| Tata Motors Finance Solutions Limited | ||||||||||||
| 'CRISIL A/Stable' assigned to Perpetual Bonds | ||||||||||||
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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 A/Stable’ rating to Rs.1000 crore perpetual bonds of of Tata Motors Finance Solutions Limited (TMFSL) and reaffirmed its ratings on the bank facilities and existing debt instruments ‘CRISIL AA-/CRISIL A/Stable/CRISIL A1+'.
The ratings continue to reflect the expectation of strong support from TMFSL’s ultimate parent Tata Motors Ltd (TML; rated ‘CRISIL AA-/Stable/CRISIL A1+’) to TMF Holdings Ltd (TMFHL; rated ‘CRISIL AA-/Stable/CRISIL A1+’) and its subsidiaries: TMFSL and Tata Motors Finance Limited (TMFL; 'CRISIL AA-/CRISIL A/Stable/CRISIL A1+').
The rating on the perpetual bonds reflects the comfortable buffer over the regulatory capital adequacy requirements, and high financial flexibility due to TMLs ownership. CRISIL Ratings believes that it will maintain a comfortable cushion going forward (see CRISIL publication 'CRISIL Criteria for Rating Hybrid Instruments Issued by NBFCs/HFCs' dated December 2016 for details on CRISIL's approach for rating such instruments). |
Analytical Approach CRISIL Ratings’ ratings on the debt instruments and bank facilities of TMFSL continue to be based on the expectation of strong support from TML. This is because of TMFSL’s strong strategic importance to TML and the latter’s ownership through TMFHL. CRISIL Ratings has also combined the business and financial risk profiles of TMFHL and its subsidiaries, TMFL and TMFSL, given the integration of operations and commonality of management.
The ratings on the perpetual bonds additionally take into account the deeply subordinated nature of these instruments whereby TMFSL is restricted from servicing these instruments if it breaches the minimum regulatory capital requirement, or if the regulator denies permission to the company to make payments of interest and principal, if it reports losses.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: High strategic importance to and expectation of strong support from TML CRISIL’s ratings on the debt instruments and bank facilities of TMFSL are based upon the expectation of strong support from the ultimate parent TML. This is because of the high strategic importance of TMFSL to its parent and also the latter’s majority ownership in TMFSL through its wholly owned subsidiary, TMFHL.
Post the restructuring in fiscal 2017, TMFHL became the holding company for the financial services business of TML. TMFL undertakes financing of new vehicles and is the captive financier for TML’s vehicles. TMFSL provides financing for pre-owned vehicles and has strong operational linkages with TML’s pre-owned vehicles business and corporate lending, wherein it provides both short-term and long-term financing to dealers and suppliers of TML. The three companies are expected to receive significant business, financial and managerial support from TML.
In the past, TML has been infusing equity capital into TMFHL (including in its earlier form as TMFL, the operating company) at regular intervals. TML infused Rs 300 crore in fiscal 2018, Rs 600 crore in fiscal 2019 and Rs 150 crore in fiscal 2020. CRISIL believes TML will continue to provide similar support through TMFHL, enabling the companies to maintain their capital adequacy above the minimum requirement. In August 2022 TMFHL infused Rs. 300 cr of equity in TMFL to shore up its equity base.
TMFHL and its subsidiaries have a high level of managerial and operational integration, where the parent extends management support through representation of its senior management on the boards of TMFL and TMFSL. CRISIL believes TML will continue to have majority ownership in TMFSL through the holding company structure. This, along with operational integration and a shared brand name, makes TML morally obligated to support TMFSL.
Leading position in CV finance TMF group is a leading vehicle financier in India. TMFL is among the top five CV financiers with assets under management (AUM) of Rs 34,188 crores as on June 30, 2022 (Rs. 34,993 crore as on March 31, 2022). As on June 30, 2022 TMFSL had a standalone portfolio of Rs 9,991 crore (Rs. 9141 crore as on March 31, 2022). Consolidated AUM as on June 30, 2022 stands at Rs 44,179 crore (March 31, 2022: Rs 44,134 crore).
Weakness: Week asset quality Amidst the improvement in the economic environment the asset quality metrics for TMFHL group improved with reported gross stage III assets and net stage 3 assets at 9.33% and 5.95 % respectively as on June 30, 2022 (9.66% and 5.75% respectively as on March 31, 2022) as against 11.56% and 8.83% as on December 31, 2021.
