Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA/Stable/CRISIL A1+’ ratings to the bank facilities and commercial paper of Tata Motors Finance Limited (TMFL)

 

The rating follows the consummation of the demerger of the undertaking comprising TMFL’s non-banking finance related business into TMFSL. TMFL received the approval from National Company Law Tribunal (“NCLT”), vide order dated May 12, 2023 (which was made available on NCLT website and to TMFL on June 14, 2023), sanctioning the scheme of arrangement between TMFL, TMFSL and their respective shareholders. The demerger became effective post filing of documents with Registrar of Companies (RoC) on June 30, 2023. Post the demerger, TMF Holdings Ltd (TMFHL) will continue to hold TMFSL, which will subsequently be renamed to TMFL, while the current TMFL will be renamed as TMF Business Services Limited, subject to requisite approvals. The demerger is a share swap, and the outstanding assets and liabilities pertaining to NBFC business have been transferred to TMFSL from TMFL. TMFL subsequently only houses the operating lease business.

 

For arriving at the ratings, CRISIL Ratings combines the business and financial risk profiles of TMFHL and its subsidiaries, TMFL and TMFSL, given the integration of operations and commonality of management, together referred to as the TMF Group.

 

The ratings continue to reflect the expectation of strong support from the ultimate parent Tata Motors Limited (TML; rated 'CRISIL AA/Stable/CRISIL A1+') to TMF Holdings Ltd (TMFHL; rated ‘CRISIL AA/Stable/CRISIL A1+’) and its subsidiaries: TMFSL and TMFL. This is because of the high strategic importance of the companies to TML. Post the arrangement, there will not be any change in the shareholding and interlinkages between the group and the ultimate parent, TML.

Analytical Approach

CRISIL Ratings’ rating on the debt instruments and bank facilities of TMFL continue to be based on the expectation of strong support from TML. This is because of TMFL’s 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.

 

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

The ratings on the debt instruments of TMFHL group are based upon the expectation of strong support from the ultimate parent TML. This is because of the high strategic importance of TMFHL group to its parent, being the captive financing arm.

 

TMFL received the approval from National Company Law Tribunal (“NCLT”), vide order dated May 12, 2023 (which was made available on NCLT website and to TMFL on June 14, 2023), sanctioning the scheme of arrangement between TMFL, TMFSL and their respective shareholders. The demerger became effective post filing of documents with Registrar of Companies (RoC) on June 30, 2023. Post the demerger, TMF Holdings Ltd (TMFHL) will continue to hold TMFSL, which will subsequently be renamed to TMFL, while the current TMFL will be renamed as TMF Business Services Limited, subject to requisite approvals. The demerger is a share swap, and the outstanding assets and liabilities pertaining to NBFC business have been transferred to TMFSL from TMFL. TMFL subsequently only houses the operating lease business.

 

For arriving at the ratings, CRISIL Ratings combines the business and financial risk profiles of TMFHL and its subsidiaries, TMFL and TMFSL, given the integration of operations and commonality of management, together referred to as the TMF Group.

 

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 Ratings believes TML will continue to provide similar support through TMFHL, enabling the companies to maintain their capital adequacy above the minimum requirement.

 

Consequently, TMFHL infused Rs 300 crore of equity into TMFL and subscribed to Rs 370 crore of Compulsorily Convertible Preference Shares issued by TMFL and Rs 150 crore of subordinated debt issued by TMFL in fiscal 2019. Furthermore, in the first quarter of fiscal 2020, TMFHL infused Rs 150 crore of equity and subscribed to Rs 300 crore of subordinated debt in TMFL. Further, in August 2022, TMFHL infused Rs. 300 crore of equity and in February 2023, TMFHL infused Rs. 400 crore of equity in TMFL to shore up its equity base.

 

The total capital ratio of TMFL was comfortable at 24.0% as on March 31, 2023 (18.7% as on March 31, 2022). While the total capital ratio of TMFSL stood at 23.2% as on March 31, 2023 (20.4% as on March 31, 2022).  CRISIL Ratings believes TMFL and TMFSL will continue to receive need-based support from TML through TMFHL, to maintain their capital adequacy above the minimum requirement.

 

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 Ratings believes TML will continue to have majority ownership in TMFL through the holding company structure. This, along with operational integration and a shared brand name, makes TML morally obligated to support TMFHL group.

 

• Leading position in CV finance

Post demerger, the entire NBFC business  of TMFL is now transferred to TMFSL and all the NBFC lending  activities in TMF group will be carried out under TMFSL going forward.  TMF group is a leading vehicle financier in India with consolidated AUM as on March 31, 2023 stands at Rs 41,314 crore (March 31, 2022: Rs 44,134 crore). TMFL is among the top five CV financiers with assets under management (AUM) of Rs 30,294 crores as on March 31, 2023 (Rs. 34,993 crore as on March 31, 2022). As on March 31, 2023 TMFSL had a standalone portfolio of Rs 11,020 crore (Rs. 9141 crore as on March 31, 2022).

