Rating Rationale
December 05, 2019 | Mumbai
Tata Capital Limited
'CRISIL AAA/Stable' assigned to NCD
 
Rating Action
Total Bank Loan Facilities Rated Rs.25 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
 
Rs.1500 Crore Non Convertible Debentures  CRISIL AAA/Stable (Assigned)
Preference Shares Aggregating Rs.3002.22 Crore CRISIL AAA/Stable (Reaffirmed)
Non-Convertible Debentures Aggregating Rs.1400 Crore CRISIL AAA/Stable (Reaffirmed)
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 assigned its 'CRISIL AAA/Stable' rating on non-convertible debentures of Rs 1500 crore of Tata Capital Limited (TCL). CRISIL has also reaffirmed its ratings on the company's other debt instruments and bank facilities at 'CRISIL AAA/Stable/CRISIL A1+
 
The rating is driven by increased strategic importance of the financial services business to Tata Sons Private 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 infused Rs 2500 crore of equity capital in fiscal 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 parent's 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) to 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 is expected 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 Tata Capital Housing Finance Limited (TCHFL), Tata Capital Financial Services Ltd (TCFSL), Tata Cleantech Capital Limited (TCCL), Tata Securities Ltd and Tata Capital Pte Ltd, Singapore) . This is because they have significant operational and management linkages, and operate under the common Tata Capital brand. The ratings also factor in strong support from TCL's 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:
* 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 94.23% 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 and 80.50% in TCCL. Tata Sons also has personnel from its senior management on TCL's board. Tata Sons has infused equity capital (including share premium) of around Rs.5300 crore in TCL since TCL's inception; Rs 2500 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 capitalization, with absolute networth (per IndAS but including CCCPS and on a consolidated basis) of Rs 9523 crore as September 30, 2019. As on September, 2019 both TCFSL and TCHFL remain adequately capitalized with overall capital adequacy ratio of 17.89% and 16.97% respectively (16.84% and 16.24% respectively as on March 31, 2019). The gearing of TCFSL and TCHFL (after adjusting for compulsorily convertible cumulative preference shares that is being treated as debt with the introduction of IND-AS) stood at 6.3 times and 9.5 times as on September, 2019 (6.4 times and 10.8 times respectively as on March 31, 2019). The gearing of TCCL was 4.9 time as on September 30, 2019 (4.9 times as on March 31, 2019).
 
TCL group's consolidated gearing stood at 7.0 times as on September, 2019. CRISIL believes that TCL group is adequately capitalized to absorb asset-side risks. CRISIL also believes that despite its significant growth plans, TCL group's capitalization 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, 2019, overall market borrowings stood at about half 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 1.9% and 0.6% respectively as on March 31, 2019 against 1.7% and 0.4% respectively as on March 31, 2018.
 
 In case of TCFSL, the gross NPA was 2.4% as on September 30, 2019 against 2.5% as on March 31, 2019 (down from 3.3% in fiscal 2018 and 4.9% in fiscal 2017). The company's provision coverage ratio was 77% as on September 30. 2019 thereby translating into net NPA to 0.6% as on September 30, 2019.  The provisioning cost of TCFSL has more than doubled to Rs 454 crore in six months of fiscal 2020 against Rs 214 crore in the corresponding period of fiscal 2019. 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 reported gross NPA deteriorated to 1.4% as on September 30, 2019 against 0.9% end fiscal 2019 (1.2% in fiscal 2018 and 0.9% in fiscal 2017). The provision coverage ratio stood at 64% (58% as on March 31, 2019) leading to net NPA of 0.53% as on September 30, 2019. The provision cost for TCHFL has increased by about 71% in six months of fiscal 2020 to Rs 172 crore against Rs 101 crore in the corresponding period in the last fiscal. Given TCHFL's strong growth, the impact of seasoning will be visible only over the medium term.
 
TCCL had gross NPA of 1.24% and net NPA of 0.96% respectively as on September 30, 2019 (nil as on March 31, 2019). The provisioning coverage ratio of TCCL was 23% as on September 30, 2019. CRISIL will monitor the ability of these companies to maintain low delinquency levels across asset classes over economic cycles.
 
* Moderate 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 around 5% for the past 3 years.  TCFSL, TCHFL and TCCL combined net profit  was Rs 169 crore for first six months of fiscal 2020 against Rs 260 crore in the corresponding period of fiscal 2019. The combined profitability was impacted primarily due to increase in the provisioning expense to Rs 643 crore in six months of fiscal 2020 from Rs 319 crore in the corresponding period of the last fiscal.
 
 For TCFSL, the net profit stood at Rs 87 crore for first half of fiscal 2020, down 56% Y-o-Y, on total income (net of interest expenses) of Rs 1326 crore, up 15% Y-o-Y. TCFSL's return on average assets stood at 0.4% in first half of fiscal 2020. In case of TCHFL, the net profit stood at Rs 24 crore in first half of fiscal 2020, up 32% Y-o-Y on total income (net of interest expenses) of Rs 389 crore, +26% Y-o-Y. For TCCL, the net profit stood at Rs 58 crore in the first half of fiscal 2020 up 32% Y-o-Y, on a total income of Rs 120 crore, up 43% Y-o-Y.
 
