Tata Capital Financial Services Limited Instrument/Facility Amount Rated Rating Action (In Rs.Crore) (November 2016) Non-Convertible Debenture Programme 3,000.00 [ICRA]AA+(stable); Assigned ICRA has assigned the rating of [ICRA]AA+ (pronounced ICRA double A plus)1 to the Rs. 3,000 crore non- convertible debenture programme of Tata Capital Financial Services Limited (TCFSL). ICRA also has ratings outstanding of [ICRA]AA+ for Rs. 3438.63 crore non-convertible debenture programme and Rs. 905.45 crore subordinated debt programme; and a rating of [ICRA]AA (pronounced ICRA double A) for the Rs. 593.55 crore perpetual debt programme of TCFSL. ICRA also has a rating outstanding of [ICRA]AA+ for the Rs. 7,703 crore2 long-term loans, Rs. 5,797 crore long-term fund based limits and Rs. 1,000 crore3 long-term non-fund based limits of the company. ICRA also has a rating outstanding of [ICRA]A1+ (pronounced ICRA A one plus) for the Rs. 10,000 crore commercial paper programme and for the Rs. 500 crore short-term loans of the company. The outlook on the long-term ratings is ‘Stable’. The ratings factor in the strategic importance of TCFSL to its ultimate parent Tata Sons Limited (TSL; rated [ICRA]AAA (stable)/[ICRA]A1+). TCFSL is a wholly owned subsidiary of Tata Capital Limited (TCL), which is in turn owned by TSL. TCFSL’s rating is strongly linked to the expectation of continued support from TSL, which in the past has included access to capital, management and systems and supervision by a strong board. TCFSL, by virtue of being a part of the Tata group enjoys considerable financial flexibility to raise long term funding at competitive rates and hence has a good liquidity profile. ICRA expects equity support from the parent to continue resulting in comfortable capitalisation levels. TCFSL also benefits in terms of business volumes in some of its product segments (dealer and vendor financing) given its access to the large base of customers associated with the supply chain of the Tata group. Further, TCFSL’s access to the group’s strong franchise and common brand name help it in expanding its retail lending customer base. During FY2016, the company’s loan portfolio increased by 19.7% driven by a growth in the loan against property (LAP), personal loan and business loan products in the retail finance segment and commercial loan portfolio in the wholesale segment. The proportion of retail loans in its portfolio has been gradually increasing and constituted 50% of the total portfolio as on September 30, 2016 as compared with 47% as on March 31, 2016 and 44% as on March 31, 2015. The asset quality indicators of the company improved with gross NPAs of 5.3% as on March 31, 2016 (based on the 150+ day NPA recognition norm) against 5.7% as on March 31, 2015 (based on the 180+ day norm, and 6.5% based in the 150+ day norm). The company’s capital adequacy also remained comfortable at 16.34% as on March 31, 2016 (Tier I capital of 11.79% as on March 31, 2016). The company’s profitability indicators improved in FY2016 (ROA increased to 0.95% in FY2016 from 0.77% in FY2015; ROE improved from 6.08% to 8.16%) on account of a decline in the cost of funds, stable operating expenses and some moderation in credit costs. Nevertheless, TCFSL’s earnings continue to be affected by its relatively higher credit provisions and operating expenses, its large share low yielding auto portfolio and low effective yields on corporate lending and construction equipment where delinquencies are high. While the possible easing of competitive pressures and softening of systemic interest rates could be favourable for the company, ICRA expects earnings to remain tempered in the medium term with credit costs remaining high. Company Profile Tata Capital Financial Services Limited Tata Capital Financial Services Limited was incorporated in November 2010 and is a wholly owned subsidiary of Tata Capital Limited. In FY2012, TCFSL took over the lending operations of TCL, which then included 1For complete rating scale and definitions, please refer to ICRA’s website (www.icra.in) or ICRA rating publications. 