61445 crore as on March 31, 2018 (Rs 51,847 crore as on March 31, 2017). The fund-based products and services are primarily offered by TCFSL (both wholesale and retail finance segments), TCHFL (mortgage finance), and TCCL (infrastructure 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 on a standalone basis reported net profit of Rs 210 crore on total income (net of interest expenses) of Rs 335.5 crore as on March 31, 2018 as against net profit of Rs 180 crore on total income (net of interest expenses) of Rs 305.3 crore previous year.

Key Financial Indicators - Tata Capital-Consolidated
As on/for the year ended March 31  Unit 2018 2017
Total Assets Rs crore 64,088 53,625
Total income (net of interest expenses) Rs crore 3347 2854
Profit after tax Rs crore 776 472
Gross NPA % 2.4 3.4
Return on assets (annualized) % 1.3 0.9
Gearing Times 8.0 7.4

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)
ISIN Name of the instrument Date of issuance Coupon rate Maturity Date Size of issue (RS.crore) Rating assigned along  with Outlook
NA Debentures* NA NA NA 750 CRISIL AAA/Stable
NA Preference shares* NA NA NA 80 CRISIL AAA/Stable
NA Preference shares* NA NA NA 40 CRISIL AAA/Stable
INE976I04234 Preference shares 26-Jul-17 7.50% 25-Jul-24 75 CRISIL AAA/Stable
INE976I04242 Preference shares 28-Jul-17 7.33% 27-Jul-24 75 CRISIL AAA/Stable
INE976I04259 Preference shares 4-Aug-17 7.33% 3-Aug-24 75 CRISIL AAA/Stable
INE976I04267 Preference shares 15-Sep-17 7.15% 14-Sep-24 75 CRISIL AAA/Stable
INE976I04275 Preference shares 29-Sep-17 7.10% 28-Sep-24 75 CRISIL AAA/Stable
INE976I04010 Preference shares NA NA 09-Aug-19 147.61 CRISIL AAA/Stable
INE976I04028 Preference shares NA NA 21-Oct-19 61.74 CRISIL AAA/Stable
INE976I04036 Preference shares NA NA 09-Dec-19 25.0 CRISIL AAA/Stable
INE976I04044 Preference shares NA NA 20-Jan-20 15 CRISIL AAA/Stable
INE976I04051 Preference shares NA NA 26-Feb-20 30.0 CRISIL AAA/Stable
INE976I04069 Preference shares NA NA 27-Mar-20 30.65 CRISIL AAA/Stable
INE976I04077 Preference shares NA NA 21-May-20 250 CRISIL AAA/Stable
INE976I04085 Preference shares NA NA 05-Jun-20 90 CRISIL AAA/Stable
INE976I04093 Preference shares NA NA 08-Jul-20 100 CRISIL AAA/Stable
INE976I04101 Preference shares NA NA 04-Sep-20 37 CRISIL AAA/Stable
INE976I04119 Preference shares NA NA 06-Nov-20 3 CRISIL AAA/Stable
INE976I04127 Preference shares NA NA 31-Mar-21 5 CRISIL AAA/Stable
INE976I04135 Preference shares NA NA 18-Aug-21 205 CRISIL AAA/Stable
INE976I04143 Preference shares NA NA 21-Apr-22 465 CRISIL AAA/Stable
INE976I04150 Preference shares NA NA 06-Sep-22 35 CRISIL AAA/Stable
INE976I04168 Preference shares NA NA 01-Sep-23 75 CRISIL AAA/Stable
INE976I04176 Preference shares NA NA 15-Sep-23 100 CRISIL AAA/Stable
INE976I04184 Preference shares NA NA 06-Oct-23 50 CRISIL AAA/Stable
INE976I04192 Preference shares NA NA 26-Oct-23 75 CRISIL AAA/Stable
INE976I04200 Preference shares NA NA 09-Mar-24 135 CRISIL AAA/Stable
INE976I04218 Preference shares NA NA 06-Jul-24 65 CRISIL AAA/Stable
INE976I04226 Preference shares NA NA 11-Jul-24 75 CRISIL AAA/Stable
INE976I08185 Debentures# 28-Jun-16 0.09 28-Jun-18 200 CRISIL AAA/Stable
INE976I08193 Debentures# 25-Jul-16 0.09 25-Jul-18 200 CRISIL AAA/Stable
INE976I08201 Debentures# 28-Jul-16 0.0893 27-Jul-18 100 CRISIL AAA/Stable
INE976I08219 Debentures 18-Aug-16 0.0875 17-Aug-18 225 CRISIL AAA/Stable
INE976I08227 Debentures 18-Aug-16 0.0865 19-Aug-19 25 CRISIL AAA/Stable
INE976I08235 Debentures 26-Apr-17 0.0823 26-Apr-19 25 CRISIL AAA/Stable
