Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs.300 crore of non-convertible debentures (NCD) of Toyota Financial Services India Limited (TFSI) and reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the outstanding bank facilities and debt instruments of the company.

 

CRISIL Ratings has also withdrawn its rating on Rs 200 crore of debentures on the company's request as the outstanding against the same is nil and confirmation from debenture trustee has also been received (See Annexure 'Details of Rating Withdrawn' for details). The withdrawal is in line with CRISIL Ratings withdrawal policy.

 

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 company’s robust underwriting practices and risk management policies, diversified resource profile, and comfortable capitalisation. These strengths are partially offset by the modest earnings profile.

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:

• Strategic importance to, and strong support from, the ultimate parent, TMC: TMC continues to view 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 remains strategically important in strengthening the market position and promoting sales of TMC in India. TFSC has infused equity of Rs 2,600 crore in TFSI so far, of which Rs 350 crore was provided in second quarter of fiscal 2025. In the near term, the parent is likely to infuse additional capital to support the 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.

 

• Robust underwriting practices and risk management policies: The risk management 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 5.4% as on March 31, 2022, and 4.5% a year earlier, largely due to the adverse impact of the second wave of Covid-19 and regulatory revision in IRAC norms by the Reserve Bank of India (RBI). However, the company has been able to bring down its gross NPAs ratio to 3.00% as on March 31, 2024, and maintain it around similar levels of 2.99% as on September 30, 2024, supported by improvement in collections alongside growth. The portfolio is reasonably granular with around 92% of it comprising retail loans, 7% of inventory finance and 1% being deployed in finance lease as on September 30, 2024.

 

Asset quality remains susceptible to economic risks. More so, as the portfolio has grown at a robust rate over the last few quarters and lacks seasoning, the company’s ability to manage delinquencies alongside scale, will be closely monitored.

 

• Diversified resource profile: As on September 30, 2024, the company had borrowings of Rs 13,438 crore. The resource portfolio is reasonably diversified with 37% being sourced from banks, 31% being sourced in the form of non-convertible debentures (NCDs), 24% as external commercial borrowing (ECBs) loans and 8% in commercial paper. Company endeavours to maintain a healthy diversity in resource profile and sustained pipeline by raising funds from domestic and offshore markets. To achieve this, the company has been leveraging relationships of TMC with global banks.

 

• Comfortable capitalisation: Networth was adequate at Rs 2,986 crore as on September 30, 2024, as compared to Rs 2,626 crore as on March 31, 2024 (Rs 1,962 crore as on March 31, 2023), while gearing was at 4.5 times as against 4.3 times as of respective dates. The increase in networth was largely driven by capital infusion of Rs 350 crore in H1 2025 by the parent. Networth coverage of net NPAs stood at 14.0 times on September 30, 2024 as compared to 14.7 times, six months ago. Although the company has reported a profit for five out of the past six fiscals, internal cash accrual remained low. Nevertheless, capitalisation should be comfortable over the medium term supported by capital infusion by the parent, as and when required. 

 

Weakness:

• Modest earnings: The earnings profile remains modest with reported profit after tax of Rs 54 crore on total income (net of interest expense) of Rs 378 crore for fiscal 2024, compared to a profit of Rs 124 crore on a total income of Rs 345 crore, respectively, for the previous fiscal. Amidst rising interest scenario and competition from banks, the company’s net interest margin declined to 2.8% for fiscal 2024 from 3.5% for the previous year. Further, the credit cost for fiscal 2023 was -0.1% driven by higher write backs and recoveries during the year however, this metric corrected to 0.7% for fiscal 2024. Consequently, return on asset (RoA) declined to 0.5% for fiscal 2024 from 1.5% for the previous fiscal. For the six-month period ended September 30, 2024, the company reported profit after tax of Rs 11 crore on total income (net of interest expense) of Rs 228 crore. This translated to an RoA of 0.1% for the period which was largely constrained by increased credit costs of 1.2% for the period. The elevation in credit costs stemmed from an uptick in delinquencies in the retail finance portfolio, particularly the entry level vehicles. The overall retail portfolio has grown at an aggressive rate of 17% over H1 2025 and forms 92% of the overall portfolio as on September 30, 2024.

 

• FSI’s ability to control its credit cost, and sustainably improve overall profitability, is a key monitorable.

Liquidity: Superior

Liquidity remains comfortable, with cash and equivalent of Rs 513 crore and unutilised bank limit of Rs 4,095 crore as on October 31, 2024, cumulatively sufficient to cover debt obligation of Rs 1,216 crore till April 30, 2025. The asset-liability management profile was comfortable as on the same date, with positive cumulative mismatches across all buckets. Liquidity also benefits from the strong parental support.

Outlook: Stable

TFSI should continue to receive strong financial, managerial and operational support, through TFSC (the immediate parent of TFSI and a subsidiary of TMC), from its ultimate parent, TMC.

Rating sensitivity factors

Downward factors:

• A downgrade in S&P’s rating on TMC by 3 or more notches, or any change in the support philosophy of the parent
• Significant and continuous weakening of asset quality, impacting earnings

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 stood at Rs 16,185 crore as on September 30, 2024, vis-à-vis Rs 13,587 crore as on March 31, 2024. Profit after tax (PAT) was Rs 55 crore on a total income of Rs 1,061 crore in fiscal 2024, as against net profit of Rs 124 crore on Rs 741 crore in fiscal 2023. RoA was 0.46% in fiscal 2024 as against 1.47% in fiscal 2023.

 

For the six-month period ended September 30, 2024, the company reported a PAT of Rs 11 core on total income (net of interest expense) of Rs 228 crore as against Rs 37 crore and Rs 185 crore, respectively, for the corresponding period of the previous fiscal.             

 

TMC is a leading global automotive company based in Japan. It had more than 50 manufacturing companies in 27 countries at the end of March 2024. To strengthen its market position, the company has established captive financing arms through TFSC in all major global markets. TFSC is present in 40+ locations worldwide.

 

TMC had a PAT of JPY 4,945 billion (Rs 2.7 lakh crore[1]) for fiscal 2024 against JPY 2,451 billion (Rs 1.5 lakh crore[2]) for fiscal 2023.

[1] Exchange rate as on March 29, 2024: 1 JPY=0.5514 INR

2 Exchange rate as on March 31, 2023: 1 JPY=0.6189 INR

 

Any other information: Not Applicable