Rating Rationale
November 03, 2023 | Mumbai
 
TVS Holdings Limited
Cumulative Non-Convertible Redeemable Preference Shares Rating Reaffirmed; Bank Loan Ratings, NCD and CP Withdrawn
 
Rating Action
Total Bank Loan Facilities Rated Rs.982.08 Crore
Long Term Rating CRISIL AA-/Stable (Withdrawn)
Short Term Rating CRISIL A1+ (Withdrawn)
 
Rs.100 Crore Non Convertible Debentures CRISIL AA-/Stable (Withdrawn)
Rs.100 Crore Commercial Paper CRISIL A1+ (Withdrawn)
Rs.2347 Crore Cumulative Non-Convertible Redeemable Preference Shares& CRISIL A1+ (Reaffirmed)
&Current outstanding is Rs.873 crores
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 ‘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 CRISIL Ratings has withdrawn its ratings on the bank loan facilities and Rs.100 crores of non-convertible debentures (NCDs) as the facilities have been moved to Sundaram-Clayton DCD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 Further, ratings assigned to Rs.100 crores of commercial papers (CP) have been withdrawn at the request of the company.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

  • Material decline in the market value of investments in TVSM on a sustained basis, or higher than expected debt levels, impacting financial flexibility, as well as debt cover (for instance below 8-10 times).
  • Significant decline in the credit profile of TVSM

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)

As on/for the period ended March 31

Unit

2023

2022

Revenue

Rs Crore

2074

1743

Profit After Tax (PAT)

Rs Crore

273

2277

PAT Margin

%

13.2

130.6

Adjusted debt/adjusted networth

Times

4.25

0.25

Interest coverage

Times

9.90

8.30

 The above financials are pre-demerger financials of TVSHL

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

Name of Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size (Rs.Cr)

Complexity Level

Rating Assigned with Outlook

INE105A04013

Cumulative Non-Convertible Redeemable Preference Shares

25-Mar-2023

9.00%

25-Mar-2024

2347

Complex

CRISIL A1+’

 

Annexure - Details of Rating Withdrawn

ISIN

Name of Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size (Rs.Cr)

Complexity Level

Rating Assigned with Outlook

INE105A08014

Non-Convertible Debenture

18-Aug-2020

7.65%

18-Aug-25

100

Simple

Withdrawn

NA

Bank Guarantee

NA

NA

NA

6

NA

Withdrawn

NA

Cash Credit#

NA

NA

NA

210

NA

Withdrawn

NA

External Commercial Borrowings

NA

NA

Feb-2024

106.76

NA

Withdrawn

NA

FCNR (B) Long Term Loan

NA

NA

Dec-2027

140

NA

Withdrawn

NA

Letter of Credit

NA

NA

NA

75

NA

Withdrawn

NA

Commercial Paper

NA

NA

7-365 days

100

Simple

Withdrawn

NA

Rupee Term Loan

NA

NA

Sep-2027

185.5

NA

Withdrawn

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

258.82

NA

Withdrawn

#Interchangeable with packing credit in foreign currency (PCFC)/Bills Discounting/Short Term Loan

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 901.08 Withdrawn 25-08-23 CRISIL AA-/Stable 10-10-22 CRISIL AA-/Watch Developing 28-05-21 CRISIL AA-/Stable 07-05-20 CRISIL AA-/Stable CRISIL AA-/Stable
      -- 14-03-23 CRISIL AA-/Stable 12-08-22 CRISIL AA-/Watch Developing   --   -- --
      -- 06-01-23 CRISIL AA-/Watch Developing 18-05-22 CRISIL AA-/Watch Developing   --   -- --
      --   -- 17-02-22 CRISIL AA-/Watch Developing   --   -- --
      --   -- 07-01-22 CRISIL AA-/Stable   --   -- --
Non-Fund Based Facilities ST 81.0 Withdrawn 25-08-23 CRISIL A1+ 10-10-22 CRISIL A1+/Watch Developing 28-05-21 CRISIL A1+ 07-05-20 CRISIL A1+ CRISIL A1+
      -- 14-03-23 CRISIL A1+ 12-08-22 CRISIL A1+/Watch Developing   --   -- --
      -- 06-01-23 CRISIL A1+/Watch Developing 18-05-22 CRISIL A1+/Watch Developing   --   -- --
      --   -- 17-02-22 CRISIL A1+/Watch Developing   --   -- --
      --   -- 07-01-22 CRISIL A1+   --   -- --
Commercial Paper ST 100.0 Withdrawn 25-08-23 CRISIL A1+ 10-10-22 CRISIL A1+/Watch Developing 28-05-21 CRISIL A1+ 07-05-20 CRISIL A1+ --
      -- 14-03-23 CRISIL A1+ 12-08-22 CRISIL A1+/Watch Developing   --   -- --
      -- 06-01-23 CRISIL A1+/Watch Developing 18-05-22 CRISIL A1+/Watch Developing   --   -- --
      --   -- 17-02-22 CRISIL A1+/Watch Developing   --   -- --
      --   -- 07-01-22 CRISIL A1+   --   -- --
Non Convertible Debentures LT 100.0 Withdrawn 25-08-23 CRISIL AA-/Stable 10-10-22 CRISIL AA-/Watch Developing 28-05-21 CRISIL AA-/Stable 07-05-20 CRISIL AA-/Stable --
      -- 14-03-23 CRISIL AA-/Stable 12-08-22 CRISIL AA-/Watch Developing   --   -- --
      -- 06-01-23 CRISIL AA-/Watch Developing 18-05-22 CRISIL AA-/Watch Developing   --   -- --
      --   -- 17-02-22 CRISIL AA-/Watch Developing   --   -- --
      --   -- 07-01-22 CRISIL AA-/Stable   --   -- --
Cumulative Non-Convertible Redeemable Preference Shares ST 2347.0 CRISIL A1+ 25-08-23 CRISIL A1+   --   --   -- --
      -- 14-03-23 CRISIL A1+   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 6 State Bank of India Withdrawn
Cash Credit# 210 State Bank of India Withdrawn
External Commercial Borrowings 106.76 State Bank of India Withdrawn
FCNR (B) Long Term Loan 140 State Bank of India Withdrawn
Letter of Credit 75 State Bank of India Withdrawn
Proposed Long Term Bank Loan Facility 258.82 Not Applicable Withdrawn
Rupee Term Loan 185.5 Exim Bank Withdrawn
#Interchangeable with packing credit in foreign currency (PCFC)/Bills Discounting/Short Term Loan
Criteria Details
Links to related criteria
Criteria for rating holding companies (including debt backed by pledge of shares)
Criteria for rating corporate sector hybrid instruments
CRISILs Criteria for rating short term debt

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