INE976I08243 Debentures 31-May-17 0.082 31-May-19 225 CRISIL AAA/Stable
NA Debentures* NA NA NA 750 CRISIL AAA/Stable
NA Commercial Paper NA NA 7-365 days 2000 CRISIL A1+
NA Cash Credit and Working Capital demand loan NA NA NA 15 CRISIL AAA/Stable
NA Proposed Long-Term Bank Loan Facility NA NA NA 10 CRISIL AAA/Stable
*Yet to be issued
# CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these facility
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
Commercial Paper  ST  2000.00  CRISIL A1+  10-05-18  CRISIL A1+  13-09-17  CRISIL A1+  13-10-16  CRISIL A1+  18-08-15  CRISIL A1+  CRISIL A1+ 
        17-04-18  CRISIL A1+  01-08-17  CRISIL A1+  09-09-16  CRISIL A1+  05-03-15  CRISIL A1+   
        05-04-18  CRISIL A1+  28-07-17  CRISIL A1+  25-08-16  CRISIL A1+       
            24-07-17  CRISIL A1+  25-08-16  CRISIL A1+       
            18-07-17  CRISIL A1+  19-08-16  CRISIL A1+       
            30-06-17  CRISIL A1+  29-07-16  CRISIL A1+       
            12-06-17  CRISIL A1+  26-05-16  CRISIL A1+       
Non Convertible Debentures  LT  2500.00
14-08-18  		CRISIL AAA/Stable  10-05-18  CRISIL AA+/Stable  13-09-17  CRISIL AA+/Stable  13-10-16  CRISIL AA+/Stable    --  -- 
        17-04-18  CRISIL AA+/Stable  01-08-17  CRISIL AA+/Stable  09-09-16  CRISIL AA+/Stable       
        05-04-18  CRISIL AA+/Stable  28-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable       
            24-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable       
            18-07-17  CRISIL AA+/Stable  19-08-16  CRISIL AA+/Stable       
            30-06-17  CRISIL AA+/Stable  29-07-16  CRISIL AA+/Stable       
            12-06-17  CRISIL AA+/Stable  26-05-16  CRISIL AA+/Stable       
Preference Shares  LT  2570.00
14-08-18  		CRISIL AAA/Stable  10-05-18  CRISIL AA+/Stable  13-09-17  CRISIL AA+/Stable  13-10-16  CRISIL AA+/Stable  18-08-15  CRISIL AA+/Stable  CRISIL AA+/Stable 
        17-04-18  CRISIL AA+/Stable  01-08-17  CRISIL AA+/Stable  09-09-16  CRISIL AA+/Stable  05-03-15  CRISIL AA+/Stable   
        05-04-18  CRISIL AA+/Stable  28-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable       
            24-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable       
            18-07-17  CRISIL AA+/Stable  19-08-16  CRISIL AA+/Stable       
            30-06-17  CRISIL AA+/Stable  29-07-16  CRISIL AA+/Stable       
            12-06-17  CRISIL AA+/Stable  26-05-16  CRISIL AA+/Stable       
Fund-based Bank Facilities  LT/ST  25.00  CRISIL AAA/Stable  10-05-18  CRISIL AA+/Stable  13-09-17  CRISIL AA+/Stable  13-10-16  CRISIL AA+/Stable  18-08-15  CRISIL AA+/Stable  -- 
        17-04-18  CRISIL AA+/Stable  01-08-17  CRISIL AA+/Stable  09-09-16  CRISIL AA+/Stable       
        05-04-18  CRISIL AA+/Stable  28-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable       
            24-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable       
            18-07-17  CRISIL AA+/Stable  19-08-16  CRISIL AA+/Stable       
            30-06-17  CRISIL AA+/Stable  29-07-16  CRISIL AA+/Stable       
            12-06-17  CRISIL AA+/Stable  26-05-16  CRISIL AA+/Stable       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit & Working Capital demand loan 15 CRISIL AAA/Stable Cash Credit & Working Capital demand loan 15 CRISIL AA+/Stable
Proposed Long Term Bank Loan Facility 10 CRISIL AAA/Stable Proposed Long Term Bank Loan Facility 10 CRISIL AA+/Stable
Total 25 -- Total 25 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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