Rating Rationale

Rating Rationale

August 01, 2024 | Mumbai

SHRI Trust AI 2022

(Originator: Sundaram Finance Limited)

Rating Reaffirmed

Rating Action

Trust Name

Details

Amount Rated (Rs.Crore)

Outstanding Rated Amount$

(Rs.Crore)

Original Tenure

(Months)#

Balance Tenure (Months)#

Credit Collateral^

(Rs.Crore)

Ratings&

Rating Action

SHRI TRUST AI 2022

Series A PTCs

471.06

68.52

63

37

25.72

CRISIL AAA (SO)

Reaffirmed

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

$After June 2024 payout

^Additionally scheduled subordination after June 2024 payout approximating to Rs. 3.0 crore (assuming zero prepayment) also provides credit support to PTCs.

#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

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

Detailed Rationale

CRISIL Ratings has reaffirmed its '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) loan 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 collection ratio. The cumulative collection ratio for the pool is robust at 99.4%. This has led to minimal delinquencies in the pool as reflected in 0+ overdue of 0.5% of initial pool principal. The healthy collection performance and with high pool amortisation (% of initial principal securitised) of 85.5% 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 regulatory guidelines. However, investor consent is yet to be received. On receiving consent of the investor and trustee, a maximum amount of Rs 9.24 crore (35.9% of the current cash collateral) can be released from the credit enhancement.

Sr. no	Collateral details	Current outstanding CC (Rs. Cr.)	CC eligible for release (Rs. Cr.)	Residual CC assuming full reset (Rs. Cr.)
1	Fixed Deposit	25.72	9.24	16.48

Key Rating Drivers & Detailed Description

Strengths:

Credit support available in the structure
- As of June 2024 payout, credit collateral of Rs 25.72 crore (36.3% of future PTC payouts) provides credit support to Series A PTCs. The PTCs also benefit from scheduled subordination, approximating Rs 3.0 crore (4.3% of the future PTC payouts).

Healthy Collection Metrics
- As of June 2024 payout, the CCR of the transaction is 99.4%. The 3-month average monthly collection efficiency is 104.6%.

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

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 medium and heavy commercial vehicles (MHCV), intermediate, light, and small commercial vehicles (LSCV), tractors and farm equipment, and construction equipment (CE). The contracts live in the pool as after May’23 payouts are highly amortised at 60.6%. At the time of securitisation, average ticket size was moderate at Rs 16.8 lakh, with moderate loan to value ratio of 82.7% and with a weighted average interest rate of 11.0% and moderate geographic concentration top three states accounting for 40.7% of the pool principal.

Pool Performance Summary (as after June 2024 payouts)

Parameters	Shri Trust AI 2022
Asset Class	New and used MHCVs and LSCVs, CE, tractors and farm equipment
Months Post Securitisation	26
Balance Tenure (Months)	37
Pool Amortisation (% of initial principal securitised)	85.5%
Cumulative Collection Ratio (%)!	99.4%
Average Monthly Collection Ratio^ over Past 3 Months	104.6%
Credit collateral (% of scheduled future payouts)	36.3%
90+ Delinquency (% of initial principal securitised)	0.3%
180+ Delinquency (% of initial principal securitised)	0.2%
Credit collateral utilization	0.0%

!CCR = {Total collections in the pool/(Total billings + opening overdues at the time of securitisation)}

^MCR = Monthly collections in the pool / Monthly billings

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed static pool information of various asset classes provided by SFL for originations during the period FY2017 to FY2024 (with performance data till March 2024). CRISIL Ratings 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, delinquencies and estimated the base 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	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 TSF 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. The company was listed in 1972, when TVS sold its stake and is registered with the RBI as a deposit-taking NBFC and is classified by the RBI as Investment and Credit company.

The company had a nationwide network of 704 branches and 7,677 employees (including off-roll employees) as on December 31, 2023. SFL’s AUM primarily consisted of commercial vehicles (46.2%), car loans (24.7%), construction equipment (10.6%), tractors (7.6%) and other loans (10.9%) as on December 31, 2023.

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, the HFC became a wholly-owned subsidiary in September 2019. The asset management business is conducted through Sundaram Asset Management Company Ltd, a wholly-owned subsidiary of Sundaram Finance. Insurance business is carried through a 50% stake in Royal Sundaram General Insurance Company Ltd (RSGI), with the other large shareholder being a Ageas International NV which holds a 40% stake.

For fiscal 2023, Sundaram Finance reported total income and net profit of Rs 4,110 crore and Rs 1,088 crore, respectively, against Rs 3,890 crore and Rs.903 crore, respectively, for the previous fiscal.

Further, for the nine months ended December 31, 2023, it reported total income and net profit of Rs 3,924 crore and Rs 948 crore, respectively, against Rs 3,005 crore and Rs 771 crore, respectively, for the corresponding period of the previous fiscal.

The group reported total income and net profit of Rs 5,128 crore and Rs 1,168 crore, respectively, for the nine months period of fiscal 2024, against Rs 4,003 crore and Rs 885 crore, respectively, for the corresponding period of previous fiscal.

Key Financial Indicators (Standalone)

As on / for the nine months ended December 31,	Unit	2023	2022
Total assets	Rs. Cr.	49,391	38,356
Total income (excluding interest expense)	Rs. Cr.	2,073	1,716
Profit after tax	Rs. Cr.	948	771
Gross Stage 3	%	1.77	2.43
Gearing	Times	4.73	4.02
Return on assets	%	2.8	2.8

As on / for the year ended March 31	Unit	2023	2022
Total assets	Rs. Cr.	41,059	35,288
Total income (excluding interest expense)	Rs. Cr.	2,330	2,190
Profit after tax	Rs. Cr.	1,088	903
Gross Stage 3	%	1.66	2.19
Gearing	Times	4.2	4.0
Return on assets	%	2.8	2.5

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.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN No.

Type of Instrument

Rated Amount

(Rs.Crore)

Date of Allotment

Maturity Date#

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

Outstanding

Ratings

Complexity

Level

Credit collateral (Rs.Crore)^

INE0LPS15017

Series A PTCs

471.06

31-Mar-2022

25-Jul-2027

4.5%

CRISIL AAA (SO)$

Highly Complex

25.72

#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. 3.0 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			2024 (History)		2023		2022		2021		Start of 2021
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Series A PTCs	LT	68.52	CRISIL AAA (SO)	31-05-24	CRISIL AAA (SO)	30-11-23	CRISIL AAA (SO)	13-12-22	CRISIL AAA (SO)		--	--
			--		--	11-09-23	CRISIL AAA (SO)	28-06-22	CRISIL AAA (SO)		--	--
			--		--	09-06-23	CRISIL AAA (SO)	12-04-22	Provisional CRISIL AAA (SO)		--	--
			--		--	15-03-23	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

Meaning and applicability of SO and CE symbol

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