| TVS Holdings Limited | ||||
| 'CRISIL AA/Stable' assigned to Bank Debt and Non Convertible Debentures | ||||
| Rating Action | ||||
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| 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 ‘CRISIL AA/Stable’ rating to the long term bank loan facilities and Rs.1000 crore non-convertible debentures (NCDs) of TVS Holdings Limited (TVSHL; formerly Sundaram Clayton Ltd). CRISIL Ratings has also reaffirmed its ‘CRISIL A1+’ rating on the cumulative non-convertible redeemable preference shares (NCRPS) issued by TVSHL. Its rated amount has been reduced by ~ Rs 1474 crore from Rs 2347 crore pursuant to cancellation of the NCRPS consequent to scheme of arrangement approved by NCLT . This was announced at stock exchanges and reduction in rated amount was requested by the client. The reduction in the rated amount is in line with the CRISIL Ratings policy on withdrawal of ratings.
The rating reflects the healthy debt cover relative to value of TVSHL’s 50.26% shareholding in TVS Motor Company Ltd (TVSM), the flagship operating company of the Mr. Venu Srinivasan led TVS group faction, which is valued at Rs 54,442 crore as on March 6, 2024. Besides, TVSHL also holds 89.26% in real estate entity, Emerald Haven Realty Limited (EHRL; rated ‘CRISIL A/Stable/A1’).
On August 11, 2023, as part of the Composite Scheme of Arrangement, Die Casting business of TVSHL was demerged into a new entity, namely, Sundaram-Clayton DCD Ltd., which was subsequently renamed as Sundaram-Clayton Ltd (SCL). All the assets and liabilities of the manufacturing business moved from TVSHL to SCL.
Therefore, in terms of debt, post the scheme, TVSHL has cumulative NCRPS (owed to other promoter entities and public shareholders of Rs.873 crores) as debt which is to be redeemed on or before March 24, 2024. TVSHL requires ~Rs.952 crores (principal + 9% coupon) for redemption which will be repaid majorly from cash surpluses, dividend income, royalty and management income. TVSHL proposes to avail bank loan of Rs 650 crore, which will be refinanced by NCD subsequently for its business operations and meeting certain obligations. TVSHL has received getting Core Investment Company (CIC) license from Reserve Bank of India(RBI) and bank loan/NCD will be availed subsequently.
The fresh borrowings will be repaid through internal accruals which is primarily royalty and management fee received from the group companies and dividend income from TVSM. Venu Srinivasan Trust Ltd (VS Trust) which holds 51% in TVSHL VS Trust had raised loans against pledge of 23% of its holdings in TVSHL
Due to healthy relationship with lending community and healthy cover available to TVSHL due to its holding in TVSM, refinancing if required is not expected to be a challenge. However, any material decline in debt cover, including due to any sizeable acquisition resulting in increase in debt or steep decline in share price of TVSM will remain monitorables. TVSHL also has spare parts trading business for TVSM parts which generates revenues of Rs 300-400 crore per annum. The trading business has a nominal profitability and needs less working capital requirement as it is mainly on cash and carry basis. Hence, no significant debt is expected to be availed for the trading business. However, as part of RBI’s CIC approval, the spare parts trading business shall cease to exist with TVSHL from April 2025.
Earlier, On March 6, 2023, erstwhile SCL (now name changed to TVSHL) received approval from the Hon’ble National Company Law Tribunal (NCLT) for the Composite Scheme of arrangement. As per the scheme of arrangement approved by NCLT, erstwhile SCL issued bonus cumulative 9% Non-Convertible Redeemable Preference Shares (NCRPS) of Rs 10 each at a ratio of 116:1 for each listed equity share of Rs 5 each of erstwhile SCL, totaling ~Rs.2,347 crores on March 25, 2023. The NCRPS was listed on the stock exchanges on June 15, 2023. Subsequently, on June 16, 2023, TVS Holdings Private Ltd (THPL) which, then held 64.72% stake in erstwhile SCL was merged with SCL. Upon merger, the equity shares and preference shares held by THPL were cancelled and new equity and preference shares were issued to the shareholders of THPL.. Also, EHRL became a subsidiary of erstwhile SCL due to merger of THPL with SCL. Subsequently, erstwhile SCL increased the stake in EHRL to 89.26% for a consideration of ~Rs. 88 crores. On July 17, 2023, SCL was renamed to TVS Holdings Limited (TVSHL).
The promoter family members became direct shareholders of TVSHL and received cumulative NCRPS equivalent to their shareholding. On July 27, 2023, and July 28, 2023, the said shares got listed, post approval from stock exchanges. Subsequently, some of the promoters transferred the cumulative NCRPS to another promoter entity, VS Investments Private Limited (VSIPL) to repay a loan availed by the promoters. On August 4, 2023, VSIPL amalgamated with TVSHL, thereby TVSHL issued 19 equity shares to the shareholders of VSIPL, and the preference shares held by VSIPL in TVSHL were cancelled. Further, on August 11, 2023, the Die Casting business demerged from TVSHL to SCL DCD which was renamed to SCL which got listed in stock exchange on December 29, 2023, post receipt of necessary approvals. Besides, in September 2023, TVSHL diluted its 2.31% holding in group held non-banking financial company TVS Credit Services Ltd (rated ‘CRSIL AA/Stable/CRISIL A1+’) for Rs 154 crore. |
Analytical Approach CRISIL Ratings has used the holding company approach to arrive at rating of TVSHL for purpose of rating the cumulative NCRPS, bank loans and NCDs. TVSHL holds 50.26% is TVSM and 89.26% in EHRL. Its other businesses, which will be modest, will include Royalty and management services from the group, and trading in automobile components.
