Rating Rationale
October 20, 2022 | Mumbai

SHRI Trust AD 2020

(Originator: Sundaram Finance Limited)

Rating Reaffirmed

 

Rating Action

Trust Name

Details

Amount Rated (Rs Cr)

Outstanding

Rated Amount $

(Rs Cr)

Original Tenure#

(Months)

Balance Tenure# (Months)

Credit Collateral^ (Rs Cr)

Ratings/ Credit Opinions&

Rating Action

SHRI TRUST AD 2020

Series A PTCs

645.88

138.59

60

30

38.97

CRISIL AAA (SO)

Reaffirmed

$ After Sept 2022 payout

# Tenure includes extension due to moratorium, actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option.

^ Additionally scheduled subordination after Sept 2022 payout approximating to Rs. 13.3 crore (assuming zero prepayment) also provides credit support to PTCs.

& Series A PTC holders are entitled to receive timely interest and ultimate principal

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA (SO)’ rating to Series A pass-through certificates (PTCs) issued by ‘SHRI Trust AD 2020’. The transaction is backed by receivables from new and used medium and heavy commercial vehicles (MHCV), light and small commercial vehicles (LSCV), Tractors and new farm equipment loans receivables originated by Sundaram Finance Limited (SFL; rated ‘CRISIL AAA/Stable/CRISIL A1+’). The ratings are based on credit support available to PTCs, credit quality of the underlying pool receivables, SFL’s origination and servicing capabilities, and soundness of the transaction’s legal structure.

 

The pool has exhibited good collection performance as seen by strong collections ratios. The cumulative collection ratio for the pool is robust at 98.7%. This has led to minimal delinquencies in the pool as reflected in 0+ overdue of 1.2%. The healthy collection performance coupled with high pool amortisation (% of initial principal securitised) of 77.8% has led to an increase in the credit cover available to future PTC payouts from the cash collateral.

 

The pool is eligible for reset of credit enhancement, CRISIL Ratings has evaluated the reset in line with the RBI guidelines. However, investor consent is yet to be received.

Key Rating Drivers & Detailed Description

Strengths:

  • Credit support available in the structure
    • As after September 2022 payout, credit collateral of Rs 38.97 crore (26.9% of future PTC payouts) provides credit support to Series A PTCs. The PTCs also benefit from scheduled subordination, approximating Rs 13.3 crore (9.2% of the future PTC payouts)
  • Healthy Collection Metrics
    • As of Sept 2022 payout, the CCR of the transaction is 98.7%. The 3-month average monthly collection efficiency is 99.2%.

 

Weakness:

  • Macroeconomic headwinds
    • Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Headwinds such as increased fuel costs, an increasing interest rate scenario, and moderation in demand on account of inflation and geopolitical uncertainties. These factors may hamper pool collection ratios.

Liquidity: Strong

Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is above 1.5 times the estimated base shortfalls on the residual pool cash flows.

 

These aspects have been factored by CRISIL in its rating analysis.

Rating Sensitivity factors

Upward factors:

  • None, given the credit ratings on the Series A PTCs are currently at the highest level

 

Downward factors:

  • Credit enhancement (internal and external combined) falling below 2.5 times the estimated base shortfalls on the residual pool cash flows
  • A sharp down grade in the ratings of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating

About the Pool

The securitised pool comprises receivables from new and used MHCVs and LSCVs, tractors and farm equipment The contracts in the pool outstanding as after Sept’22 payouts are highly amortised at 68.2%. Geographic concentration is moderate, with the top three states accounting for 47.6% of the pool principal, at the time of initial rating. During initial securitisation, average ticket size was moderate at Rs 11.1 lakh, with moderate loan to value ratio of 81.3% and with a weighted average interest rate of 12.1%. CRISIL Ratings has adequately factored all these aspects into its rating analysis.

 

Pool Performance Summary (as after Sept 2022 payouts)

Parameters

Shri Trust AD 2020

Asset Class

New and used MHCVs and LSCVs, tractors and farm equipment

Months Post Securitisation

30

Balance Tenure (Months)

30

Pool Amortisation (% of initial principal securitised)

77.8%

Cumulative Collection Ratio (%)

98.7%

Average Monthly Collection Ratio over Past 3 Months

99.2%

Credit collateral (% of scheduled future payouts)

26.9%

90+ Delinquency (% of initial principal securitised)

1.2%

180+ Delinquency (% of initial principal securitised)

0.7%

Credit collateral utilisation

0.0%

 

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL has analysed static pool information of various asset classes provided by SFL for originations during the period FY2017 to FY2022 (with

performance data till August 2022). CRISIL has also analysed performance of past rated securitisation transaction, and the performance of SFL’s portfolio.

CRISIL Ratings has also factored in pool-specific characteristics and estimated the base case peak shortfalls in the pool, in the range of 4-6% of pool cash flows.

 

  • CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.2-0.5% in its analysis.
  • CRISIL Ratings does not envisage any risk arising from commingling of cash flows, since CRISIL Ratings’ short-term rating on the servicer is ‘CRISIL A1+’
  • CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)
  • CRISIL Ratings has run sensitivities based on various shortfall curves (front-ended, back-ended, and normal) and has adequately factored these into its analysis.