With expected improvement in asset quality, earnings metrics are also expected to move up. The healthy CRISIL-adjusted provision coverage ratio (PCR), at around 77% for TCFSL and 64% for TCHFL, also support profitability. CRISIL will continue to monitor TCL group's profitability, especially credit costs and operating efficiencies over the medium term.
Liquidity Superior

In the six months from December 2019 to May 2020, the company has repayments due to the tune of Rs 1637 crore of which commercial paper repayments is Rs 885 crore. The refinance will be through combination of incremental debt raising as well as liquidation of debt investments in the subsidiaries. Being a core investment company (CIC), TCL's own income sources comprises mainly of dividend income that is up-streamed by its two main subsidiaries i.e. TCFSL and TCHFL.

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.
 
Rating sensitive factors 
Downward factors
* Downward revision in the credit rating of Tata Sons
* Any change in the support philosophy of Tata Sons resulting in reduced support to TCL Group
* Sharp deterioration in consolidated asset quality with consolidated gross NPA remaining above 6% and in-turn impacting capital and earnings

About the Company

TCL is the holding company for several of 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. Tata Capital has a diversified product portfolio with a presence in both the wholesale and retail finance segments. It had sizeable AUM of Rs 77,110 crore end fiscal 2019 as against Rs 61,445 crore as on March 31, 2018 and 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 28 crore on total income (net of interest expenses) of Rs 363 crore as on March 31, 2019 as against net profit of Rs 37 crore on total income (net of interest expenses) of Rs 177 crore previous year.

Key Financial Indicators - (Tata Capital-Consolidated)
As on / for the year ended March 31   2019 2018
Total Assets (reported) Rs crore 82,644 65,213
Total income (net of interest expenses) Rs crore 4,017 2,901
Profit after tax Rs crore 1,029 677
Gross NPA % 1.8 2.4
Return on assets (annualized) % 1.4 1.3
Gearing Times 7.1 8.0

