| Toyota Financial Services India Limited | ||||
| Ratings Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the existing bank facilities and debt instruments of Toyota Financial Services India Limited (TFSI).
The ratings on TFSI continue to centrally factor in its strategic importance to the ultimate parent, Toyota Motor Corporation (TMC; rated 'A+/Stable/A-1+' by S&P Global Ratings [S&P]). TMC has a strong moral obligation to support the Indian subsidiary, both on an ongoing basis and in case of distress. The ratings also factor in the robust underwriting practices and risk management policies, diversified resource profile, and comfortable capitalisation of TFSI. These strengths are partially offset by the modest earnings profile.
On account of challenging macro environment owing to second wave of covid and regulatory revision of IRAC norms by RBI, asset quality performance of TFSI was also impacted. It can be witnessed from the increase in the gross non-performing assets to 5.38% as on March 31, 2022, from 4.48% a year earlier. Under the resolution framework for Covid-19-related stress, announced by the Reserve Bank of India in August 2020, the company has outstanding restructuring book of Rs 37 crore of loans (net of provisions), (0.5% of its overall portfolio), mainly for the fleet segment. Asset quality remains vulnerable to slippages amidst the challenging macro environment, and ability to manage delinquencies will be closely monitored |
Analytical Approach The ratings on TFSI are based on S&P's counterparty credit ratings on TMC, which is in line with the rating methodology of CRISIL Ratings for Indian affiliates of global financial institutions (GFIs). The rating framework for such affiliates considers the following factors: CRISIL Ratings’ assessment of the global operating environment and its impact on the credit risk profiles of GFIs; the ratings on the GFIs; translation of S&P ratings into the rating scale of CRISIL Ratings; and the standalone credit quality of the Indian operations. |
Key Rating Drivers & Detailed Description Strengths:
TMC views India as a key market, as reflected in its presence across the three verticals of manufacturing, sales and marketing, and financing. TFSI is the captive financier of Toyota Kirloskar Motor Pvt Ltd (TKM; the Indian manufacturing and sales subsidiary of TMC), and receives significant business, financial, and managerial support from TMC and Toyota Financial Services Corporation (TFSC; rated ‘A+/Stable/A-1+’ by S&P). TFSC has representation of its senior management on the board of TFSI. The subsidiary plays a strategic role in strengthening the market position and promoting sales of TMC in India. TMC has infused equity of Rs 1,290 crore so far, of which Rs 160 crore was provided in fiscal 2018. The parent is likely to infuse additional capital to support growth plans of the subsidiary. TFSI also benefits from TMC's global linkages with foreign banks operating in India. Risk management policies, systems and processes are in line with those approved by TFSC globally. CRISIL Ratings believes TMC will maintain its 100% ownership in TFSI. High operational and managerial integration, complete ownership, and shared brand lead to high moral obligation on TMC to support TFSI.
The policies of TFSI are similar to those followed by TFSC globally. The company has focused teams for customer lifecycle management, fraud control, and collection and recovery. Gross non-performing assets (NPAs) were at 5.38% as on March 31, 2022, and 4.48% a year back, largely due to adverse impact of the second wave of covid and regulatory revision in IRAC norms by RBI. The portfolio is reasonably granular with around 94% in retail loans and 6% in inventory finance. The company restructured 0.5% of its overall portfolio under the RBI resolution framework 1.0. Asset quality remains vulnerable to slippages amidst the challenging macro environment, and ability to manage delinquencies will be closely monitored.
As on March 31, 2022, the company had borrowings of Rs 5,864 crore. The resource portfolio is reasonably diversified with 21% from banks, 34% in NCDs, 36% in external commercial borrowings (ECBs) loans, 6% in Masala bonds and 3% in commercial paper. Company ensuring healthy diversification and sustained funding by raising funds from domestic and offshore. The company has been able to ensure sustained funding by leveraging relationships of TMC with global banks.
Networth was adequate at Rs 1,488 crore as on March 31, 2022, (as against Rs 1,404 crore as on March 31, 2021. Gearing was lower at 3.9 times as on March 31, 2022, vis-à-vis 4.1 times a year ago. Networth coverage of net NPAs reduced to 9 times, from 10.5 times over the same period. Although the company has reported a profit in four out of the past five fiscals, internal cash accrual remained low. Nevertheless, capitalisation should be comfortable over the medium term. CRISIL believes capital contribution from the parent is expected should the company need it.
Weakness:
Earnings profile for fiscal 2022 remain modest with marginal improvement in net interest margin to 3.81% as against 3.59% in fiscal 2021. Company reported profit after tax of Rs 84.1 crore reported in fiscal 2022 as against profit of Rs 52.1 crore in fiscal 2021. Return on asset was 1.14% as against 0.70% a year back. Improvement in earning profile in fiscal 2022 is also driven by reduction in credit cost which reduced to 0.87% in fiscal 2022 as against 1.43% in fiscal 2021.
TFSI’s ability to control its credit cost, and hence profitability, is a key monitorable. |
Liquidity: Superior Liquidity remains comfortable, with cash and cash equivalent of Rs 460 crore and unutilised bank limit of Rs 3,146 crore as on June 30, 2022, sufficient to cover debt obligation of Rs 1,454 crore till November 30, 2022. The asset-liability management profile was comfortable as on June 30, 2022, with positive cumulative mismatches across all buckets up to one year. Liquidity also benefits from the strong parental support. |
Outlook: Stable TFSI should continue to receive strong financial, managerial and operational support from its parent, TMC |
Rating Sensitivity factors Downward factors
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About the Company TFSI is a wholly-owned subsidiary of TFSC, which is a wholly owned subsidiary of TMC. TFSI, a non-deposit-taking non-banking financial company, began operations in June 2012. It extends finance to customers and dealers of TKM.
Gross advances were stable at Rs 7,078 crore as on March 31, 2022, vis-à-vis Rs 7,142 crore a year back, largely impacted by the pandemic. Profit after tax was Rs 84 crore on a total income of Rs 678 crore in the fiscal 2022, as against net profit of Rs 52 crore on Rs 690 crore in the fiscal 2021.
TMC is a leading global automotive company based in Japan. It had over 50 manufacturing companies in 28 countries at the end of March 2022. To strengthen its market position, the company has established captive financing arms through TFSC in all major global markets. TFSC is present in 41 locations worldwide and serves more than 2.8 crore customers.
TMC had a profit after tax (PAT) of JPY 2,245 billion (Rs 1.6 lakh crore[1]) for fiscal 2021 against a PAT of JPY 2,076 billion (Rs 1.5 lakh crore[2]) for fiscal 2020. [1] Exchange rate as on March 31, 2021: 1 JPY=0.70752 INR 2 Exchange rate as on March 31, 2020: 1 JPY=0.69982 INR
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Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
#Yet to be issued |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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