| SHRI Trust AI 2022 | ||||||||||||||
| (Originator: Sundaram Finance Limited) | ||||||||||||||
| 'Provisional CRISIL AAA (SO)' assigned to Series A PTCs | ||||||||||||||
| Rating Action | ||||||||||||||
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| & A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015 directive ?Standardizing the term, rating symbol, and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies' by Securities and Exchange Board of India (SEBI) and April 27, 2021 circular ?Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments? by SEBI | ||||||||||||||
| 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 ?Provisional CRISIL AAA (SO)? rating to Series A pass-through certificates (PTCs) issued by ?SHRI Trust AI 2022?. The transaction is backed by receivables from new and used medium and heavy commercial vehicles (MHCV), intermediate, light, and small commercial vehicles (LSCV), tractors and farm equipment, and construction equipment (CE) originated by Sundaram Finance Ltd (SFL; rated ?CRISIL AAA/FAAA/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 transaction has a ?par with Excess Interest Spread (EIS)? structure. SFL will assign the pool to ?SHRI Trust AI 2022?, settled by IDBI Trusteeship Services Limited (ITSL), which will issue the PTCs to investors, where scheduled payouts to investors have been arrived at, assuming a staggered basis of transfer of collections by the servicer, i.e. of all receivables comprising the principal amount due in a particular month (say, month M), 80% of the said principal amount shall be credited to the collection and payout account on the ascertained date of month M+1, and 20% of the said principal amount shall be deposited in the collection and payout account on the ascertained date of month M+2.
The PTCs are supported by the credit collateral ? in the form of fixed deposit? and excess interest spread. The total credit support available in the transaction is as below:
Series A PTCs are entitled to receive timely interest on a monthly basis whereas promised principal payment to investor is on an ultimate basis by the last payout date.
This is a ?provisional? rating and will be converted into a ?final? rating on receipt of all the relevant transaction-related documents required by CRISIL, including, but not limited to, the following:
Additional documents, if any, executed for the transaction should also be provided. A rating rationale/report, indicating the conversion of the ?provisional? rating into ?final? following the receipt of all the required final legal documents, will be published on the CRISIL website. Please click on the following link for detailed information on CRISIL?s policy for provisional rating: Revision in CRISIL?s policy for assigning ?provisional? ratings |
Key Rating Drivers & Detailed Description Strengths:
Weakness:
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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. |
Rating Sensitivity factors Upward factors:
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Additional disclosures for Provisional ratings: The provisional rating is contingent upon execution of the following documents: ? Trust deed ? Assignment agreement ? Accounts agreement ? Servicing agreement ? Power of attorney ? Information memorandum ? Legal opinion ? Trustee letter ? Representations and warranties letter ? CA certificate
Additional documents executed for the transaction, if any, should also be provided. The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument.
The final rating assigned post conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days.
Rating that would have been assigned in absence of the pending steps/ documentation: In the absence of pending documentation considered while assigning provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating.
Risks associated with provisional nature of credit rating: A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable. In case the documents received and/or completion of steps deviates significantly from the expectations, CRISIL Ratings may take an appropriate action including placing the rating on watch or a rating/outlook change, depending on status of progress on a case to case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio
About the Pool The securitised pool comprises receivables from new and used MHCVs, LSCVs, tractors and farm equipment, and construction equipment. The pool has a healthy seasoning profile, as evidenced by its weighted average net seasoning of 15.2 months and amortisation of 38.5%. Geographic concentration is moderate, with the top three states accounting for 40.7% of the pool principal. Average ticket size is Rs 16.8 lakh on account of higher proportion of new MHCVs and CE, with a weighted average interest rate of 11.0% and loan to value ratio of 82.7%. CRISIL has adequately factored all these aspects into its rating analysis.
Counterparty Details
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 583 branches and 4189 employees as on December 31, 2020. SFL?s AUM primarily consisted of Commercial Vehicles (48.2%), Car loans (24.7%), Construction Equipment (11.2%), Tractors (7.2%) and other loans (8.7%) as on December 31, 2020. Further, SFL?s disbursements declined by 31.1% year-on-year (y-o-y) to Rs 8437 crore in 9MFY21 from Rs 12,246 crore in the corresponding period earlier fiscal, given weak macro-economic environment.
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 recently Ageas International NV bought 40% stake in the Royal Sundaram General Insurance Company Ltd (RSGI), post which Sundaram Finance holds 50% stake in the RSGI.
For fiscal 2020, Sundaram Finance reported total income and net profit of Rs 3,926.9 crore and Rs 723.9 crore, respectively, against Rs 3,342.1 crore and Rs. 1126.3 crore, respectively, for the previous fiscal. The net profit of Rs.1126.3 crore in fiscal 2019 is after considering the exceptional profit (Rs 522.26 crore) on sale of 25.9% stake in Royal Sundaram General Insurance Co. Ltd.
Further, for the nine months ended December 31, 2020, it reported total income and net profit of Rs 2996 crore and Rs 600 crore, respectively, against Rs 2973 crore and Rs 593 crore (includes Rs 60 crore of one-time profit on sale of equity shares in Sundaram Finance Holdings Ltd), respectively, for the corresponding period previous fiscal.
The group reported total income and net profit of Rs. 4722.5 crore and Rs. 845.4 crore, respectively, for fiscal 2020, against Rs. 3712.5 crore and Rs. 1,258.5 crore, respectively, for the previous fiscal. |
Key Financial Indicators
Past rated pools CRISIL Ratings has ratings outstanding on four transactions originated by SFL. CRISIL is receiving monthly performance reports pertaining to the transaction. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#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 EIS amounting to Rs 32.43 crore (assuming zero prepayments) also provides credit support to PTCs. $Series A PTC-holders are entitled to receive timely interest whereas promised principal payment to investor is on an ultimate basis by the last payout date. |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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