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 Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 45 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference Shares* NA NA NA 40 CRISIL AAA/Stable
NA Preference shares* NA NA NA 6.80 CRISIL AAA/Stable
INE976I04317 Preference Shares 13-Mar-19 7.75% 12-Mar-26 40 CRISIL AAA/Stable
INE976I04309 Preference shares 15-Jun-18 7.10% 14-Jun-25 33.45 CRISIL AAA/Stable
INE976I04283 Preference shares* 20-Apr-18 7.10% 19-Apr-25 40 CRISIL AAA/Stable
INE976I04291 Preference shares* 10-May-18 7.10% 9-May-25 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 9-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 9-Dec-19 25 CRISIL AAA/Stable
INE976I04044 Preference shares NA NA 20-Jan-20 15.65 CRISIL AAA/Stable
INE976I04051 Preference shares NA NA 26-Feb-20 30 CRISIL AAA/Stable
INE976I04069 Preference shares NA NA 27-Mar-20 30.65 CRISIL AAA/Stable
INE976I04143 Preference shares NA NA 21-Apr-22 464.85 CRISIL AAA/Stable
INE976I04150 Preference shares NA NA 6-Sep-22 35 CRISIL AAA/Stable
INE976I04168 Preference shares NA NA 1-Sep-23 75 CRISIL AAA/Stable
INE976I04176 Preference shares NA NA 15-Sep-23 100 CRISIL AAA/Stable
INE976I04184 Preference shares NA NA 6-Oct-23 50 CRISIL AAA/Stable
INE976I04192 Preference shares NA NA 26-Oct-23 75 CRISIL AAA/Stable
INE976I04200 Preference shares NA NA 9-Mar-24 135 CRISIL AAA/Stable
INE976I04218 Preference shares NA NA 6-Jul-24 65 CRISIL AAA/Stable
INE976I04226 Preference shares NA NA 11-Jul-24 75 CRISIL AAA/Stable
INE976I04325 Preference shares 12-Jun-19 NA 11-Jun-26 40 CRISILAAA/Stable
INE976I04333 Preference shares 28-Jun-19 NA 27-Jun-26 40 CRISILAAA/Stable
NA Debentures* NA NA NA 750 CRISIL AAA/Stable
NA Debentures* NA NA NA 1500 CRISIL AAA/Stable
INE976I08268 Debentures 5-Sep-17 7.75% 5-Mar-20 200 CRISIL AAA/Stable
INE976I08276 Debentures 18-Jun-18 9.32% 18-Dec-19 450 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
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
Tata Capital Limited Full Holding Company
Tata Capital Financial Services Limited Full Subsidiary
Tata Capital Housing Finance Limited Full Subsidiary
Tata Cleantech Capital Limited Full Subsidiary
Tata Securities Limited Full Subsidiary
Tata Capital Pte Ltd, Singapore Full Subsidiary
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  2000.00  CRISIL A1+  24-10-19  CRISIL A1+  15-08-18  CRISIL A1+  13-09-17  CRISIL A1+  13-10-16  CRISIL A1+  CRISIL A1+ 
        13-09-19  CRISIL A1+  10-05-18  CRISIL A1+  01-08-17  CRISIL A1+  09-09-16  CRISIL A1+   
        05-09-19  CRISIL A1+  17-04-18  CRISIL A1+  28-07-17  CRISIL A1+  25-08-16  CRISIL A1+   
        21-08-19  CRISIL A1+  05-04-18  CRISIL A1+  24-07-17  CRISIL A1+  25-08-16  CRISIL A1+   
        09-07-19  CRISIL A1+      18-07-17  CRISIL A1+  19-08-16  CRISIL A1+   
        28-06-19  CRISIL A1+      30-06-17  CRISIL A1+  29-07-16  CRISIL A1+   
        13-06-19  CRISIL A1+      12-06-17  CRISIL A1+  26-05-16  CRISIL A1+   
        31-05-19  CRISIL A1+               
        14-05-19  CRISIL A1+               
        08-03-19  CRISIL A1+               
Non Convertible Debentures  LT  1400.00
05-12-19  		CRISIL AAA/Stable  24-10-19  CRISIL AAA/Stable  15-08-18  CRISIL AAA/Stable  13-09-17  CRISIL AA+/Stable  13-10-16  CRISIL AA+/Stable  -- 
        13-09-19  CRISIL AAA/Stable  10-05-18  CRISIL AA+/Stable  01-08-17  CRISIL AA+/Stable  09-09-16  CRISIL AA+/Stable   
        05-09-19  CRISIL AAA/Stable  17-04-18  CRISIL AA+/Stable  28-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable   
        21-08-19  CRISIL AAA/Stable  05-04-18  CRISIL AA+/Stable  24-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable   
        09-07-19  CRISIL AAA/Stable      18-07-17  CRISIL AA+/Stable  19-08-16  CRISIL AA+/Stable   
        28-06-19  CRISIL AAA/Stable      30-06-17  CRISIL AA+/Stable  29-07-16  CRISIL AA+/Stable   
        13-06-19  CRISIL AAA/Stable      12-06-17  CRISIL AA+/Stable  26-05-16  CRISIL AA+/Stable   
        31-05-19  CRISIL AAA/Stable               
        14-05-19  CRISIL AAA/Stable               
        08-03-19  CRISIL AAA/Stable               
Preference Shares  LT  3002.22
05-12-19  		CRISIL AAA/Stable  24-10-19  CRISIL AAA/Stable  15-08-18  CRISIL AAA/Stable  13-09-17  CRISIL AA+/Stable  13-10-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
        13-09-19  CRISIL AAA/Stable  10-05-18  CRISIL AA+/Stable  01-08-17  CRISIL AA+/Stable  09-09-16  CRISIL AA+/Stable   
        05-09-19  CRISIL AAA/Stable  17-04-18  CRISIL AA+/Stable  28-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable   
        21-08-19  CRISIL AAA/Stable  05-04-18  CRISIL AA+/Stable  24-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable   
        09-07-19  CRISIL AAA/Stable      18-07-17  CRISIL AA+/Stable  19-08-16  CRISIL AA+/Stable   
        28-06-19  CRISIL AAA/Stable      30-06-17  CRISIL AA+/Stable  29-07-16  CRISIL AA+/Stable   
        13-06-19  CRISIL AAA/Stable      12-06-17  CRISIL AA+/Stable  26-05-16  CRISIL AA+/Stable   
        31-05-19  CRISIL AAA/Stable               
        14-05-19  CRISIL AAA/Stable               
        08-03-19  CRISIL AAA/Stable               
Fund-based Bank Facilities  LT/ST  25.00  CRISIL AAA/Stable  24-10-19  CRISIL AAA/Stable  15-08-18  CRISIL AAA/Stable  13-09-17  CRISIL AA+/Stable  13-10-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
        13-09-19  CRISIL AAA/Stable  10-05-18  CRISIL AA+/Stable  01-08-17  CRISIL AA+/Stable  09-09-16  CRISIL AA+/Stable   
        05-09-19  CRISIL AAA/Stable  17-04-18  CRISIL AA+/Stable  28-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable   
        21-08-19  CRISIL AAA/Stable  05-04-18  CRISIL AA+/Stable  24-07-17  CRISIL AA+/Stable  25-08-16  CRISIL AA+/Stable   
        09-07-19  CRISIL AAA/Stable      18-07-17  CRISIL AA+/Stable  19-08-16  CRISIL AA+/Stable   
        28-06-19  CRISIL AAA/Stable      30-06-17  CRISIL AA+/Stable  29-07-16  CRISIL AA+/Stable   
        13-06-19  CRISIL AAA/Stable      12-06-17  CRISIL AA+/Stable  26-05-16  CRISIL AA+/Stable   
        31-05-19  CRISIL AAA/Stable               
        14-05-19  CRISIL AAA/Stable               
        08-03-19  CRISIL AAA/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 AAA/Stable
Proposed Long Term Bank Loan Facility 10 CRISIL AAA/Stable Proposed Long Term Bank Loan Facility 10 CRISIL AAA/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 Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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