RATINGS
Instrument Rated Amount Rating Action
Secured NCD Rs. 100 crore BWR A+ (Stable) assigned
Commercial Paper Rs. 100 crore BWR A1+ assigned
Bank Loan Ratings Rs. 1118.13 crore BWR A+ (Stable) Reaffirmed

RATIONALE
Brickwork has assigned BWR A+ (pronounced BWR A Plus) ratings to Rs. . 1118.13 crore Bank Loan Facilities of TVS Credit Services Limited (‘TVSCSL’ or the ‘the Company’). Brickwork Ratings (BWR) has assigned Rating of “BWR A+” (pronounced BWR A Plus) with Stable Outlook for proposed secured NCD issue of Rs. 100 Crs having a tenor of 3-5 years and “BWR A1+” (pronounced BWR A One Plus) for short term Commercial Paper issue of Rs. 100 Crs having a tenor up to One year of TVS Credit Services Ltd. (‘TVSCSL’ or ‘the Company’).

The rating has factored, inter alia, TVSCSL’s performance, experienced management, and support from the parent company TVS Motor Company Ltd. It has also factored Company’s wide network and risk management systems in place. The rating is constrained by the Company’s concentration in financing TVS products, competition from other established players and very low profitability.

BWR has relied upon the audited financial results up to FY13 and projected cash flow and financials, publicly available information and information/clarification provided by the Company management.

Company Profile

TVS Credit Services Limited

TVS Credit Services Limited (TVSCSL) is a part of $ 5 Billion TVS Group. TVSCSL was incorporated on November 5, 2008. The Company is registered with the RBI as a Non-Deposit taking Non-Banking Finance Company with effect from April 13, 2010.

The Company primarily deals in financing of two wheelers and three wheelers through attractive financing schemes. The Company has points of presence in over 1800 locations and over 30 area offices throughout the country. TVS Credit Services Ltd is promoted by TVS Motor Company with an initial capital of Rs. 150.50 Cr. It has infused additional equity of Rs. 24 Cr in March’ 2013 to meet the growing demand in retail and consumer financing segments. In addition HDFC Ltd., a leading Mortgage finance company in India, has invested in the equity capital of the Company up to Rs. 10 Cr. The total net owned funds of the Company as on 31st March 2013 is Rs. 172.43 Cr.

The Company has disbursed two wheeler/three wheelers loans to 2,86,795 customers as at end of March 2013, amounting to Rs. 899 Crs through a wide distribution network and its unique sourcing model. The book size has crossed Rs. 1062 Crs in FY13 as compared to Rs. 529 Crs in FY12.

TVSCSL has recently diversified into Tractors and Used Car financing in both urban and rural markets and has been trying to considerably reduce dependence on two wheeler financing. It has financed ~2108 used cars and financed more than 2000 tractors. Its non-Two wheeler portfolio mix has reached 17% as on June 30, 2013. It is mitigating the risk by diversifying into new products.

TVSCSL’s total customer base has crossed more than half a million. It is expanding its business into 300 micro markets in UP, MP, Gujarat and Rajasthan. The Company is having distribution network of ~1807 dealers across India. They are primarily located in the States of Tamil Nadu, Maharashtra, AP, MP, Karnataka, U.P. and Rajasthan. TVSCSL has considerably reduced its dependence on two wheeler financing.

TVSCL’s overall disbursements stood at Rs. 1041 Cr for the year ended March 31, 2013 as compared to Rs. 574 Cr in the previous year. The Company has invested substantially in technology both for sourcing of customers and sanctions as well as for recovery, which has resulted in productivity going up considerably and cumulative collection efficiency at more than 98%.

Acquisition of Business of TVSFS

Pursuant to a Business Transfer Agreement (BTA) entered into with TVS Finance and Services Limited (TVSFS) on 21st April 2010, the Company acquired the retail finance business of TVSFS as a going concern along with the related assets of Rs. 50.76 Crs and liabilities of Rs. 298.76 Crs. Due to this acquisition, TVSCSL has an exposure of Rs. 248 Crs (which stands at Rs. 220.17 Crs as of FY13) to its Parent (29% of total managed assets) which is backed by immovable property belonging to the erstwhile TVSFS.

