Rating Rationale

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

Post the restructuring in fiscal 2017; TMFHL became the holding company for the financial services business under the TML umbrella. TMFL undertakes the new vehicle financing business and is the captive financier for TML's vehicles. On the other hand, TMFSL is engaged in pre-owned vehicle financing business that has strong operational linkages with TML's pre-owned vehicles. TMFSL is also actively engaged in corporate lending wherein it provides both short term and long term financing to dealers and suppliers of TML. The short term financing (upto one year) is mainly provided as inventory funding, channel finance, working capital facility etc. On the other hand, the long term financing is provided in the form of term loans and structured finance. Accordingly, 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. It infused Rs 1,150 crore from fiscal 2011 to fiscal 2014. It has infused Rs 300 crore equity in TMFHL in the fourth quarter of fiscal 2018. Another Rs. 300 crore was infused in TMFHL in Jan 2019. TMFHL infused Rs 300 crore of compulsorily convertible preference shares along with Rs 300 crore of equity and Rs 200 crores and Rs 100 crore of subordinate debt in TMFL. CRISIL believes that TML will continue to provide similar support through TMFHL, enabling the companies to maintain their capital adequacy above the regulatory minimum.

The three companies would 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 these companies. CRISIL believes TML will continue to have majority ownership in TMFL through the CIC. This, along with operational integration and a shared brand name, makes TML morally obligated to support TMFL.

* Leading position in CV finance
The TMF group is a leading vehicle financier in India. TMFL is among the top five CV financiers with assets under management (AUM) of Rs 25482 crore as on September 30, 2018 (Rs 21,035 crore as on March 31, 2018). Of the total AUM, the securitized portfolio has increased to constituted 9.4% of total AUM as on September 30, 2018 as against 6.3% as on March 31, 2018. As on the same date, TMFSL had a portfolio of Rs 4692 crore (up from Rs 3,928 crore as on March 31, 2018) of which 50 % was towards used vehicle financing and another 48% corporate lending business. The consolidated assets under management (AUM) stood Rs 30,174 crore as on September 30, 2018 (Rs 24,963 crore as on March 31, 2018).

Weakness
* Moderate, albeit improving asset quality
TMFHL's consolidated asset quality is expected to be reflective of the nature of the subsidiaries' business, which is tilted predominantly in favor of financing TML's key customer segments such as first time users and buyers (FTUs and FTBs) of CVs. These customers are generally not catered to by the traditional CV financiers as the inherent credit risk in some of the customer segments is relatively high.

However in last one year, there has been significant reduction in NPA numbers. TMFL's gross NPAs stood at 3.96% as on September 30, 2018 compared to 4.7% as on March 31, 2018 and 9.8% as on March 31, 2017. TMFSL's gross NPA numbers have also come down sharply as TMFSL has written off its MGB portfolio with full loss cover from TML- TMFSL's GNPAs stood at 1.51% as on September 30, 2018 (1.37% as on March 31, 2018 and 47.2% as on March 31, 2017). Consolidated gross NPA have, therefore, also come down to 3.58% as on September 30, 2018 (4.0% as on March 31, 2018 and 18.05 % as on March 31, 2017).

Going ahead, asset quality is expected to be better than in the past given the curtailment of manufacturer-guaranteed and similar schemes which exhibited the highest delinquencies coupled with more focus on collections. However, the ability to manage incremental asset quality hereon will be a key monitorable.