T V Sundram Iyengar and Sons Private Limited

February 16, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* 1 Rating Action
(Rs. crore) (Rs. crore)
[ICRA]AA(Stable);
Fund-based: Term Loan 53.13 0.00
withdrawn
[ICRA]AA (stable) /
Fund-based: Working Capital Facilities 500.00 500.00
[ICRA]A1+; reaffirmed
Non-fund Based: Working Capital Facilities 90.00 90.00 [ICRA]A1+; reaffirmed
Commercial Paper 640.0 640.0 [ICRA]A1+; reaffirmed
Commercial Paper / Short term debt 160.0 160.0 [ICRA]A1+; reaffirmed
Total 1,443.13 1,390.00
*Instrument details are provided in Annexure-1

Rating action
ICRA has reaffirmed the long-term and short-term ratings of [ICRA]AA (pronounced ICRA double A) and [ICRA]A1+
2
(pronounced ICRA A one plus) outstanding on the Rs. 500.00 crore fund based bank lines of T V Sundram Iyengar and
Sons Private Limited (TVS Sons or the company). The rating of [ICRA]AA (or) [ICRA]A1+ shall apply depending on usage /
tenor of the fund-based lines. The outlook on long-term rating is Stable. ICRA has also reaffirmed the short-term rating of
[ICRA]A1+ outstanding on the Rs. 640.00 crore commercial paper programme, Rs. 160.00 crore commercial paper /
short-term debt and the Rs. 90.00 crore non-fund based bank lines of the company. The rating of [ICRA]AA outstanding
on the Rs. 53.13 crore term loans has been withdrawn, as the same has been fully repaid.

Rationale
The ratings continue to take comfort from the financial flexibility enjoyed by TVS Sons from its strong investment
portfolio, and healthy market value of investments in comparison to its intrinsic value as measured by the book value.
The ratings also favourably consider the company’s strong market position in the dealership of vehicles and spare parts,
wide distribution network, and real estate holdings with flexibility to either liquidate or utilise its land holdings in prime
locations to expand the dealership business.

The ratings also consider the exposure of TVS Sons’ earnings to the inherent cyclicality in the automotive sector, pressure
on operating margins due to the competitive environment and moderate debt coverage indicators. Growth in vehicle
distribution business was affected in FY2017 and H1 FY2018 due to sluggish freight demand in southern India impacting
medium and heavy commercial vehicles (M&HCVs) sales, minimal new product launches in the passenger vehicle (PV)
segment, and demand impact ahead of / and post the roll-out of the Goods and Services Tax (GST). However, with
favourable demand outlook, revenues and profits are expected to improve in H2 FY2018 and FY2019.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

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Outlook: Stable
ICRA expects TVS Sons’ credit profile to remain supported by its strong investment portfolio, strong operational profile
and sound financials of its key investee companies. The outlook may be revised to Positive with substantial growth in
cash generation and debt reduction, thus strengthening the financial risk profile. The outlook may be revised to Negative
with any larger financial support to investee entities or sharp fall in cash accruals leading to weakening of credit profile.

Key rating drivers

Credit strengths
Significant market value buffer on investments and land bank - TVS Sons holds investments in various entities of the
TVS Group. The market value of quoted investments stood at Rs. 6,262 crore (as on February 8, 2018) vis-à-vis the
outstanding working capital debt (Rs. 1,040 crore as of September 2017). Further, its investments in some of the unlisted
entities potentially have higher market value. That said, these investments are strategic in nature and are unlikely to be
liquidated in the near term. Moreover, it holds large land banks in prime locations across southern India, providing
additional comfort and financial flexibility to the lenders.

One of the largest automobile dealers in India - TVS Sons is one of the largest dealers for commercial vehicles (CVs) and
PVs in the country. In the CV space, TVS Sons acts as a key dealer for Ashok Leyland Limited (ALL) and Mahindra &
Mahindra (M&M), and also deals in the PV segment covering Honda, Renault, Volkswagen and Mercedes-Benz vehicles.
It derives a major portion of its revenues from the vehicle dealership business (~75%) and the rest from the distribution
of spare parts, sale of petroleum products and workshop activities. TVS Sons’ dealer network is spread across southern
India, apart from covering pockets in other parts of India.

Stable market share with key OEMs in the region it operates in - In the CV segment, TVS Sons acts as the single largest
dealer for ALL in India with ~23% pan India market share and ~50% regional market share. ALL has added ~40% of TVS
Sons’ revenues in FY2018. In the PV space, TVS Sons continues to hold its dominant market position with all its OEMs in
the region it operates in.

