TVS Credit Services Limited Ratings reaffirmed at 'CRISIL AA/Stable, CRISIL AA-/Stable/CRISIL A1+'; rated amount enhanced for Bank Debt; rated amount enhanced for Commercial Paper
Rating Action
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 reaffirmed its ratings on all the existing debt instruments of TVS Credit Services Limited (TVS Credit; part of the Chennai-based TVS Motor group) at ‘CRISIL AA/CRISIL AA-/Stable/CRISIL A1+’.
CRISIL Ratings has withdrawn its rating on Rs.325 crore non-convertible debentures (NCDs) as outstanding against them is NIL. (See annexure 'Details of rating withdrawn' for details) in line with its withdrawal policy. CRISIL Ratings has received an independent confirmation that these instruments are fully redeemed.
The ratings continue to factor in the high strategic importance of TVS Credit to TVS Motor Company Ltd (TVS Motor; the flagship company of TVS Motor group) as a key financing arm supporting the latter's vehicle sales. The ratings on TVS Credit also factors in the company’s increasing scale of operations and strong process orientation. These strengths are partially offset by average earnings and exposure to risks related to the inherently weak credit risk profiles of borrowers.
The rating on the perpetual bonds also reflects the adequate buffer maintained by TVS Credit over the regulatory capital adequacy requirements, and high financial flexibility enjoyed on account of being a subsidiary of TVS Motor. TVS Credit has maintained a cushion of 2-4% over the regulatory minimum capital ratio in the past few years and CRISIL Ratings believes that it will continue to maintain adequate cushion (refer to CRISIL Ratings publication 'Criteria for rating hybrid instruments of NBFCs and HFCs' for details on CRISIL Ratings approach for rating such instruments).
TVSM recorded healthy performance in fiscal 2023 driven by healthy offtake in volumes which grew by 16% (both motorcycles and scooters) compared to industry growth of 9%. The higher volume offtake was driven by new launches in both motorcycle and EV scooters segment. Domestic motorcycle volumes grew by 29% YoY supported by healthy performance of new launches and recovery in domestic demand . Motorcycle exports were impacted due to sluggish demand in key export markets such as Sri Lanka, Africa, and Latin America.
Scooters segment witnessed a decline in fiscal 2022 due to commodity inflation and deferred purchases in favour of EV scooters. However, demand rebounded strongly in fiscal 2023 with the sector growing by 26% YoY in fiscal 2023, due to reopening of offices and educational institutions, as well as personal vehicle preference. TVSM managed to outperform the domestic sector’s growth rate and recorded growth of 43% YoY supported by better performance of new launches. Moped segment where TVSM is the only major player registered a decline in volume by 8% in fiscal 2023, chiefly due to exports which declined by 59% YoY.
Revenues at a standalone level grew by 27% YoY in fiscal 2023 supported by higher volumes, and realisations. Operating profitability improved by 80 bps to 10.1% in fiscal 2023 driven by cost optimisation, improved volumes and price increase to pass on the increase in input costs. At a consolidated level (excluding TVS Credit), the operating profits are constrained due to operational losses at recently acquired entity, Norton. Steady improvement in performance of overseas subsidiaries including Norton will aid in overall improvement of the profitability. TVSM is expected to continue investing in developing EVs over the medium term with new launches across product categories. Also, its focus on new launches and stepping up products in the e-two-wheeler space augur well for its prospects.
Under the schemes announced by the RBI pertaining to the June 2019 Prudential Framework for Resolution of Stressed Assets), August 2020 Resolution Framework for COVID-19-related Stress and May 2021 resolution framework 2.0, TVS Credit had outstanding restructured portfolio of around 0.6% as on March 31, 2023. Nevertheless, the ability to manage collections and asset quality remains a key monitorable. |
Analytical Approach CRISIL Ratings has assessed the standalone business and financial risk profile of TVS Credit. Further, the ratings factor in the expectation of strong support from the parent, TVS Motor. This is because TVS Credit and TVS Motor have extensive business and operational linkages and a common brand. CRISIL Ratings believes that TVS Motor will continue to provide support to TVS Credit considering the strategic importance of the entity and shared name and majority shareholding. |
Key Rating Drivers & Detailed Description Strengths:
As a captive financing arm, TVS Credit remains integral to TVSM's plans to increase its market share. TVS Credit finances 20-26% of the parent's domestic sales by volume. TVS Credit operates through TVSM’s ~1100 strong dealer/3100+ sub-dealer network for sourcing clientele. The synchronised planning and sales efforts highlight the strategic importance of TVS Credit to TVSM.
