August 18, 2015
Mumbai
Tube Investments of India Limited
 
Ratings Reaffirmed
 
Total Bank Loan Facilities Rated Rs.7000 Million
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
(Refer to Annexure 1 for Facility-wise details)
 
Rs.1250 Million Non-Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.1000 Million Non-Convertible Debentures CRISIL AA/Stable (Withdrawn)
Rs.1500 Million Non-Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.1000 Million Non-Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.2000 Million Non-Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.1500 Million Non-Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.3500 Million Non-Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.3500 Million Short-Term Debt CRISIL A1+(Reaffirmed)

CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' rating on the non-convertible debentures (NCDs) and bank loan facilities of Tube Investments of India Ltd (TI), while  withdrawing its rating on NCDs aggregating Rs.1 billion as these have been fully redeemed.
 
The ratings continue to reflect TI's healthy business risk profile, marked by diversified revenue streams and a leading market position in most of its businesses. The ratings also factor in the company's adequate financial risk profile, and its healthy financial flexibility derived from being one of the leading companies of the Murugappa group. These rating strengths are partially offset by the vulnerability of TI's operating profitability to intense competition and to cyclicality in the automobile sector. Furthermore, a large portion of the company's capital has been deployed in investments that provide modest returns.
 
TI has a strong presence in the bicycle manufacturing (33 per cent of standalone revenue in 2014-15 [refers to financial year, April 1 to March 31]), engineering (44 per cent), and metal forming (23 per cent) businesses. The company is among the top-three players in these segments. Acquisition of 70.12 per cent in Shanthi Gears Ltd (SGL) in 2012-13 also helped diversify TI's revenue further besides providing it with a leadership position in the special gears and gearboxes segment. Its revenue registered a moderate year-on-year growth of 7 per cent in 2014-15 after two years of slowdown due to better demand from the automobile sector. The gradual ramp-up of capacity utilisation at its large-diameter tube plant, which was commissioned in October 2014, and continued modest improvement in demand from the automobile sector, is expected to support TI's revenue growth over the medium term.
 
TI's financial risk profile is marked by a strong net worth (Rs.13.4 billion as on March 31, 2015), which has helped cushion the impact of higher debt levels on its capital structure. The acquisition of the stake in SGL for Rs.4.6 billion was the trigger for the increase in gearing to 1.1 times since March 31, 2013, from earlier adequate levels. While TI's gearing has remained at about 1 time over the past three years, CRISIL understands that the management is pursuing deleveraging plans, including raising funds through proceeds from sale of non-core assets, which can significantly correct the gearing to historic levels. CRISIL will continue to monitor developments in this regard. Despite its moderately leveraged balance sheet, TI continues to benefit from the Murugappa group's strong relationships with the lending community, which facilitates raising of debt at competitive rates.
 
TI's operating profitability, which was 8 to 10 per cent between 2009-10 and 2014-15, remains vulnerable to increasing competition, cyclical automobile demand, rising power costs, and only moderate ability to pass on increases in cost of raw materials to its automobile original equipment customers. Also, SGL's operating profitability has witnessed some moderation, as recent orders have not been as profitable as earlier ones, including due to intense competition and weak economic conditions. CRISIL expects TI's operating profitability will remain range bound over the medium term.
 
Over 50 per cent of TI's capital employed comprises investments in financial subsidiaries, Cholamandalam Investment and Finance Company Ltd (CIFCO; 'CRISIL AA/Stable/CRISIL A1+'; Rs.6.5 billion as on March 31, 2015), a non-banking financial company (NBFC), and in Cholamandalam MS General Insurance Company Ltd (Chola MS; about Rs.3.3 billion). TI's exposure to CIFCO and Chola MS increased to about Rs.9.7 billion as on March 31, 2015 from Rs.1.2 billion as on March 31, 2008, and was partly funded by debt. Modest returns from these investments along with higher debt have led to moderation in TI's debt protection metrics; its interest coverage ratio for 2014-15 has declined to below 3 times from over 9 times in 2007-08. While only nominal returns are expected from the financial investments over the medium term, improvement in SGL's operations and TI's profitability, as well as reduction in debt and continued prudent capital expenditure (capex), will remain critical for improvement in the company's key credit metrics.

Outlook: Stable

CRISIL believes that TI's overall credit profile will continue to benefit from its well-diversified revenue profile, and the intent of its management to maintain a prudent financial policy, including through deleveraging the company's balance sheet. The outlook may be revised to 'Positive' if TI substantially scales up operations at its gears and large diameter tubes facilities, while successfully implementing the deleveraging plans, leading to significant improvement in its gearing and debt protection metrics. Conversely, the outlook may be revised to 'Negative' in case of lower than expected cash flows from operations or slower than expected progress in correction of its gearing and debt protection metrics.

About the Company

TI, a part of the Rs.269-billion Murugappa group, has interests in bicycle manufacturing, engineering, and metal-forming businesses. The company has four subsidiaries: it owns 100 per cent of the France-based Sedis group, which is in the chain business; 70.12 per cent of SGL, which manufactures specialised gears and gear boxes; 74 per cent of Chola MS, which provides general insurance services; and 50.5 per cent of CIFCO.
 
For 2014-15, TI, on a standalone basis, reported a net profit of Rs.1208.6 million on net sales of Rs.36.4 billion, against a net profit of Rs.940.7 million on net sales of Rs.33.5 billion for 2013-14. For the three months ended June 30, 2015, the company, on a standalone basis, reported a net profit of Rs.179.2 million (Rs.189.8 million for the corresponding period of 2014-15) on net sales of Rs.9.7 billion (Rs.9.3 billion).
 
For 2014-15, SGL reported a net profit of Rs.93.2 million on net sales of Rs.1.52 billion, against a net profit of Rs.183.8 million on net sales of Rs.1.51 billion for 2013-14. For the three months ended June 30, 2015, the company reported a net profit of Rs.18.9 million (Rs.18.5 million for the corresponding period of 2014-15) on net sales of Rs.371.6 million (Rs.342.1 million).


Annexure 1 - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating
Cash Credit* 4000 CRISIL AA/Stable Cash Credit* 4000 CRISIL AA/Stable
Letter of Credit** 3000 CRISIL A1+ Letter of Credit** 3000 CRISIL A1+
Total 7000 -- Total 7000 --
* Interchangeable with short-term buyer's credit, packing credit, and working capital demand loan 
** Interchangeable with bank guarantee
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August 18, 2015

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