Rating Rationale
March 29, 2022 | Mumbai

SHRI Trust Z 2019

(Originator: Sundaram Finance Limited)

Rating Reaffirmed

 

Rating Action

Trust Name

Details

Amount Rated (Rs Cr)

Outstanding Rated Amount

(Rs Cr)$

Original Tenure#

(Months)

Residual Tenure# (Months)

Credit Collateral

(Rs Cr)^

Ratings/ Credit Opinions&

Rating Action

SHRI Trust Z 2019

Series A PTCs

411.77

43.33

60

25

18.90

CRISIL AAA (SO)

Reaffirmed

$ After February 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 excess interest spread after February 2022 payout (EIS) approximating to Rs. 3.0 crore (assuming zero prepayments and post servicer fee payment) also provides credit support to PTCs.

& Series A PTC holders are entitled to receive timely interest and timely 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 Z 2019’. 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 equipments loan receivables originated by Sundaram Finance Limited (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.

 

On January 31, 2022, CRISIL Ratings had reaffirmed ratings on Series A PTCs. The transaction was eligible for a credit collateral reset, however, to investor consent (required under RBI regulations) was awaited.

 

SFL has furnished the investor consent for the reset of credit collateral. Following the reset, the revised cash collateral stands at Rs. 18.90 crore (41.6% of future payouts after February 2022 payouts). Given the pool performance and high amortisation of around 89.1% even after the reset, the credit cover available to the PTCs remains commensurate with the outstanding ratings of the instruments.

 

The cumulative collection ratio for the pool is robust at 98.3%, with 0+ overdue of 1.2%.

Key Rating Drivers & Detailed Description

Strengths:

  • Credit support available in the structure
    • As after February 2022 payout, credit collateral of Rs 18.90 crore (41.6% of future PTC payouts) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS, approximating Rs 3.0 crore (6.4% of the future PTC payouts)
  • Healthy Collection Metrics
    • As of February 2022 payout, the CCR of the transaction is 98.3%. The 3-month average monthly collection efficiency is 113.1%.

 

Weaknesses:

  • 30.3% of the future pool principal are in 30+ PAR buckets
  • Uncertainty regarding the economic impact of pandemic on future collections
    • In the medium term, collections in the underlying pool could come under pressure, and create asset quality concerns. Consequently, the extent of disruption to collections due to pandemic-related factors continue to remain a key monitorable.

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

 

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

About the pool

The securitised pool comprises receivables from new and used MHCVs and LSCVs, tractors and new farm equipments. The pool has a high seasoning profile, as evidenced by its amortisation of 89.1%. Geographic concentration is moderate, with the top three states accounting for 44.1% of the pool principal, at the time of initial rating. During initial securitisation, average ticket size was moderate at Rs 7.9 lakh, with moderate loan to value ratio of 79.9%. The pool has contracts, with weighted average interest rate of 12.7%. CRISIL Ratings has adequately factored all these aspects into its rating analysis.

 

Pool Performance Summary (as after February 2022 payouts)

 

Parameters

Shri Trust Z 2019

Asset Class

New and Used MHCV, LSCV, New tractors & Farm Equipment loan receivables

Months Post Securitisation

35

Balance Tenure (Months)

25

Principal Amortisation

89.1%

Cumulative Collection Ratio (%)

98.3%

Average Monthly Collection Ratio over Past 3 Months

113.1%

Credit collateral (% of scheduled future payouts)

41.6%

90+ Delinquency (% of initial POS)

1.1%

180+ Delinquency (% of initial POS)

0.7%

Credit collateral utilisation

0.0%

 

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 FY2011 to Q2 FY2022 (with performance data till November 2021). CRISIL Ratings has also analysed performance of past rated securitisation transaction, and the performance of SFL’s portfolio.

 

90+ days past due stood at 3.9% for the CV portfolio and 4.2% for the Tractor portfolio as of September 2021.

 

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/FAAA/Stable/CRISIL A1+’

 

No effect.

 

Servicer

SFL

Rated ‘CRISIL AAA/FAAA/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

IDFC First Bank

Rated ‘CRISIL AA/FAAA/Stable/CRISIL A1+

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

Adequate track record

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 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 (Consolidated)

As on / for the nine months ended December 31,

Unit

2020

2019

Total assets

Rs. Cr.

48,159

45,131

Total income (excluding interest expense)

Rs. Cr.

1,938

1,652

Profit after tax

Rs. Cr.

924

630

Gross NPA (Standalone)

%

1.6

2.8

Gross NPA (Housing subsidiary)

%

3.5

4.0

Gearing (standalone)

Times

5.1

5.3

Return on assets (standalone)

%

2.3

2.5

 

Past rated pools

CRISIL Ratings has ratings outstanding on four 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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

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

411.77

28-Feb-19

22-Feb-24

7.75%

CRISIL AAA (SO)$

Highly Complex

18.90

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 excess interest spread (EIS) 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 timely 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 43.33 CRISIL AAA (SO) 31-01-22 CRISIL AAA (SO) 31-12-21 CRISIL AAA (SO) 30-06-20 CRISIL AAA (SO) 26-07-19 CRISIL AAA (SO) --
      --   -- 30-06-21 CRISIL AAA (SO)   -- 20-03-19 Provisional CRISIL AAA (SO) --
      --   -- 15-03-21 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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