Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the Rs.2347 crore cumulative non-convertible redeemable preference shares (NCRPS) issued by TVS Holdings Limited (TVSHL; formerly Sundaram Clayton Ltd). CRISIL Ratings has withdrawn its ratings on the bank loan facilities and Rs.100 crores of non-convertible debentures (NCDs) as the facilities have been moved to Sundaram-Clayton DCD Limited (SCL DCD) post the implementation of the scheme of arrangement. Further, ratings assigned to Rs.100 crores of commercial papers (CP) have been withdrawn at the request of the company. SCL DCD has subsequently been renamed as Sundaram Clayton Ltd (SCL). There is no outstanding against the rated CP programme. The withdrawals are in line with the CRISIL Rating’s policy on withdrawal of ratings.
On March 6, 2023, erstwhile SCL (now name changed to TVSHL) received approval from the 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.
On June 16, 2023, TVS Holdings Private Limited (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. Also, Emerald Haven Realty Limited (EHRL, rated ‘CRISIL A-/Stable/A2+’) became a subsidiary of erstwhile SCL due to merger of THPL with SCL. Subsequently, erstwhile SCL increased the stake in EHRL by 11.2% to 77.6% for a consideration of Rs.42.92 crores. On July 17, 2023, SCL was renamed to TVS Holdings Limited (TVSHL) and same has been filed with Registrar of Companies (ROC).
The promoter family members became direct shareholders of TVSHL and received cumulative NCRPS equivalent to their shareholding. On 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 has been cancelled.
Further on August 11, 2023, the aluminium die-casting operations demerged from TVSHL to SCL DCD. 1 equity share of SCL DCD was issued to the shareholders for every 1 equity share held in TVSHL such that both have mirror shareholding. Also, as part of the Scheme of Arrangement, SCL DCD was proposed to be listed in stock exchanges, and renamed as Sundaram-Clayton Limited (new SCL).
All the assets and liabilities which are related to manufacturing operations have moved from TVSH to new SCL. Therefore, in terms of debt, TVSHL has cumulative NCRPS (owed to other promoter entities and public shareholders of Rs.873 crores) as debt which will be redeemed on or before March 24, 2024. TVSHL will require ~Rs.952 crores ( principal + 9% coupon ) for redemption. The company normally receives dividends of Rs.100-120 crores from TVSM, and also has term deposits of Rs.200 Crs on its balance sheet. Also, TVSHL has raised Rs.154 crores by selling its stake in TVS credit Services Limited to Piramal Investment Opportunities fund in September 2023. The remaining will be funded through additional debt of up to Rs.400 crores. Due to healthy relationship with lending community and healthy cover available due to its holding in TVSM, raising addition debt for funding the redemption of NCRPS is not expected to be a constraint.
TVSHL will also provide management services and will also be involved in trading services which are expected to generate revenues in upwards of Rs.100 crores per annum over the medium term. The margins are expected to be marginal and hence, absolute profits will be moderate. However, no debt is expected to be taken for the trading/ management services business.
TVSHL enjoys healthy debt cover, relative to value of its shareholding in TVSM, which also enjoys a healthy credit profile. That said, the holding company also remains exposed to market-related risks and part reliance on dividend inflows from TVSM for part debt-servicing. |
Analytical Approach CRISIL Ratings has used the holding company approach to arrive at rating of TVSHL for purpose of rating the cumulative NCRPS. TVSHL holds ~50.26% is TVSM and 77.60% in EHRL . Its other businesses, which will be modest, will include management services for the group, and trading in automobile components. |
Key Rating Drivers & Detailed Description Strengths: Healthy cover available for the holding company TVSHL holds 50.26% stake in TVSM which is valued at over Rs.38000 crores (as at November 1, 2023). TVSHL’s debt profile comprise 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 40x at present and supports the credit profile of TVSHL
The liabilities of Rs.952 crores due by March 2024, will be serviced by mix of cash available which is estimated to be around Rs.300-350 crores, dividend income from TVSM, and income generated from trading operations, royalty and management services income, and also from debt. TVSH has the flexibility to refinance any shortfall due to the robust cover available and healthy relationship with bankers.
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 16% in fiscal 2023, 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. In the first half of fiscal 2024, TVSM’s domestic two-wheeler market share has further improved to 15%. 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 fiscal 2023 driven by healthy offtake in volumes by 10% (both motorcycles and scooters). 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 favor 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 with 43% on-year growth in this segment outperformed the domestic sector’s growth rate, 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% on-year.
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.
Weakness: Modest development track record of EHRL and moderate leverage EHRL has a relatively moderate track record in the real estate business, thereby constraining the business risk profile. The Group has developed 2.50 msf of area in residential segment till December 2022 in Chennai, while 2.15 msf area is currently under development 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.
EHRL’s debt increased from Rs. 320 crore as on March 31, 2021 to Rs. 437 crore as on December 31, 2022 due to debt funded land acquisition. The Group avails debt primarily for land acquisitions as construction funding requirement is met mostly through customer advances. Consequently, debt-to-total assets for the group is expected to sustain at existing levels of 40-45% over the medium term, indicating a moderate leverage.
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 NCRPS will remain dependent on dividend inflows from TVSM and other group companies of TVSHL. |
Liquidity: Strong TVSHL’s liquidity benefits from the market value of its stake in TVSM, which is estimated at over Rs.37500 crores as October 25, 2023. Besides, it will also be supported by a healthy dividend income of Rs. 100-120 crores per annum, royalty income and management services income. The cumulative NCRPS repayable by March 2024 including the dividend will amount to Rs.952 crores. The same is expected to be paid out from cash surpluses, dividend income, and partly through refinancing. |
Rating Sensitivity 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, Sundaram- Clayton DCD Limited (SCL DCD) and SCL was renamed as TVS Holdings Limited (TVSHL) which retained the investments in TVS Motor Company Limited (TVSM) and another promoter entity, Emerald Haven Realty Limited (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)
Annexure - Details of Rating Withdrawn
#Interchangeable with packing credit in foreign currency (PCFC)/Bills Discounting/Short Term Loan |
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Criteria Details
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