Rating Rationale
April 06, 2020 | Mumbai
BMW India Financial Services Private Limited
NCD Withdrawn : CP Reaffirmed
 
Rating Action
Rs.400 Crore Non Convertible Debentures CRISIL AAA/Stable (Withdrawn)
Rs.1500 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating of 'CRISIL A1+' on the commercial papers of BMW India Financial Services Private Limited (BMWIFS). CRISIL has also withdrawn its rating on Rs 400 crore non-convertible debentures (See Annexure 'Details of Rating Withdrawn' for details) based on company's request and debenture trustee confirmation.  The withdrawal is in line with CRISIL's withdrawal policy.
 
On March 26, 2020, S&P Global Ratings had downgraded its rating on BMW AG from S&P rating - A+/Negative/A-1 to S&P rating - A/Negative/A-1 on weaker prospects due to Novel Coronavirus (COVID-19) which is likely to result in lower than expected unit sales for BMW AG and production cuts which will hurt the group's revenue and cashflows in 2020. Further, BMW AG's suspension of all European and South African production facilities for four weeks, intensified cost-savings initiatives, and focus on cash preservation won't be sufficient to fully offset the impact on its earnings. Production is expected to resume early in the second quarter of 2020 in Europe and the U.S., but any delay could further pressure the group's credit metrics and liquidity. However, ratings on BMWIFS are unaffected by this action.
 
The 21-day nationwide lockdown declared by the Government of India to contain the spread of the Novel Coronavirus (Covid-19) will have near-term impact on disbursements and collections of companies. While most of the measures are applicable till April 14, 2020, their revocation will be contingent on further directives from the central government and the extent of spread of Covid-19. Any delay in return to normalcy will put pressure on collections and asset quality metrics. Additionally, any change in the behavior of borrowers on payment discipline can affect delinquency levels. On the liabilities side, although moratorium on bank facilities for 3 months, as permitted by the Reserve Bank of India (RBI), may provide some respite to companies (if granted by lenders and availed by borrowers), there could be challenges for those with high share of capital market borrowings as repayments will have to be made while collections, on the other hand, will remain low.

Analytical Approach

The ratings continue to centrally factor in the strategic importance of BMWIFS to its ultimate parent, Bayerische Motoren Werke AG (BMW AG; rated 'A/Negative/A-1' by S&P Global Ratings), and the latter's strong moral obligation to support the Indian subsidiary, both on an ongoing basis and in the event of distress. The expectation of strong strategic support is based on BMW AG's 100% ultimate ownership in BMWIFS, BMW AG's brand name, and strong linkages of BMWIFS with BMW Group.

Key Rating Drivers & Detailed Description
Strengths:
* Expectation of strong support from ultimate parent, BMW AG
BMWIFS, primarily a captive financier of BMW Group,  strategic and financial support (in the form of equity as and when required) from BMW AG, given the significant role it plays in strengthening BMW Group's global market share in the automotive business. BMW AG through its subsidiaries has been infusing equity capital in BMWIFS at regular intervals; till date, it has infused more than Rs 700 crore in the company, and is likely to continue providing need-based funding over the medium term to support the growth plans of the Indian subsidiary. BMWIFS further benefits from the common treasury and resource operations of the parent across Asia as well as from BMW AG's product suite, globally adopted risk management policies, and systems and processes. CRISIL believes BMW AG will retain its 100% ownership in BMWIFS. The full ownership, strong brand identity, and strong operational integration of BMW Group's Indian operation with BMWIFS will lead to a high moral obligation on BMW AG to support BMWIFS.
 
* Comfortable capitalisation provides cushion against asset-side risks
As on March 31, 2019, capitalization was comfortable with a networth of around Rs 985 crore (around Rs 947 crore as on March 31, 2018) and comfortable gearing of around 2.3 times (2.5 times as on March 31, 2018). BMWIFS's capital adequacy ratio was 29.6% as on March 31, 2019 (27.1% as on March 31, 2018). Networth coverage for net non-performing assets is also adequate at around 11 times as on March 31, 2019.
 
CRISIL believes BMWIFS will maintain comfortable capitalization, supported by need-based equity infusion from BMW AG and adequate accrual to net worth.
 