CRISIL ratings has also factored in possibility of moderate support from TVSHL to EHRL, in its analytical approach. |
Key Rating Drivers & Detailed Description Strengths: Healthy cover available for the holding company TVSHL holds 50.26% stake in TVSM which was valued at over Rs.54000 crores at March 6, 2024. TVSHL’s debt profile comprises of cumulative NCRPS worth Rs.873 crores due for redemption in March 2024 and coupon payment of 9% p.a totaling the liability to Rs.952 crores. The high market capitalization provides healthy debt cover of over 60x (considering debt of Rs 873 crore) at present. Considering repayment of NCRPS liability in March 2024, and addition of fresh debt of Rs 650 crores, the debt cover will remain healthy at over 80x, providing healthy financial flexibility to raise additional funds if required. The quantum of any future debt raise for future investment, and terms of repayment as well as means of repayment will be a monitorable.
Healthy credit risk profile of 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 15% in the period April – January 2024, compared to industry growth of 7% in the corresponding period supported by launch of new models leading to increase in market share. 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.
TVSM recorded healthy performance in the first nine months of fiscal 2024 driven by healthy offtake in domestic volumes in motorcycle segment which witnessed a growth of 40% driven by new launches and sustained domestic demand.
Post strong demand recovery in scooter segment in fiscal 2023 with 43% on- year growth, the segment has registered growth of 17% in the period April – January 2024 driven by healthy offtake of EV scooters. Moped segment where TVSM is the only major player registered an increase of volume by 8% in the period April – January 2024.
TVSM’s revenues at a standalone level grew by 19% YoY in first 9 months of fiscal 2024 supported by higher volumes and realisations. Operating profitability improved by 90 bps to 11% 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, and lower profitability of other subsidiaries. Steady improvement in performance of overseas subsidiaries including Norton will aid in overall improvement of profitability. TVSM is expected to continue investing in developing electric vehicles (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.
Weakness: Modest development track record and support if any required for EHRL TVSHL is the parent of EHRL, holding majority stake of 89.20% in EHRL. The promoters are actively involved in the business and EHRL remains critical to its parent. The promoters of TVSHL have extended investment support in the past. Also, the parent (TVSHL) is expected to provide need-based investment support to EHRL and its subsidiaries, in the event of contingencies.
EHRL has a relatively moderate track record in the real estate business, thereby constraining the business risk profile. The group has developed and handed over 2.50 msf area in residential segment till August 2023 in Chennai, while 3.28 msf area is currently under development and 2.74 msf is in pipeline for future launches in Chennai and Bangalore. Although the development track record is limited, the saleability of the projects is healthy. Further, the market position benefits from ‘TVS Emerald’ brand and the recent launches have done well.
Exposure to market-related risks and part reliance on dividend inflows for debt-servicing For TVSHL, the exposure to market-related risks may persist, as financial flexibility, in terms of cover available, will, to some extent, depend on prevailing market sentiments and share price of TVSM. Any increase in systemic risks, leading to a sharp fall in the share prices of TVSM, or larger than expected debt levels at TVSHL will be key rating sensitivity factors. Furthermore, part of servicing of debt facilities will remain dependent on dividend inflows from TVSM and other subsidiaries/group companies of TVSHL, as well as royalty proceeds. |
Liquidity: Strong TVSHL’s liquidity benefits from the market value of its stake in TVSM, which is estimated at over Rs.54000 crores as March 6, 2024. Besides, it will also be supported by a healthy regular dividend income from TVSM and royalty and management services income from group companies. The cumulative NCRPS repayable by March 2024 through its cash surpluses, dividend income , royalty and management income. TVSH is considering availing additional debt of Rs 650 crore for its business operations. The debt taken will be repaid using its internal accruals mainly emanating from royalty and management services income and the dividend income. The terms of the NCD which will be raised are being finalized but are expected to have 3-5 years maturity. Refinancing, if required, is not expected to be an issue, given demonstrated track record, and strong reputation of the group with the lending community. |
Outlook: Stable TVSHL will continue to benefit from its healthy financial flexibility on account of its 50.26% holding in TVSM and steady dividend inflows from TVSM and royalty, as well as management income from the group entities. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company TVSHL was incorporated in Chennai in 1962. The company is a leading manufacturer of aluminium die-casting components. It supplies to major automotive OEMs including TVS Motor, the Cummins group, the Volvo group, Hyundai Motor India Ltd (rated ‘CRISIL AAA/Stable/CRISIL A1+’), Ford Motors, the Daimler group, and to component suppliers such as Wabco India Ltd and the Visteon group. TVSHL was set up by the TVS group and the UK-based Clayton Dewandre Holdings Ltd.
Until fiscal 2007, SCL’s financials included the CV brakes business. With effect from March 28, 2008, the Madras High Court approved the de-merger of the brakes business into a separate company, Wabco India Ltd. The non-brakes business (aluminium die-casting) and investments in the TVS group entities remained with SCL. The company has its main die-casting component production facilities at Padi, Mahindra City, and Oragadam in Chennai, and Belagondapalli at Hosur, in Tamil Nadu. During fiscal 2012, SCL restructured its businesses, hiving off the non-automotive businesses into its erstwhile subsidiary, Sundaram Investments Ltd (SIL).
In August 2023, the aluminium diecasting business of SCL was demerged into a separate entity, SCL DCD and SCL was renamed as TVSHL which retained the investments in TVSM and EHRL. The demerger was done through an elaborate scheme of arrangement. |
Key Financial Indicators (Standalone)
The above financials are pre-demerger financials of TVSHL. |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued and terms are being finalized. ^Complexity level is ‘Complex’ in the event of the instrument carrying ‘put/call option’.
Annexure - Details of Rating Withdrawn
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| Annexure - Details of Bank Lenders & Facilities | ||||||||
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Criteria Details
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