Stable income from the margin-accretive ancillary business – While margins in auto dealership business are inherently
thin, TVS Sons also derives a stable share of income (~20%) from the margin-accretive spare parts distribution and
servicing business. In southern India, TVS Sons is one of the largest players in the parts distribution business, which is
highly fragmented with intense competition from unorganised players. However, a shift has been observed in the last
few years towards the organised segment with increased proliferation of authorised service centres, enhanced
awareness among consumers with strong distribution network built by organised players, currency demonetisation and
rollout of GST. This should auger well for the company leading to stable growth from the margin-accretive ancillary
business.

Credit challenges
Earnings exposed to cyclicality in the automotive industry – Due to high exposure to the automotive industry, TVS Sons’
revenues and earnings are dependent on the domestic auto-industry cycles. Sluggish freight demand in southern India
impacting CV sales, minimal new product launches in the PV segment, and demand impact ahead of / and post the roll-
out of GST had some impact on the company’s vehicle sales and earnings during FY2017 and H1 FY2018. In addition,
majority of its investments are in entities involved in automotive businesses, and with margins in the dealership business
being low, TVS Sons’ overall profitability remains susceptible to the cyclicality in the auto industry.

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Moderate debt coverage indicators - TVS Sons’ debt protection metrics remain moderate with a net gearing of 1.7x and
net debt to OPBDITA of 5.5x as on March 31, 2017. As the dealership business is working capital intensive, the debt levels
remains at elevated levels. However, its liquidity profile remains healthy with adequate cash balances and average
working capital utilisation at 52% on sanctioned lines in the last one year. TVS Sons predominantly uses commercial
paper for its funding requirements, resulting in savings on interest costs.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology

Rating Methodology for Automobile Dealerships

About the company:

Established in 1911, T V Sundram Iyengar & Sons Private Limited (TVS Sons) is the holding company of a large number of
entities in the TVS Group. TVS Sons is one of the largest dealers for medium and heavy commercial vehicles (M&HCVs)
and passenger vehicles (PVs) in India, while acting as a key distributor of automotive spare parts and components as well.
The TVS Group is a diversified business conglomerate in southern India with interests in the automotive, auto ancillary
and financial services industries. TVS Sons continues to be closely held and managed by the family of Late TV Sundram
Iyengar.

Key financial indicators (audited)

Standalone FY2016 FY2017
Operating Income (Rs. crore) 8,287.7 8,156.3
PAT (Rs. crore) 219.5 136.9
OPBDIT/ OI (%) 3.5% 2.1%
RoCE (%) 20.8% 13.5%

Total Debt/ TNW (times) 2.4 2.0

Total Debt/ OPBDIT (times) 4.2 6.3
Interest coverage (times) 2.8 1.9
NWC/ OI (%) 12.7% 9.5%

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:
Current Rating (FY2018) Chronology of Rating History for the past 3 years
Date & Date &
Amount Amount rating in Date & Rating in FY2016 Rating in
Instrument
Type Rated Outstanding Feb 2018 FY2017 FY2015
(Rs. crore) (Rs. crore)
Jan 2017 Jan 2016 Dec 2015 Apr 2015 Apr 2014
[ICRA]AA
Long 0.0 (reduced [ICRA]AA [ICRA]AA [ICRA]AA
1 Term loans - (stable) / - -
term from 53.13) (Stable) (Stable) (Stable)
withdrawn
Long / [ICRA]AA [ICRA]AA [ICRA]AA [ICRA]AA
2 Fund based Short 500.00 - (Stable) / (Stable) / - (Stable) / (Stable) / -
term [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
Non-Fund Short
3 90.00 - [ICRA]A1+ [ICRA]A1+ - [ICRA]A1+ [ICRA]A1+ -
based term
Commercial Short
4 640.00 - [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
paper term
Commercial
paper / Short
5 160.0 - [ICRA]A1+ [ICRA]A1+ - - - -
short term term
debt
MAA+
Fixed Medium
6 - - - - - - (stable) / -
deposits term
withdrawn

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Date of
Issuance / Coupon Amount rated Current Rating and
ISIN No Instrument Name Sanction Rate Maturity Date (Rs. crore) Outlook
NA Commercial Paper NA NA 7-365 days 640.0 [ICRA]A1+
NA Commercial Paper / STD NA NA 7-365 days 160.0 [ICRA]A1+
[ICRA]AA (stable) /
NA Fund based NA NA NA 500.0
[ICRA]A1+
NA Non Fund based NA NA NA 90.0 [ICRA]A1+
Source: TVS Sons

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ANALYST CONTACTS
Subrata Ray Pavethra Ponniah
+91 22 6114 3408 +91 44 4596 4314
subrata@icraindia.com pavethrap@icraindia.com

Srikumar K
+91 44 4596 4318
ksrikumar@icraindia.com

RELATIONSHIP CONTACT
L Shivakumar
+91 22 2433 1084
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
naznin.prodhani@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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