* Adequate asset quality metrics 
BMWIFS has established good underwriting practices and has in-house systems and processes to manage asset quality. The risk management practices are largely similar to those followed globally. BMWIFS's stage 3 assets as per IND AS has increased to 5.8% as on September 30, 2019 mainly on account of slippage in commercial finance portfolio (4.7% as on March 31, 2019). The company has already set up more robust credit assessment process and consistent monitoring process of distress dealers.
 
BMWIFS's management of asset quality with increase in scale of operations will be closely monitored by CRISIL.
 
Weakness:
* Relatively small player in the overall finance market
BMWIFS is a relatively small player in the overall vehicle finance market. Its loan portfolio stood at around Rs 3416 crore as on September 30, 2019 (around Rs 3183 crore as on March 31, 2019). Around 75% of the portfolio comprised financing of retail business and the remaining was largely dealer financing. While the overall market share of the company is low, it is among the leading players in the premium-car financing segment. Apart from financing BMW cars, the group has 'Alphera' brand for financing of non-BMW cars to have a diversified portfolio. As on September 30, 2019, the loan book was distributed among BMW and Alphera in the ratio of 76: 24. The proportion is not expected to change materially over the next few years.
Liquidity Superior
As on September 30, 2019, the ALM statement has positive cumulative mismatches in the upto 1 year bucket. As on March 31, 2020, the company has total debt repayments of around Rs.740 crore for next five months against which it maintains unutilized bank lines of ~Rs.662 crore and an average monthly collections of around Rs.100 crore.
Outlook: Stable

CRISIL believes BMWIFS will continue to benefit over the medium term from strong strategic support from BMW AG and more equity infusion, in case required.
 
Rating sensitivity Factors:
Downward Factors
* 2 or more category downgrade in the rating of BMW AG (parent entity) by S&P
* Weakening of asset quality and earnings profile on a continuous basis

About the Company

BMWIFS is a majorly owned subsidiary of BMW International Holding BV, which is a wholly owned subsidiary of BMW AG. BMWIFS, a non-deposit-taking, non-banking financial company, began operations in August 2010. It offers finance to customers and dealers of BMW India; it also offers finance for non-BMW cars and dealers through the Alphera brand. Its loan portfolio stood at around Rs 3416 crore as on September 30, 2019 (around Rs 3183 crore as on March 31, 2019).
 
With its four brands BMW, MINI, Rolls-Royce and BMW Motorrad, the BMW Group is the world's leading premium manufacturer of automobiles and motorcycles and also provides premium financial and mobility services. The BMW Group production network comprises 31 production and assembly facilities in 15 countries; the company has a global sales network in more than 140 countries.
 
In 2019, the BMW Group sold over 2,520,000 passenger vehicles and more than 175,000 motorcycles worldwide. The profit before tax in the financial year 2018 was 'Ã'¬ 9.815 billion on revenues amounting to 'Ã'¬ 97.480 billion. As of 31 December 2018, the BMW Group had a workforce of 134,682 employees.
 
The success of the BMW Group has always been based on long-term thinking and responsible action. The company has therefore established ecological and social sustainability throughout the value chain, comprehensive product responsibility and a clear commitment to conserving resources as an integral part of its strategy.

Key Financial Indicators
As on/for the year ended March 31 Units 2019 2018
Total assets Rs crore 3291 3468
Total income (net of interest expense) Rs crore 158 172
Profit After Tax Rs crore 38 34
Gross NPA % 4.7 5.2
Gearing Times 2.3 2.5
Return on assets % 1.1 0.9

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date  Issue Size
(Rs. Cr) 		Rating Outstanding with Outlook
NA Commercial Paper NA NA 7-365 days 1500 CRISIL A1+
 
Annexure - Details of Rating Withdrawn
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date  Issue Size (Rs. Cr)
INE735N08045 Debenture Feb 2, 2017    8.10% Jan 31, 2020 400
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Bond  LT    --    --  31-01-19  Withdrawal  31-01-18  CRISIL AAA/Stable  25-01-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
Commercial Paper  ST  1500.00  CRISIL A1+  14-01-20  CRISIL A1+  31-01-19  CRISIL A1+  31-01-18  CRISIL A1+  25-01-17  CRISIL A1+  CRISIL A1+ 
Non Convertible Debentures  LT  0.00
06-04-20 		 Withdrawn 14-01-20  CRISIL AAA/Stable  31-01-19  CRISIL AAA/Stable  31-01-18  CRISIL AAA/Stable  25-01-17  CRISIL AAA/Stable  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

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