Board of Directors and Shareholding

Mr. Venu Srinivasan is the Chairman of TVSCSL, who is also the Chairman and MD of TVS Motor Company Ltd. The Board has eight other Directors who are renowned personalities from Banking, Finance, Accounting and automobile sectors. TVSCSL has a team of professionals with extensive experience in auto finance operations.

TVS Motor Services Ltd. holds 90.40% equity stake in the Company. HDFC Ltd. and PHI Research Pvt. Ltd. hold 5.65% and 3.95% stake respectively.

Financial Performance

TVSCSL’s operating income has substantially increased from Rs. 26.35 Crs in FY11 to Rs 242.08 Crs in FY13. The Company suffered a loss of Rs. 16.48 Crs in FY11 due to acquisition of TVSFS. The Company showed a net profit of Rs. 0.25 crores in FY12 which improved very significantly to Rs. 5.16 Crs in FY13. The Company’s cumulative losses have come down to Rs. 11.04 Crs in FY13.

As per the audited financials for FY13, operating revenues of the company increased to Rs. 242.08 Crs in FY13 from Rs. 113.56 Crs in FY12. Also PAT increased to Rs. 5.16 Crs in FY13 from Rs. 0.25 Crs in FY12. The Net-worth of the company has improved to Rs. 172.43 Crs during FY13 from Rs. 143.27 Crs in FY12. However, the company’s total debt profile has increased to Rs. 1214.42 Crs in FY13 from Rs. 527.76 Crs in FY12. Non-current assets decreased slightly to Rs. 220.17 Crs in FY13 from Rs. 245.00 Crs in FY12. Receivables from financing activities increased to Rs. 1116.44 Crs in FY13 from Rs. 460.33 Crs in FY12, shows improvement in business activities.

Gross NPA level has increased from 0.10% in FY12 to 0.40% in FY13.However, Net NPA level is NIL for FY13 as the Company has a conservative policy for writing off overdues beyond 90 days. The Capital adequacy ratio stood at 19.29% in FY13 as compared to 32.19% in FY12, well above the accepted level for NBFCs. Operating margins remain at high of ~40% with ROCE at ~9% in FY13. However profit margins remain at low ~2% mainly due to high interest outgo. As per the unaudited Q1 FY14, the company has earned an operating income of Rs. 82.19 Crs and made a Profit before tax of Rs. 3.27 Crs.

TVS Group

The TVS Group is India’s leading supplier of automotive components and one of the country’s most respected business groups. With a combined turnover of more than US$ 5 billion, the TVS Group employs a total workforce of close to 40,000 nos. Charting a steady growth path of expansion and diversification, it currently comprises around 30 major companies. It operates in diverse fields that range from two-wheeler and automotive component manufacturing to automotive dealerships, logistics, finance and electronics. TVS Motor Company Ltd. (TVSMCL) is the flagship Company of the Group.
TVS Motor Company Ltd (TVSMCL) is one of the leading two-wheeler manufacturers in the Country manufacturing motorcycles, scooters, geared scooters, mopeds and three wheelers with an annual sales volume of about 2 million vehicles for the year ended March 13. It has its plants in Hosur, Mysore and Nalagarh in Himachal Pradesh and caters to the local and international market. The Company has established its brand name in overseas markets with of its products exported to nearly 55 countries. TVSMCL’s operating revenue (on a consolidated basis) decreased marginally to Rs. 7406.22 Crs in FY13 from Rs. 7435.16 Crs in FY12. PAT was Rs. 198.35 Crs in FY13 against Rs. 132.33 Crs in FY12 due to an exceptional item through sale of land of Rs. 92.78 Crs.
It’s overall two wheeler sales declined by 7% in FY13 due to sluggish performance of the industry. However, three wheeler sales of the Company increased by 22.3% in FY13.

Rating Outlook

TVSCSL’s performance has been showing consistent improvement due to growth in disbursement and high collection efficiency. It is expected that the Company will continue with its good performance further aided by diversification into financing of Tractors and used cars.
Going forward, the continued support of the parent company TVS Motors Ltd, the ability of TVSCSL to withstand competition and expand its scale of operations, and maintain good asset quality and improve net profit margin would remain key rating sensitivities.