ICRA has upgraded the long-term rating outstanding to the Rs 14 billion subordinate debt programme and Rs 207.05 billion long term bank facilities of Tata Motors Finance (TMFL) from 'AA-' to 'AA'. The outlook on the long-term rating has been revised to 'Stable' from 'Positive'.

ICRA has an outstanding rating of 'A+' with Stable outlook to the Rs 4.15 billion perpetual debt programme and a rating outstanding of 'A1+' to the Rs 55.23 billion short term bank facilities and Rs 40 billion commercial paper/short term debt programme of the company. 

The revision in long term ratings follows a similar action on the ratings of TMFL's parent, Tata Motors (TML) (long term ratings upgraded from AA-/Positive to AA/Stable). ICRA's ratings continue to be based on the strengths TMFL derives from being a wholly owned subsidiary of TML and TMFL's strategic importance to its parent as a captive financier of TML vehicles (TMFL financed 30% of TML volumes in 2013-14, against 33.1% and 27.1% in FY 2013 and FY 2012 respectively).

Given this important role, TML supports TMFL by way of regular equity infusions, management & systems support and also by extending loss covers on a large proportion (57% of total portfolio in Jan-14) of its portfolio. The rating is underpinned by the expectation that TML would continue to support TMFL, and the capacity of TML to extend support given that TMFL's net worth is small in relation to that of its parents consolidated net worth In FY 2014 TML infused Rs 3 billion (Rs 1.50 billion in FY 2013) of equity into TMFL, and tier 1 capital % of the company as on Dec. 31, 2013 was 13.9%. TMFL also benefits from the strong financial flexibility and access to long term funding at competitive rates being part of the Tata group.

These strengths however are mitigated by TMFL's concentration entirely on TML vehicles, and high level of delinquencies associated with TMFL being a captive financier of TML. ICRA has noted the sharp increase in delinquency level of TMFL with the Gross NPA increasing to 11.76% in Dec-13 against 4.66% in Mar-13. At the same time a large proportion of TMFL's portfolio is covered by risk share arrangements with TML (57% in Jan-14) and Dealers (14% in Jan-14), which could partly protect TMFL's earning and solvency profile from the rising delinquency level on its portfolio. 

Shares of the company declined Rs 0.45, or 0.11%, to settle at Rs 414.25. The total volume of shares traded was 238,767 at the BSE (Monday).