Cholamandalam Investment and Finance Company Limited September 29, 2018 Ratings Instrument Commercial Paper issue Amount (Rs. crore) 7,500 (enhanced from Rs.6,000 crore) 7,500 Total (Rupees seven thousand five hundred crore only) Details of instruments/facilities in Annexure-1 Ratings 1 CARE A1+ (A One Plus) Rating Action Reaffirmed Detailed Rationale & Key Rating Drivers The rating assigned to the enhanced portion of commercial paper programme of Cholamandalam Investment and Finance Company Limited (CIFCL) continues to factor in the strong parentage and benefits derived from Murugappa group, highly experienced management team, established track record of CIFCL in the vehicle financing supported pan-india branch network, geographically diversified product portfolio, diversified funding profile, comfortable liquidity profile, and healthy profitability. While asset quality witnessed improvement on overall basis, NPA levels in Home Equity segment continues to be relatively high. Going forward, the ability of the company to maintain asset quality in Vehicle Finance segment and improve asset quality in Home equity segment, improve capitalisation and maintain profitability levels while growing its loan portfolio are the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Strong parentage and benefits derived from Murugappa group CIFCL is a part of Murugappa group, one of the India s largest conglomerates founded in 1900 with focus towards engineering, auto components, cycles, abrasives, sugar, farm inputs, fertilizers, plantations, bio-products, finance, general insurance, and nutraceuticals. The Group has 28 businesses including eight companies listed in NSE & BSE. Headquartered in Chennai, the major Companies of the Group include Tube Investments of India Ltd, Carborundum Universal Ltd, Cholamandalam MS General Insurance Company Ltd, Coromandel International Ltd, Coromandel Engineering Company Ltd., E.I.D. Parry (India) Ltd, Parry Agro Industries Ltd., and Wendt (India) Ltd. CIFCL being a part of Murugappa group, enjoys benefits through its vast client base which provides comfort to company s business growth profile. The company also derives financial support from the group as and when it is required to support the business, as exhibited in the past. As on March 31, 2018, the group holds around 53% stake in CIFCL. Established track record in Vehicle financing and highly experienced Management team Incorporated in 1978, CIFCL has established track record in Vehicle finance (VF) segment and built a strong franchise in the vehicle finance market across India. With more than 73% of the AUM is in VF out of Rs.43,435 crore of total loan portfolio, the company has achieved considerable market position in vehicle finance Industry. Within Vehicle finance, the company is well diversified across products such as Light Commercial Vehicles (31% of VF segment as on March 31, 2018), Heavy Commercial Vehicles (25%), Cars &MUVs (18%), Shubh (high yielding used vehicle segment. 11%) Tractors (8%), Construction Equipment (CE) (4%) and three wheeler (1%). New and Used vehicle accounted for 76% (including CE) and 24% of outstanding VF portfolio. The company has experienced senior management team and associated with the group for more than a decade. Mr. N. Srinivasan, Managing Director of the company, has an industry experience of more than three decades and associated with the company s board since 2006. Each operations are looked after by an experienced team headed by key management people who are having vast experience in the NBFC industry. The company s activities and performances 1 Complete definition of the ratings assigned are available at www.careratings.com 1 CARE Ratings Limited