 

Weakness:

• Weak asset quality

The asset quality metrics for TMF group were impacted owing to implementation of IRACP norms from October 2022 onwards, however in fourth quarter of fiscal 2023, the asset quality metrics have improved amidst continued strong collections and write offs. The reported gross NPA and net NPA for the TMF Group stood at 9.26% and 5.02% respectively as on March 31, 2023 (9.66% and 5.75% respectively as on March 31, 2022). The gross NPA and net NPA for TMFSL on a standalone basis stood at 4.08% and 2.82% respectively as on March 31, 2023 (7.38% and 4.94% respectively as on March 31, 2022). For TMFL the reported gross NPA and net NPA increased to 11.28% and 5.91% respectively as on March 31, 2023 (10.31% and 5.98% respectively as on March 31, 2022). 

 

The company NNPA stood below 6% as on March 31, 2023. Nevertheless, given the segment company is catering to, going forward company’s ability to manage its asset quality is a key monitorable. CRISIL Ratings understands that the group is committed to bringing in additional equity capital to provide cushion against the asset side risk and maintain consolidated 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

CRISIL Ratings' analysis of TMFL’s asset liability maturity (ALM) profile shows cumulative positive mismatches across all maturity buckets as on March 31, 2023.  On a consolidated basis, as on March 31, 2023, the group had repayments of Rs 5,414 crore for the three months till June 2023 (of which Rs 1,320 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. 4639 crore and unutilised bank lines of Rs.4488(excluding cc/WCDL rollover) crore. TMFHL also has unutilised ICD lines of Rs 1,000 crore from TML on March 31, 2023. This excludes G Sec and T Bill Investments of Rs. 1225 crore kept for LCR requirements

Outlook: Stable

The rating outlook on TMFL is closely linked to the rating outlook on TML. CRISIL Ratings 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

Rating Sensitivity factors

Upward factors:

• Changes in the rating outlook or ratings on TML by 1 notch or higher may lead to similar changes in the rating outlook or ratings on TMF Group

 

Downward factors:

• Downgrade in the rating of TML by 1 notch or higher
• Any change in the support philosophy of TML, resulting in reduced support to the TMFHL group
• Sharp deterioration in the consolidated asset quality, impacting the profitability and capital level of the TMFHL group

About the Company

In March 2016, TMFHL acquired 100% stake in TMFL (earlier Sheba Properties Ltd), a non-banking finance company registered with RBI, for Rs 405 crore from TML. As on March 31, 2016, TMFL had total assets of Rs 205 crore, of which the investment portfolio constituted 94% of the assets or Rs 193 crore.

 

With the implementation of the scheme of arrangement effective January 2017, the entire new vehicle finance business has been transferred from TMFHL to TMFL. Post transfer, TMFL is a non-deposit taking, systemically important, non-banking financial and asset financing company and will be one of the major financiers of CVs and cars for TML’s customers and channel partners.

 

Post the demerger coming into effective post filing of documents with Registrar of Companies (RoC) on June 30, 2023, TMFL will be a company employed in operating lease business, whereas its erstwhile NBFC business has been transferred to TMFSL. Further, TMF Holdings Ltd (TMFHL) will continue to hold TMFSL, which will subsequently be renamed to TMFL, while the current TMFL which will also continue to be held by TMFHL will be renamed as TMF Business Services Limited, subject to requisite approvals

 

In the fiscal 2023, the company reported net loss of Rs 1033 crore on total income (net of interest expenses) of Rs 1621 crore, as against a net loss of Rs 27 crore and total income (net of interest expenses) of Rs 1788 crore in fiscal 2022.

Key Financial Indicators: (Tata Motors Finance Limited-standalone)

As on /for the year ended		Mar 31, 2023	March 31, 2022	March 31, 2021
Total assets	Rs crore	30,342	34,336	36,815
Total income (net of interest expenses)	Rs crore	1,621	1,788	1,780
Profit after tax (PAT)	Rs crore	-1,033	-27	250
Total capital ratio	%	24.0	18.7	19.4
Gross NPA	%	11.3	10.3	5.6
Net NPA	%	5.9	6.0	4.0

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the Instrument	Date of Allotment	Coupon rate (%)	Maturity Date	Amount (Rs crore)	Complexity Levels	Rating assigned with Outlook
NA	Commercial paper	NA	NA	7-365 days	500	Simple	CRISIL A1+
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	200	NA	CRISIL AA/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
TMF Holdings Ltd	Full	Holding
Tata Motors Finance Solutions Ltd	Full	Co-subsidiary