Tata Motors Finance (TMFL), a vehicle loan provider arm of Tata Motors, is looking to raise fresh funds worth Rs 1,000 crore through perpetual debt programme to boost capital adequacy. The global rating agency ICRA has assigned “A+” for the proposed perpetual debt with negative outlook.
ICRA’s rating for TMFL is “strongly linked to the credit profile of its ultimate parent Tata Motors Limited (TML)”, which, in the past, has included access to capital, management and systems and supervision by a strong board.
“The ratings are, however, constrained by TMFL’s concentration on TML’s vehicles, and its moderate delinquency level primarily on account of being a captive financier of TML,” the agency said in its report.
The agency, however, said that outlook may be revised to ‘stable’ if there is any change in TML’s credit profile. It also added that the ability to grow the loan book while maintaining the asset quality and solvency indicators will remain a key rating sensitivity.
Given the strategic importance of TMFL to TML, ICRA expects capital support from the ultimate parent to be forthcoming to keep TMFL adequately capitalised.
During FY2019, TMFL reported a net profit of Rs 204 crore on a total income of Rs 3,249 crore as compared with net profit of Rs. 272 crore on a total income of Rs.2,444 crore during FY2018. The Return on average assets (RoA) and Return on Equity (RoE) stood at 0.73 per cent and 8.28 per cent respectively during FY2019 as per Ind-AS (1.52% and 9.64% respectively during FY2018 as per iGAAP).
According to ICRA, with the expansion of loan book and controlled credit costs and operating expenses, the profitability is expected to improve for TMFL over the medium term. “Going forward, TMFL’s ability to profitably grow the business volumes while improving asset quality would have a bearing on the overall profitability and would thus remain a key sensitivity,” it added.