are overseen by the board of directors which comprises of seven members of which three are from the group and four independent directors. Geographically diversified business operations CIFCL s branch network has pan India presence and diversified across 27 states/ut with 873 branches of which 868 serves to VF and 148 branches to HE (143 co-located with VF). The company s branch network is distributed across North, South, West and East regions with 24%, 26%, 23% and 27% of the total branches respectively as on March 31, 2018. The company s portfolio is also diversified across the region accounting 30%, 26%, 23% and 21% of AUM for North, South, West and East region respectively as on March 31, 2018. Improvement in overall business during FY18 supported by significant growth in VF segment; while HE segment witnessed moderate growth CIFCL s total disbursement grew from Rs.18,591 crore during FY17 to Rs. 25,114 crore during FY18 witnessing a growth rate of 35.1% during FY18. The AUM of the company grew by 25% during FY18 from Rs. 34,679 crore as on March 31, 2017 to Rs. 43,435 crore as on March 31, 2018. The disbursement in VF segment significantly grew by 42% to Rs. 24,781 crore during FY18 from 18,522 crore during FY17 and correspondingly, the AUM in VF segment grew by 33% from Rs. 23,959 crore as on March 31, 2017 to Rs. 31,794 crore as on March 31, 2018. HE segment witnessed moderate growth with disbursement grew by 4% from Rs. 3,056 crore during FY17 to Rs. 3,174 crore during FY18 and AUM in HE segment grew by 5% from Rs. 9,762 crore as on March 31, 2017 to Rs. 10,217 crore as on March 31, 2018. Improvement in the overall asset quality The company s asset quality witnessed improvement in FY18 with gross NPA and net NPA reduced to 2.9% and 1.7% as on March 31, 2018 from 4.7% and 3.2% as on March 31, 2017. The Gross NPA and Net NPA as on June 30, 2018 was 2.99% and 1.7% respectively (as per IndAS). The high NPA in FY17 was majorly due to change in company s NPA recognition policy to 90+dpd from Q4FY17, however with improved collection and recovery mechanism, the company s asset quality improved during FY18. Especially in VF segment, 90+dpd reduced from 4.2% as on March 31, 2017 to 2.0% as on March 31, 2018. Diversified funding profile and comfortable liquidity profile CIFCL has fairly diversified funding profile with access towards low cost funding from banks and market instruments like NCDs, Sub debts and Commercial paper. As on March 31, 2018, the company s funding profile is comprised of bank loans occupying 38% of overall funding, followed by NCDs and Sub debts with 37%, Commercial paper 6% and Perpetual debt programme 3%. The company also managed to raise funds via securitisation/assignment route which contributed to 16% of total borrowings as on March 31, 2018. With increasing interest rate trends prevailing in Market instruments in the recent past, the company increased its borrowings through bank during Q4FY18 and proportion of the same increased from 27% as on March 31, 2017 to 38% as on March 31, 2018. ALM stood comfortable with less than one year cumulative mismatch is lower than the RBI stipulated levels of 15% and no cumulative mismatches in any of the time buckets. Adequate capitalisation profile As on March 31, 2018, CAR and Tier 1 CAR stood at 18.4% and 13.2% as against 18.6% and 13.3% as on March 31, 2017 respectively. Overall gearing and adjusted gearing (on AUM basis) increased to 6.2x and 7.4x as on March 31, 2016 from 5.6 and 7.1x as on March 31, 2017 respectively. The present level of capitalization is sufficient for the company to grow their loan portfolio to around 20-25% for the next two years with RONW of around 15-20%. CIFCL has been able to attract equity infusion from various investors in the past (Rs.250 crore in FY11, Rs.212 crore in FY12, Rs.300 crore in FY13 and Rs.500 crore in FY15). As on June 30, 2018, CAR and Tier 1 CAR stood at 18.2% and 13.4% respectively. Healthy profitability profile The company reported PAT of Rs. 974 crore on a total income of Rs. 5,426 crore during FY18 as against PAT of Rs. 719 crore on a total income of Rs. 4,660 crore during FY17. CIFCL s profitability remains healthy with NIM improved to 7.9% during FY18 from 7.6% during FY17 due moderation in cost of borrowings. The operating expenses/ average total assets increased slightly to 3.7% during FY18 from 3.5% during FY17 due to expansion of branches during FY18 however the same is expected to rationalise with increase in the business in the newly opened branches, going forward. The Provisioning costs was around 1% during FY18. ROTA during FY18 increased to 2.8% during FY18 from 2.5% during FY17 2 CARE Ratings Limited