2Includes Rs. 4,603 crore which is interchangeable between long term fund based limits and long term loans 3Includes Rs. 500 crore limits which are interchangeable between long term loans fund based limits and long term non-fund based limits finance of non-Tata vehicles and construction equipment, working capital finance for corporates and SMEs and unsecured retail finance. TCFSL is registered as non-deposit accepting NBFC with the Reserve Bank of India. As on September 30, 2016, the company’s total credit book stood at Rs. 30,110 crore, of which 50% was from the wholesale segment, primarily comprising of working capital loans to corporate (23%) and bill discounting and channel financing (21%), the balance being retail portfolio including loans against property (16%), financing for automobiles (11%), unsecured business loan (10%), construction equipment (8%), and tractor financing (5%). Recent Results For FY2016, the company reported a net profit of Rs. 265.79 crore on a total income of 3,471.34 crore against a net profit of Rs. 187.33 crore on a total income of 3,065.36 crore in FY2015. For H1FY2017, the company reported a net profit of Rs. 100.78 crore on a total income of 2025.80 crore against a net profit of Rs. 113.53 crore on a total income of Rs. 1665.78 crore for H1FY2016. Tata Capital Limited Tata Capital Limited is a subsidiary of TSL; as on March 31, 2016 TSL had a 90.28% shareholding in TCL. TCL is registered as Core Investment Company and is the holding company for the various financial services of the group including TCFSL, Tata Capital Housing Finance Limited and Tata Securities Limited. TCL also holds strategic and private equity investments. As on March 31, 2016, the company had a net worth of Rs.3,250.64 crore4 and a total asset base of Rs. 6,318.01 crore. During FY2016, TCL reported a PAT of Rs 152.80 crore. Tata Sons Limited Tata Sons Limited (TSL), founded in 1917 by the group’s founder, Shri J N Tata, is the principal holding company for the Tata group and owner of the Tata brand and associated Tata trademarks. Charitable trusts including those endowed by the late Sir Dorabji Tata own a majority of TSL shareholding. While income from dividends and profit generated on sale of investments constitute the principal revenue source for the company, its revenues also include royalty fees earned from group companies for using the Tata brand. Such fees however are largely spent on the management of the brand. Currently, Tata Sons’ equity investments are spread across seven major industry segments and include investments in flagship concerns like Tata Consultancy Services Limited, Tata Steel Limited, Tata Power Company Limited, Tata Motors Limited, Tata Chemicals Limited, Tata Teleservices Limited, and Tata Global Beverages Limited. November 2016 For further details please contact: Analyst Contacts: Mr. Karthik Srinivasan (Tel No +91 22 6114 3444) [email protected] Ms. Manushree Saggar (Tel. No. +91 124 4545 316) [email protected] Mr. Mohit Gupta (Tel. No. +91 22 6114 3449) [email protected] Mr. Akshay Kumar Jain (Tel. No. +91 22 6114 3430) [email protected] Relationship Contacts: Mr. L. Shivakumar, (Tel. No. +91 22 6114 3406) [email protected] 4 Adjusted for preference shares and miscellaneous expenses yet to be written off © Copyright, 2016, ICRA Limited. All Rights Reserved Contents may be used freely with due acknowledgement to ICRA ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents. Registered Office ICRA Limited 1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi 110001 Tel: +91-11-23357940-50, Fax: +91-11-23357014 Corporate Office Mr. Vivek Mathur Mobile: +91 9871221122 Email: [email protected] Building No. 8, 2nd Floor, Tower A, DLF Cyber City, Phase II, Gurgaon 122002 Ph: +91-124-4545310 (D), 4545300 / 4545800 (B) Fax; +91- 124-4050424 Mumbai Kolkata Mr. L. Shivakumar Mr. Jayanta Roy Mobile: +91 9821086490 Mobile: +91 9903394664 Email: [email protected] Email: [email protected] 3rd Floor, Electric Mansion A-10 & 11, 3rd Floor, FMC Fortuna Appasaheb Marathe Marg, Prabhadevi 234/3A, A.J.C.