Detailed Rationale

Crisil Ratings has assigned its ‘Crisil AAA/Stable’ rating to Cumulative Non-Convertible Redeemable Preference Shares (NCCRPS) amounting to Rs 500 crore of Mercedes-Benz Financial Services India Pvt Ltd (MBFSI) and reaffirmed its ratings on the long-term bank facilities and debt instruments (MBFSI) at 'Crisil AAA/Stable/Crisil A1+'.  

 

MBFSI is expected to continue to benefit from the strong management, operational and financial support from its ultimate parent, Mercedes-Benz Group AG (rated ‘A/Stable/A-1’ by S&P Global)

 

The ratings continue to factor in the strategic importance of MBFSI as a captive financier, to its ultimate parent Mercedes-Benz Group AG, and the latter's strong moral obligation to support the Indian subsidiary on an ongoing basis and in the event of distress. The expectation of support is based on Mercedes-Benz Group AG's 100% ultimate ownership in MBFSI, its shared brand and strong operational linkages. The ratings also factor in the adequate capitalisation of MBFSI. These strengths are partially offset by scale of operations, weak asset quality of the CV dealer book (~3% of portfolio, with 100% provision), and moderate, albeit improving profitability.

 

The ratings on the NCCRPS instrument factor in the payment structure of the instrument – specifically that dividend can be paid by a company even in a year that they are not profitable, to the extent that there are free reserves available. MBFSI has undertaken to declare dividend, even if they report losses for any year, out of the available free reserves.  Crisil Ratings’ believes that the company’s free reserves, going forward, are likely to remain adequate to enable payout of dividend throughout the tenor of the instrument.

Analytical Approach

Crisil Ratings rating on MBFSI is based on S&P Global’s counterparty credit rating of ‘A/Stable/A-1’on Mercedes-Benz Group AG. This is because Crisil Ratings' rating on the Indian affiliates of global financial institutions (GFIs) centrally factor in the expectation of strong support from their ultimate parents. 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, S&P Global’s ratings on GFIs, Crisil Ratings' translation of the S&P Global ratings of the parent into Crisil Ratings' rating scale, and the standalone credit quality of the Indian operations.

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to, and strong support from the parent: Mercedes-Benz Group AG views India as a key market, as reflected in its presence across manufacturing (through Mercedes-Benz India Pvt Ltd; rated ‘Crisil AAA/Stable/Crisil A1+), sales and marketing, financing, and research and development sectors. MBFSI, being the captive financier of Mercedes-Benz Group AG, receives significant financial and managerial support given the strategic role it plays in strengthening the parent's market share and sales in India. Mercedes-Benz Group AG has regularly infused equity capital in MBFSI so far. MBFSI's risk management policies, systems, and processes are in line with those globally approved by the parent. Mercedes-Benz Group AG is expected to maintain its 100% ownership in MBFSI. The ownership, shared brand, and strong operational integration lead to a high moral obligation on Mercedes-Benz Group AG to support MBFSI.

 

• Adequate capitalisation: Capitalisation remains adequate, as reflected in networth of Rs 1,573 crore as on December 31, 2024 (Rs 1,537 crore as on March 31, 2024). Tier I capital adequacy ratio (CAR) and total overall CAR stood at 12.6% and 16.6% as on December 31, 2024. MBFSI repatriated share capital amounting to Rs 611 crore to its parent entity in June 2023. This was in line with the global strategic realignment of the Group's truck and bus division, which was spun-off into a separate entity, Daimler Truck AG. Consequently, the company's equity share capital, measured at face value, underwent a reduction from Rs 1,440 crore to Rs 829 crore. Despite the reduction, capital remains adequate for the current scale of operations and the company’s revised business strategy focusing on the PV segment. Gearing increased to 4.2 times as on December 31, 2024, compared to 4.1 times as on March 31, 2024 and should remain at these levels in the near-to-medium term.

 

Weaknesses:

• Modest scale of operations and high delinquencies in the CV dealer portfolio, however these are fully provided for: The company commenced operations in 2011 and has a modest scale of operations with assets under management (AUM) of Rs 11,557 crore as on December 31, 2024 (Rs 8,735 crore as on March 31, 2024).  This is partly a function of the company’s pivot in strategy away from CV financing in November 2021, and the subsequent contraction in this book, which limited scale up in AUM from the robust growth of their PV business seen in recent fiscals. However, with scaling up of PV business, the company registered growth YTD of  32% as on December 31, 2024.

 

As on Dec 31, 2024, the portfolio outstanding comprises passenger vehicle (PV) loans (89% assets under management [AUM]) and dealer loans (10% of AUM), with CV forming the residual 1%. In the nine months of fiscal 2025, the company registered AUM growth of 32% year to date, mainly supported by healthy retail PV growth of 40%.