TVSM is India's third-largest two-wheeler (including mopeds) manufacturer and second-largest exporter of motorcycles. It will continue to benefit from its strong market position and proposed launches in different two-wheeler segments. TVSM’s two-wheeler (motorcycles and scooters) volume growth outperformed the industry registering a growth rate of 16% compared to industry growth of 9% supported by launch of new models. Its domestic two-wheeler (motorcycles and scooters) market share therefore improved to ~14% in fiscal 2023 from ~12% in previous fiscal. TVSM’s business risk profile also benefits from the technological tie-up with BMW Motorrad for manufacturing two wheelers and expansion in export markets. The company is also enhancing its presence in the EV space with major investments expected over the next 3-4 years for manufacturing vehicles across categories.
TVS Credit continues to receive strong financial, operational, and management support from TVS Motor. The total shareholding (direct and indirect) of TVS Motor in TVS Credit Services Ltd stood at 84.24% as on Mar 31, 2023. The parent has infused Rs 1292 crore of capital since fiscal 2012. The total infusion was Rs 500 crore during fiscal 2023. This regular support has resulted in adequate capitalisation, with TVS Credit having a networth of Rs 2,758 crore as on March 31, 2023.
TVS Motor also provides managerial support to TVS Credit. TVS Motor’s five directors are on the board of TVS Credit and several senior management personnel have been with the TVS group for several years. These factors and the shared brand name reflect robust linkages between TVS Motor and TVS Credit and imply a strong moral obligation on the part of TVS Motor to support TVS Credit.
The scale of operations has improved significantly over the past few fiscals. Loan book grew by ~48% to Rs 21,255 crore as on March 31, 2023, from Rs 14,403 crore as on March 31, 2022 (Rs 11,445 crore as on March 31, 2021). In the last five years till fiscal 2023, the AUM has grown at a compounded annual growth rate (CAGR) of 28%. Disbursements in FY23 grew by significant 73% to Rs 21,652 crore with two wheeler forming ~21% of Fiscal 2023 disbursements followed by consumer durables and tractors both at 20% each and remainder across others. The company has consciously ventured into products like consumer durables, used commercial vehicles, cross sell (personal loans to existing customers) and business loans to enhance product diversity. As a result, contribution of two-wheeler loans, has gradually declined to 27% of the total loans as on March 31, 2023, compared to 51% as on March 31, 2016 even as this segment continues to grow. The company has also expanded its presence to 26 states, which has resulted in reduction in its portfolio concentration in South India over years.
The company makes significant investments in people, processes, and systems to ensure strong origination, underwriting, and collection processes. Borrowers are categorised into multiple risk brackets based on their origination characteristics and repayment patterns to focus collection efforts on accounts that show higher propensity for delays. Furthermore, senior management members have worked with TVS Motor's dealers closely, establishing relationships and enabling better co-ordination in terms of origination and collections for two-wheeler loans. Strong systems and processes are expected to enable TVS Credit to maintain sound asset quality. While there was an uptick in delinquencies due to impact of the Covid-19 pandemic, the same has come down in recent quarters. As a result, coupled with conservative write-off policy, the gross stage 3 assets (GS3) stood at 2.7% as on March 31, 2023, as compared to 3.7% as on March 31, 2022.
Nevertheless, ability to manage asset quality via efficient processes and controls as the company scales up and diversifies into other product segments, will remain monitorable.
Weaknesses:
Overall profitability improved in fiscal 2023 as compared to earlier years due to improvement in net interest margins of the company.
NIM stood at 13.5% for the year ended March 31, 2023, and 12.3% for fiscal 2022 (11.7% for fiscal 2021). NIM was bolstered by strong growth and presence in high yielding segments as well as competitive cost of funds. However, given the small ticket size, and large distribution and collection infrastructure, operating costs remain high with operating expense ratio of average total assets of 9.7% for the year ended March 31, 2023, increased from 9.4% for fiscal 2022 (8.3% for fiscal 2021). Credit cost also remained elevated, but was lower at 3.3% in fiscal 2023 as compared to 4.0% for fiscal 2022 and 4.1% for fiscal 2021. Provision coverage ratio stood at 53% as on March 31, 2023.
The company reported a profit after tax (PAT) of Rs 389 crore for fiscal 2023 as compared to Rs 121 crore in fiscal 2022. This in turn improved the return on assets ratio (RoA) which stood at 2.0% for fiscal 2023, as compared to 0.9% for previous fiscals.
Going forward, the ability of the company to improve its operating efficiency and manage credit costs will be a key monitorable. Any significant deterioration in asset quality leading to negatively impacting profitability will be monitored over near to medium term.