 

Counterparty details

Capacity

Counterparty Name

Counterparty Rating/ Track record

Effect on credit ratings in case of non-performance

Originator and seller

SFL

Rated ‘CRISIL AAA/Stable/CRISIL A1+’

No effect.

Servicer

SFL

Rated ‘CRISIL AAA/Stable/CRISIL A1+’

Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL Ratings). However, CRISIL Ratings does not envisage the requirement for replacement.

Collection and Payout Account Bank

The Hongkong and Shanghai Banking Corporation Ltd

Not rated by CRISIL

Negligible effect. Account bank can be changed without impacting the rating.

Cash collateral in the form of Fixed Deposit

Axis Bank Limited

Rated ‘CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+’

Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.

Trustee

ITSL

-

Negligible effect. Can be replaced at minimal cost.

 

About the Originator

Sundaram Finance, the flagship company of the group, commenced operations in 1954, as a wholly owned subsidiary of Madras Motor and General Insurance Company Ltd, a member of the TVS group of companies. Listed in 1972, when TVS sold its ownership to the public, Sundaram Finance is registered with the Reserve Bank of India (RBI) as a deposit-taking NBFC, and is classified by the RBI as Investment and Credit company. The company had a nationwide network of 612 branches and 4228 employees as on December 31, 2021. SFL’s AUM primarily consisted of Commercial Vehicles (45.7%), Car loans (25.8%), Construction Equipment (11.1%), Tractors (8.1%) and other loans (9.3%) as on December 31, 2021. Further, SFL’s overall disbursements picked up by ~13% to Rs.9,524 crore in 9MFY22 from Rs. 8,437 crore in 9MFY21

 

The group also has presence in housing finance, asset management, and non-life insurance segments. The housing finance business was conducted through a joint venture (JV) with BNP Paribas (49.9% equity stake; through BNP Paribas Personal Finance, a wholly-owned subsidiary). Post-acquisition of 49.9% stake from BNP Paribas Personal Finance in Sundaram Home, Sundaram Finance holds 100% stake in the company and has become a wholly-owned subsidiary. The asset management business is /conducted through Sundaram Asset Management Company Ltd, a wholly-owned subsidiary of Sundaram Finance. Insurance business is carried through Royal Sundaram and SFL holds 50% in Royal Sundaram General Insurance Company Ltd (RSGI) post Ageas International NV bought 40% stake in RSGI in fiscal 2019.

 

For fiscal 2021, Sundaram Finance reported total income and net profit of Rs 4014 crore and Rs 809 crore, respectively, against Rs 3,927 crore and Rs.  724 crore, respectively, for the previous fiscal.

 

Further, for the nine months ended December 31, 2021, it reported total income and net profit of Rs 2942 crore and Rs 605 crore, respectively, against Rs 2996 crore and Rs 600 crore, respectively, for the corresponding period previous fiscal.

 

The group reported total income and net profit of Rs. 5317 crore and Rs. 1223 crore, respectively, for fiscal 2021, against Rs. 4723 crore and Rs.845 crore, respectively, for the previous fiscal.

 

Key Financial Indicators (Consolidated)

As on/for the nine months ended December 31,

Unit

2021

2020

Total assets

Rs.Cr

46787

48,159

Total income (excluding interest expense)

Rs.Cr

2160

1,938

Profit after tax

Rs.Cr

898

924

Gross Stage 3 (Standalone)

%

3.4

1.6

Gross Stage 3 (Housing subsidiary)

%

5.1

3.5

Gearing (standalone)

Times

4.0

4.9

Return on assets (standalone)

%

2.3

2.3

 

Past rated pools

CRISIL Ratings has ratings outstanding on transactions originated by SFL. CRISIL Ratings is receiving monthly performance reports pertaining to the transaction.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities – including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings’ complexity levels please visit www.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

Type of Instrument

Rated Amount

(Rs Cr)

Date of Allotment

Maturity Date#

Coupon Rate (%) (p.a.p.m)

Outstanding

Ratings/credit opinions

Complexity

Level

Credit collateral

(Rs Cr)^
Series A PTCs 645.88 05-Mar-20 25-Mar-25 5.84% CRISIL AAA (SO)$ Highly Complex 38.97

1 crore = 10 million

#Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option

^Scheduled subordination approximating Rs. 13.3 Cr (assuming zero prepayments) also provides credit support to PTCs

$Series A PTC holders are entitled to receive timely interest and ultimate principal.

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs LT 138.59 CRISIL AAA (SO) 17-06-22 CRISIL AAA (SO) 31-12-21 CRISIL AAA (SO) 01-09-20 CRISIL AAA (SO)   -- --
      -- 19-04-22 CRISIL AAA (SO) 30-06-21 CRISIL AAA (SO) 24-03-20 Provisional CRISIL AAA (SO)   -- --
      -- 31-01-22 CRISIL AAA (SO)   --   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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