| Tata Motors Finance Solutions Limited | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL ratings on the bank facilities and debt instruments of Tata Motors Finance Solutions Limited (TMFSL) continue to be centrally based on the expectation of strong support from TMFSL's ultimate parent Tata Motors Limited (TML) to TMF Holdings Limited (TMFHL; rated 'CRISIL AA-/CRISIL A/Negative/CRISIL A1+') and TMFHL's two subsidiaries Tata Motors Finance Limited (TMFL; CRISIL AA-/Negative/CRISIL A1+) and TMFSL. This is because of the high strategic importance of the companies to TML. The ratings also factor in the group's strong position in commercial vehicle (CV) finance segment. However, these rating strengths are partially offset by moderate asset quality of the portfolio. |
| Analytical Approach |
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CRISIL's ratings on the debt instruments and bank facilities of TMFSL continue to be based on the expectation of strong support from TML. This is because of TMFSL's strong strategic importance to TML and the latter's ownership via 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. |
| Key Rating Drivers & Detailed Description |
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Strengths *High strategic importance to and expectation of strong support from TML CRISIL's ratings on the debt instruments and bank facilities of TMFSL continue to be based on the expectation of strong support from TML. This is because of TMFSL's strong strategic importance to TML and the latter's ownership via 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. TMFSL is engaged in pre-owned vehicle financing business that has strong operational linkages with TML's pre-owned vehicles and 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. The three companies are expected to receive significant business, financial and managerial support from TML. TMFSL benefits from the representation of TML's senior management on its board. TML, through TMFHL will support TMFSL's capitalisation, enabling the latter to maintain its capital adequacy ratio (CAR) above the regulatory minimum over the medium term. TMFHL has infused initial equity capital of Rs. 1,500 crore in March 2015 in TMFSL Further, TMFHL subscribed to subordinated debt of Rs 100 crores of TMFSL in fiscal 2019. In a distress scenario, TML is expected to provide support to TMFSL through TMFHL. The ownership, business and operational integration and shared brand, makes TML (through TMFHL) morally obligated to support TMFSL. With the objective of reducing gross non-performing assets, TMFSL has, during the quarter ended September 30, 2017, written off the entire manufacturer guaranteed business (MGB) portfolio. Dues against the same have been settled by TMFHL in November 2017, which has been recovered from TML in a phased manner, in six quarterly instalments. *Leading position in CV finance The TMF group is a leading vehicle financier in India and TMFL is among the top five CV financiers with assets under management (AUM) of Rs 31,419 crore as on September 30, 2019 (Rs 29,370 crore as on March 31, 2019 and Rs 21,035 crore as on March 31, 2018). As on September 30, 2019, TMFSL had a standalone portfolio of Rs 5,062 crore (Rs 5,805 crore as on March 31, 2019 and Rs 3,928 crore as on March 31, 2018). The consolidated assets under management (AUM) stood at Rs 36,481 crore as on September 30, 2019 (Rs 35,175 crore as on March 31, 2019 and Rs 24,963 crore as on March 31, 2018). Weakness *Moderate 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 super-strategic customers, strategic customers and first time users (FTUs) of CVs. The FTU 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. In the first six months of fiscal 2020, there has been increase in gross non-performing assets (NPA) numbers. TMFL's gross NPA stood at 5.7% as on September 30, 2019 (2.9% as on March 31, 2019 and 4.7% as on March 31, 2018 and 9.8% as on March 31, 2017) while the net NPA stood at 4.4%. TMFSL's GNPAs stood at 3.3% as on September 30, 2019 (1% as on March 31, 2019 and 1.37% as on March 31, 2018 and 47.2% as on March 31, 2017) while the net NPA stood at 2.3%. TMFSL's NPA numbers have come down sharply when compared to previous fiscals as TMFSL has written off its MGB portfolio with full loss cover from TML. The increase in GNPA was primarily because of collections getting affected due to overall slowdown in economy. The management is taking all necessary steps to improve collections and recovery which is expected to improve the GNPA metrics by end of fiscal 2020. 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 FTUs. Further, curtailment of the manufacturer-guaranteed and similar schemes is expected to aid the asset quality metrics going forward. |
| Liquidity Strong |
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CRISIL's analysis of TMFSL's asset liability maturity (ALM) profile as of November 30, 2019 shows cumulative positive mismatches across all maturity buckets. As on November 30, 2019, total debt repayments coming up till end February 2020 were Rs 1,008 crore as per ALM statement of which commercial paper repayment was Rs 747 crore. The liquidity position is supported by business inflows by way of repayments /prepayments - business repayments which are around Rs 1,269 crore in the next 3 months. Further, TMFSL had cash and equivalents of Rs 538 crore, investments of Rs 219 crore and unutilised bank lines of Rs 177 crore. Additionally, TMFSL has ICD limits from TMF Group Companies. |
| Outlook: Negative |
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The rating outlook on TMFSL is closely linked to the rating outlook on TML. CRISIL believes that TMFSL will be strategically important to TML 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 TMFSL. |
| About the Company |
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TMFSL, a non-deposit-taking systematically important, non-banking finance and asset finance company (NBFC-AFC), is a wholly owned subsidiary of TMFHL. As on March 31, 2015, TMFL had transferred its existing manufacturer-guaranteed (AUM of Rs 5,680 crore) and pre-owned vehicle financing (AUM of Rs 84 crore) businesses to TMFSL. End March 2019, the company's standalone AUM stood at Rs 5805 crore. As on March 31, 2019, the total borrowings stood at Rs 5,610 crore, which was mix of bank borrowings and market borrowings. |
| Key Financial Indicators - TMFSL (per Ind-AS) | ||||||||||||||||||||||||||||
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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) | |||||||||||||||||||||||||||||||||||||||||||||||||
* Interchangeable with short-term facilities %CITI Bank's limit of Rs 90 Crores is unsecured WCDL Limit, not inter-changeable with Cash credit. @Bank of India's Rs 250 crore is only WCDL, not interchangeable with Cash credit ^Yet to be issued | |||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of Entities Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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