| Toyota Financial Services India Limited | ||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures; Rated amount enhanced for Commercial Paper and Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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.
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. |
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. TMC has infused equity of Rs 1,640 crore in TFSI so far, of which Rs 350 crore was provided in fiscal 2023. 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 4.1% as on March 31, 2023 and further, to 3.7% as on June 30, 2023, supported by improvement in collections and recoveries. The portfolio is reasonably granular with around 95% of it comprising retail loans, 5.0% of inventory finance and 0.3% being deployed in finance lease. The restructured portfolio was small, forming 0.1% of the assets under management (AUM) as on March 31, 2023.
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 March 31, 2023, the company had borrowings of Rs 7,244 crore. The resource portfolio is reasonably diversified with 43% from banks, 32% in non-convertible debentures (NCDs), 22% in external commercial borrowing (ECBs) loans and 3% in commercial paper. Company is ensuring healthy diversification and sustained funding 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 1,962 crore as on March 31, 2023, as compared to Rs 1,488 crore as on March 31, 2022, while gearing was at 3.7 times as against 3.9 times as of respective dates. Networth coverage of net NPAs increased to 11.8 times as compared to 9.0 times over the same period. Increase in the networth was on account of capital infusion of Rs 350 crore by the parent in fiscal 2023. Although the company has reported a profit for four out of the past five 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 124 crore on total income (net of interest expense) of Rs 345 crore for fiscal 2023, compared to Rs 84 crore and Rs 338 crore, respectively, for the previous fiscal. Amidst rising interest scenario and competition from banks, the company’s net interest margin declined to 3.3% for fiscal 2023 from 3.8% for the previous year. However, overall profitability was supported by reduction in credit costs to -0.1% from 0.9% over the fiscal due to provision reversal. Consequently, return on asset (RoA) improved to 1.5% for fiscal 2023 from 1.1% for the previous fiscal. For the quarter ended June 30, 2023, the company reported profit after tax of Rs 12 crore on total income (net of interest expense) of Rs 90 crore, compared to Rs 19 crore and Rs 81 crore, respectively, for the corresponding period of the previous fiscal.
TFSI’s ability to control its credit cost, and hence profitability, is a key monitorable. |
Liquidity: Superior Liquidity remains comfortable, with cash and equivalent of Rs 508 crore and unutilised bank limit of Rs 3,708 crore as on August 31, 2023, sufficient to cover debt obligation of Rs 1,595 crore till January 31, 2024. 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
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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 stood at Rs 8,951 crore as on March 31, 2023, vis-à-vis Rs 7,078 crore as on March 31, 2022. Profit after tax (PAT) was Rs 124 crore on a total income of Rs 741 crore in fiscal 2023, as against net profit of Rs 84 crore on Rs 678 crore in fiscal 2022. RoA was 1.47% as against 1.14% in fiscal 2022.
For the quarter June 30, 2023, company reported a PAT of Rs 12 core on total income (net of interest expense) of Rs 90 crore as against Rs 19 crore and Rs 81 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 2023. 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 2,451 billion (Rs 1.5 lakh crore[1]) for fiscal 2023 against JPY 2,850 billion (Rs 1.7 lakh crore[2]) for fiscal 2022. [1] Exchange rate as on March 31, 2023: 1 JPY=0.6189 INR (2) Exchange rate as on March 31, 2022: 1 JPY=0.6236 INR |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Yet to be issued *Interchangeable with short term bank facilities |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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