Rating Rationale

Strengths
* Healthy capital position
Capital position of TICL continues to remain healthy as evidenced by a large reported net worth of Rs 2,565 crore and a high Tier I capital adequacy ratio of 101% as on March 31, 2018 as against Rs 2,444 crore and 99.9% respectively as on March 31, 2017. Post the implementation of Indian Accounting Standards (Ind-AS), the reported net worth increased to Rs 7,810 crore as on September 30, 2018. The sharp fluctuation in reported net-worth was due to inclusion of both quoted and unquoted equity investments at fair value in the 'other comprehensive income', a component of reserves and surplus.

On November 16, 2018, the board of TICL approved a buyback of shares aggregating to Rs 450 crore (45 lac equity shares of Rs 1,000 each forming 8.17% of total paid up equity). Pre-buyback, the promoter companies held 72.98% of TICL, of which 68.14% was held by Tata Sons.

The capital position continues to be supported by healthy and stable internal accruals generated by the company. Over the medium term, the company's capitalization will remain healthy considering the size and scale of operations.

* Robust and well diversified investment portfolio
Prudent investment strategies have enabled TICL to build and maintain its robust and diversified investment portfolio. It continues to invest in fundamentally strong, highly liquid, dividend-yielding stocks which lends stability to its earnings profile. The company has been able to realise healthy returns from its portfolio which has supported its earnings profile. As on September 30, 2018, equity investments accounted for 69% of the total investments portfolio in terms of book value, followed by 20% investments in debentures and bonds and the remaining 10% in mutual funds.

* Healthy earnings profile
Earnings profile of TICL has remained healthy over the years, witnessed by the substantiality and stability in accruals generated by the company. The income mix of the company has remained fairly stable with profit on sale of investments contributing to over 50% whereas dividend income and interest income formed 26% and 16% of the total income, respectively for fiscal 2018.In fiscal 2018, TICL reported a profit after tax (PAT) of Rs 237 crore up 17% from the previous year. Return on average net-worth stood at 9.5% end fiscal 2018 as against 8.7% previous year.

For the half year ended September 30, 2018, reported PAT per Ind-AS was Rs 114 crore on a total income of Rs 132 crore, against Rs 90 crore on a total income of Rs 108 crore for the corresponding period of the previous year. Post the implementation of Ind-AS, any changes in fair value of equity/bonds will be reported under 'other comprehensive income'. The comparable PAT for H1 fiscal 2019 and H1 fiscal 2018 under IGAAP would have been Rs 168 crore and Rs 161 crore respectively. Overall, TICL's profitability position is expected to remain healthy over the medium term supported by stable returns realised on its portfolio.

Weaknesses
* Susceptibility to volatility inherent in the capital markets
With about 70% of TICL's total investments being parked in equity market, susceptibility to inherent volatility of the markets is relatively high. Adverse movements in the equity market can, therefore, substantially reduce the value of the company's investment portfolio and the same will continue to serve as a key rating sensitivity factor.