 

The company's Gross Non-Performing Assets (GNPA), declined to 4.6% as of December 31, 2024, compared to 7.0% as of March 31, 2024.The company does not have any material restructured loan portfolio outstanding as on date.

 

Previously the company witnessed asset quality challenges in their erstwhile CV portfolio. However, the outstanding AUM of this book is now reduced to 1% of overall AUM as on Dec 31, 2024. Furthermore, all CV portfolio NPAs are fully provided for.

 

Another book where there are outstanding delinquencies (Rs 405 crore out of the overall outstanding GNPAs of Rs 529 crore) is the old dealer portfolio. These are primarily exposures where there are outstanding litigations and are almost fully provided for.

 

The GNPAs pertaining to the focus portfolio of PV remain low at ~1% as of December 2024 compared favorably with the industry, although on the back of strong growth in recent periods and limited seasoning. However, MBFSI’s asset quality is expected to remain controlled over the medium term with scale up of the PV book.

 

• Moderate, albeit, improving earnings profile: MBFSI generated profit after tax (PAT) of Rs 325 crore in fiscal 2024, as against Rs 115 crore the previous fiscal. PAT stood at Rs 137 crore for the nine months of fiscal 2025. With growth driven by PV financing, net interest margins (NIMs) moderated from 4.4% in fiscal 2023 to 3.1% in fiscal 2024 and further to 2.7% (annualized) for 9MFY2025. However, profitability was supported by credit cost reversals in fiscal 2024 and 9MFY2025, as well as range bound operating expenses and decent growth in the PV portfolio.

 

Going ahead, margins are expected to remain moderate given a PV heavy portfolio, even as this will be offset by lower credit costs in this segment. Going ahead, the company’s ability to manage its operating expenses and credit costs, and hence maintain steady profitability, will remain a key monitorable.

Liquidity: Superior

Liquidity is supported by the parent, in case of any contingency. It remains adequate, with unutilised bank lines of Rs 2,972 crore as on January 31, 2025. This is sufficient to cover the upcoming debt obligation of Rs 1,618 crore for the six months through July 2025. The asset liability management profile was comfortable as on December 31, 2024, with no negative cumulative mismatch upto 6 months bucket in all the segments. It had few mismatches in some buckets upto 1 year, though considering unutilised bank lines, the inflows are fairly matched with the outflows on a cumulative basis.

Outlook: Stable

Crisil Ratings believes MBFSI will continue to benefit from the strong financial, managerial, and operational support from Mercedes-Benz Group AG.

Rating sensitivity factors

Downward factors:

• Downgrade in the rating of Mercedes-Benz Group AG by 1 notch or more by S&P
• Any material change in the shareholding or support philosophy of Mercedes-Benz Group AG for MBFSI
• Substantial and sustained weakening of the asset quality and earnings profile

About the Company

MBFSI started operations in India in 2011. It is a 100% captive set up to augment the sales of Mercedes-Benz vehicles in India. The company has a corporate office in Pune, and sales representatives are based out of Mercedes-Benz dealership locations. It primarily provides financing options to customers of Mercedes-Benz cars. It supports the unit sales of the Mercedes Benz Group in India and helps increase brand loyalty among customers. The company has stopped financing commercial vehicles since December 2021. MBFSI's portfolio stood at Rs 11,557 crore as on December 31, 2024. The company reported PAT of Rs 137 crore for nine months of fiscal 2025.

About the Group

Mercedes-Benz Group AG, headquartered in Stuttgart, Germany, is a leading global auto manufacturer focused on the premium and luxury car and van segment. Business units are divided into Mercedes-Benz AG, for supply of cars and vans and Mercedes-Benz Mobility AG, a captive finance operation that supports the former.

 

Mercedes-Benz Group AG is a listed company. The biggest shareholders as of December 31, 2024, were investors, Chinese BAIC Group (9.98%); Mr. Li Shufu (Tenacio3 Prospect Investment Ltd. 9.69%); Kuwait Investment Authority (5.57%). The rest is free float.

Key Financial Indicators

As on/for the year ended March 31/For period	Units	9MFY25	9MFY24	2024	2023	2022
Total assets	Rs crore	12230	8453	8889	6780	5850
Total income	Rs crore	692	533	709	564	712
PAT	Rs crore	137	91	325	115	214
Gross NPAs	%	4.6	7.9%	7.0	11.0	14.0
Adjusted gearing	Times	4.2	4.3	4.1	2.4	2.1
Return on average assets^	%	1.7	1.6	4.1	1.8	3.3

 ^on an annualized basis

Any other information: Not Applicable