and RONW increased to 20.7% during FY18 from 18.1% during FY17. During Q1FY19 (as per IndAS), the company reported PAT of Rs. 285 crore on a total income of Rs. 1,597 crore. Key Rating Weaknesses NPA levels in home equity remained relatively high The company s asset quality in HE segment remained moderate in the last three years however witnessed slight improvement during FY18 with 90+ dpd reduced to 5.4% as on March 31, 2018 from 5.8% as on March 31, 2017. With access towards SARFESI Act for systemically important NBFCs, CIFCL reduction in the delinquencies in HE segment during FY18. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition CARE s methodology for Non-Banking Financial Companies Financial ratios Financial sector About the Company Cholamandalam Investment & Finance Company (CIFCL) is a Non-Banking Finance Company, having track record of over three decades, promoted by the Chennai-based Murugappa group. As on March 31, 2018, the group holds 53.08% stake in CIFCL. CIFCL has major presence in the Vehicle Financing (VF) and Home Equity (HE, which is Loan against Property) segment. The company has 873 branches as on March 31, 2018 (PY: 703 branches) spread across 27 states/uts across India with AUM of Rs. 43,435 crore, of which share of Vehicle Finance was 73% and Home Equity was 24%. The company also extends Home loans, Agricultural loans, MSME loans however share of all these segments in total portfolio was around 3% as on March 31, 2018. Brief Financials (Rs.crore) FY17(A) FY18(A) Total Income 4,660 5,426 PAT 719 974 Interest coverage(times) 1.5 1.6 Total Assets 30,280 39,165 Net NPA (%) # 3.2 1.7 ROTA (%) 2.5 2.8 A-Audited # based on 90+dpd Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Mr P Sudhakar Tel: 044-2850 1003 Mobile: 9442228580 Email: p.sudhakar@careratings.com **For detailed Rationale Report and subscription information, please contact us at www.careratings.com 3 CARE Ratings Limited
About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4 CARE Ratings Limited
Annexure-1: Details of Instruments/Facilities Name of the Instrument Date of Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook Commercial Paper - - 7 days-1 year 7500.00 CARE A1+ Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities Type Current Ratings Amount Outstanding (Rs. crore) Rating 1. Bonds-Perpetual Bonds LT 397.70 CARE assigned in 2018-2019 assigned in 2017-2018 Rating history assigned in 2016-2017 (28-Oct-16) assigned in 2015-2016 2. Debt-Perpetual Debt LT 200.00 CARE 3. Debt-Subordinate Debt LT 100.00 CARE 4. Debt-Perpetual Debt LT 200.00 CARE 5. Debt-Perpetual Debt LT 100.00 CARE 6. Debt-Subordinate Debt LT 250.00 CARE 7. Debt-Perpetual Debt LT 50.00 CARE 8. Debt-Perpetual Debt LT 100.00 CARE 9. Debt-Subordinate Debt LT 115.00 CARE 10. Debt-Perpetual Debt LT 25.00 CARE (28-Oct-16) 1)CARE 1)CARE (28-Oct-16) (28-Oct-16) (28-Oct-16) 1)CARE 1)CARE (28-Oct-16) (28-Oct-16) (28-Oct-16) 1)CARE 1)CARE (28-Oct-16) (28-Oct-16) 5 CARE Ratings Limited
11. Debentures-Non Convertible Debentures LT - - - - 1)Withdrawn (28-Oct-16) 12. Commercial Paper ST 6000.00 CARE A1+ 13. Debt-Subordinate Debt LT 300.00 CARE 14. Debt-Subordinate Debt LT 700.00 CARE 1)CARE A1+ 1)CARE A1+ (05-Dec-17) 2)CARE A1+ 1)CARE 1)CARE (26-Mar-18) 1)CARE 1)CARE (29-Mar-18) - - - - - - 6 CARE Ratings Limited
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