For TMFSL the gross stage III assets stood at 6.18% as on June 30, 2022 (7.38% as on March 31,2022) as against 8.16% as on December 31, 2021. Net stage III assets stood at 4.56% as on June 30, 2022 (4.94 % as on March 31, 2022) as against 5.54% as on December 31, 2021.
CRISIL Ratings understands that the group is committed to bringing in additional equity capital to provide cushion against the asset side risk and maintain Net NPA and capitalisation metrics well within the regulatory thresholds. The overall rating continues to factor in expectation of timely financial and capital support from TML in case of any exigency. |
Liquidity: Strong Asset liability maturity profile of TMFSL’ as on July 31, 2022 shows cumulative positive mismatches across all maturity buckets. On a consolidated basis, as on July 31, 2022, the group had repayments of Rs 6,952 crore for the three months till October 2022 (of which Rs 1,775 crore of CC/WCDL limits are expected to be rolled over). Against the same, the group has the consolidated liquidity position which is supported by combined cash and liquid investments of Rs. 4,624 crore and unutilised bank lines of Rs. 3,473(excluding cc/WCDL rollover) crore and FDs/ G Sec/ T Bill Investments for liquidity backup of Rs. 1300 crore. TMFHL also has unutilised ICD lines of Rs 1,000 crore from TML on July 31 2022. |
Outlook: Stable The rating outlook on TMFSL is closely linked to the rating outlook on TML. CRISIL believes TMF Group will be strategically important to TML, being captive financiers, and will benefit from the financial and management support extended by TML. CRISIL Ratings will continue to closely monitor any development that can significantly alter the extent of support by TML. Changes in the rating outlook or ratings on TML may lead to similar changes in the rating outlook or ratings on TMF Group. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company TMFSL, a non-deposit-taking systematically important, non-banking finance Company is a wholly owned subsidiary of TMFHL. TMFSL focusses on pre-owned vehicle financing and extending loans to dealers and vendors within TML ecosystem. As on June 30, 2022, the company's standalone AUM stood at Rs 9,991 crore. As on June 30, 2022, the total borrowings stood at Rs 8,544 crore, which was mix of bank borrowings and market borrowings.
For quarter ending June 30, 2022, TMFSL reported net profit of Rs 39 crore on total income (net of interest expenses) of Rs 125 crore (basis IND AS). For FY 22 the company earned a profit of Rs 192 crore on total income (net of interest expenses) of Rs 549 crore (basis IND AS).. |
Key Financial Indicators: Tata Motors Finance Solutions Limited-Standalone)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Sanctioned bank facilities as on June 30, 2022(net of repayments) *Interchangeable with short-term facilities %CITI Bank's limit of Rs 75 Crores is unsecured WCDL Limit, not inter-changeable with Cash credit. @Bank of India's Rs 250 crore and HDFC’s Rs 350 crores is only WCDL, not interchangeable with Cash credit $IDFC’s limit of Rs 25 Crs is sublimit of WCDL/FCDL/FCNR limit of Rs 450 Crs. Further, Rs 25 Crs is FX derivative limit, which is over and above the WCDL/FCNR/FCDL limit. $$ECB of USD 15 Mn from ICICI UK is fully hedged. ^^IndusInd Bank CC limit of Rs 80 Crs is a Sublimit of WCDL with overall limit of Rs 200 Crs ^Yet to be issued |
Annexure – List of entities consolidated
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 05-Sep-22 in line with the lender-wise facility details as on 31-Aug-21 received from the rated entity.
#Sanctioned bank facilities as on June 30, 2022(net of repayments)
*Interchangeable with short-term facilities
%CITI Bank's limit of Rs 75 Crores is unsecured WCDL Limit, not inter-changeable with Cash credit.
@Bank of India's Rs 250 crore and HDFC’s Rs 350 crores is only WCDL, not interchangeable with Cash credit
$IDFC’s limit of Rs 25 Crs is sublimit of WCDL/FCDL/FCNR limit of Rs 450 Crs. Further, Rs 25 Crs is FX derivative limit, which is over and above the WCDL/FCNR/FCDL limit.
$$ECB of USD 15 Mn from ICICI UK is fully hedged.
^^IndusInd Bank CC limit of Rs 80 Crs is a Sublimit of WCDL with overall limit of Rs 200 Crs
Criteria Details
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