The borrowers in most of the operational segments have inherently modest credit risk profiles. Industry delinquency levels in the two-wheeler finance business, the company's dominant product, have historically remained higher on account of weaker borrower profiles and low resale value of the used asset. While for TVS Credit, GS3 in the two-wheeler portfolio remained comparatively lower, the portfolio has grown rapidly over years and the difficult macro-economic conditions during the pandemic has led to inch up in delinquencies in this book. Moreover, the focus is on customers, who have limited access to bank finance and the borrower characteristics in the used-car and tractor segments exhibit similar resemblances. Furthermore, the tractor book, which accounts for 29% of the portfolio as on March 31, 2023, is linked to the performance of the agriculture segment and the rural economy. Thus as a result of the inherently moderate credit risk profile borrower segments as well as higher disbursements across segments, the ability to maintain asset quality over the near to medium term will remain a key monitorable. |
Liquidity: Strong TVS Credit's liquidity profile remains strong. The company's asset liability maturity (ALM) profile on April 30, 2023, remains well matched with cumulative positive gap in all maturity buckets. The company had liquidity in the form of cash & bank balance and sanctioned available bank lines of Rs 5,400 crore as on June 30, 2023. This is against the debt repayments (including interest) of around Rs 2,000 crore coming due till end of September 2023, excluding Rs 1,800 crore of commercial paper, which the company has been able to roll over. |
Outlook: Stable CRISIL Ratings believes TVS Credit will remain strategically important to TVS Motor, and will continue to scale up operations significantly over the medium term. |
Rating Sensitivity factors Upward Factors
Downward factors
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About the Company TVS Credit, based in Chennai is a captive finance company and subsidiary of TVS Motor. TVS Credit was incorporated in 2008 as a subsidiary of TVSMS (and was a step-down subsidiary of TVS Motor). However, in line with TVS Motor’s plan to increase its direct shareholding in the entity, they have invested equity directly into TVS Credit since fiscal 2017. TVS Credit is now a direct subsidiary of TVS Motor, which held 85.63% stake in the company as on March 31, 2023, while the remaining was held by TVS Motor Services Ltd & its nominees (0.48%), Lucas-TVS Ltd (4.97%; rated ‘CRISIL AA+/Stable/CRISIL A1+’), HDFC Ltd (2.19%), Phi Research Pvt Ltd (1.53%), TVS Motor Foundation (1.53%), Phi Capital Services LLP (1.37%), Sundaram-Clayton Ltd (2.31%; rated ‘CRISIL AA-/Stable/CRISIL A1+’)
TVS Credit commenced operations as a non-deposit taking NBFC in May 2010. It has scaled up its business and had a loan book of Rs 21,255 crore as on March 31, 2023. The company currently finances two-wheelers (of TVS Motor), new tractors, used tractors, used cars, consumer durables, used commercial vehicle and personal loans (cross sell). It caters largely to customers who have little or no access to bank financing and have a high share of cash collections.
For fiscal 2023, TVS Credit reported PAT of Rs 389 crore on total income (net of interest expense) of Rs 2,993 crore, as against Rs 121 crore and Rs 2,756 crore, respectively, for the previous fiscal.
Notably gearing has remained over 6.5 times in four of the last five fiscals (6.8 times as on March 31, 2023) and is expected to remain at or below 7.0 times on steady state basis in the near term to support the company’s business expansion plans. |
About TVS Motor Incorporated in 1983, TVS Motor is part of the Chennai-based TVS group, which is a leading automotive manufacturer. TVS Motor was originally incorporated in 1983 as Indian Motorcycles Pvt Ltd, a joint venture between the TVS group and Suzuki Motor Corporation of Japan (SMC). The company went public in 1984 and changed its name to TVS-Suzuki Ltd. In 2002, SMC exited the joint venture and the company was renamed TVS Motor Company Ltd. Sundaram Clayton Ltd (promoted by Mr Venu Srinivasan and part of the TVS group) holds 50.26% stake in TVS Motor.
TVS Motor has three plants in India: in Solan district, Himachal Pradesh; Hosur, Tamil Nadu; and Mysuru, Karnataka. It also has a manufacturing subsidiary in Indonesia, PT TVS Motor Co.
TVS Motor (standalone) reported a net profit of Rs 1491 crore on total operating income of Rs 26,479 crore in fiscal 2022, compared to Rs 894 crore and Rs 20,791 crore, respectively, previous fiscal. |
Key Financial Indicators - TVS Credit
#RoA is calculated as: (PAT for the period)/ (Average of total assets as on start and end of the fiscal)*100. |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued #Includes sub debt loans of Rs 350.0 crore comprising Aditya Birla Finance: Rs 150 crore, Axis Bank: Rs 50 crore, DCB Bank: Rs 50 crore, Federal Bank: Rs 75 crore, and HDFC Bank Ltd: Rs 25 crore. **Interchangeable with short term bank facilities &For SBI: Rs.75.15 Cr Exchange Rate
Annexure – Details of ratings withdrawn
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#Includes sub debt loans of Rs 350.0 crore comprising Aditya Birla Finance: Rs 150 crore, Axis Bank: Rs 50 crore, DCB Bank: Rs 50 crore, Federal Bank: Rs 75 crore, and HDFC Bank Ltd: Rs 25 crore.
**Interchangeable with short term bank facilities
&For SBI: Rs.75.15 Cr Exchange Rate
Criteria Details
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