Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Stable/Crisil A1+’ ratings on the bank loan facilities and commercial paper programme of Fiat India Automobiles Pvt Ltd (FIAPL).

 

The ratings continue to reflect the inherent strength of the company’s business model owing to cost plus arrangements entered with original equipment manufacturers (OEMs), insulating the company from fluctuations in input cost, and limiting the downside risks because of take-or-pay agreements. This has resulted in stable and healthy cash accruals enabling FIAPL to maintain a moderate financial risk profile backed by comfortable capital structure and strong debt protection metrics. The ratings also continue to reflect the strong operational support received from the joint venture (JV) partners. These strengths are partially offset by revenue prospects being highly dependent on the performance of key models, and modest market position of OEM partners in the domestic passenger vehicle (PV) segment.

 

In the fiscal 2025, the company’s Tata Nexon sales volumes declined by around 62% to 63,585 units (166,992 units during the same period last fiscal) owing to partial shifting of production to Tata Motors Passenger Vehicles Ltd (TMPVL). The company added Tata Curvv (sports utility vehicle-SUV) and Tata Altroz (hatchback) to its assembly lines, however the same could not compensate the decline in volumes of Nexon leading to overall fall in volumes in the car division by 31%. Powertrain volumes too witnessed a 12% drop on a y-o-y basis owing to lower offtake from TMPVL with decline in its volume. Thus, overall revenue for FIAPL is estimated to drop by ~25% on-year in fiscal 2025. However, going ahead the company is expected to add newer model launches of TML and Stellantis N.A. Ramp up in volumes of Tata Curvv, which fetches higher realisations, will further aid revenue growth. Thus, revenue is projected to expand by 4-7% over the medium term.

 

The operating profitability levels for fiscal 2025 is estimated to decline with a drop in volumes and with lower income from subsidy. Operating margin though is expected to sustain at 5.0-5.5%. Nevertheless, the downside risks to operating profitability are limited due to cost neutral policy and take-or-pay arrangement with principal OEMs, insulating FIAPL against commodity price inflation and volume fluctuations. Going ahead, earnings before interest, tax, depreciation and amortisation (EBITDA) levels are expected to improve gradually and be at Rs 850-1000 crore.

 

The financial risk profile remains strong, backed by robust capital structure and debt protection metrics. The company has nil debt outstanding as on March 31, 2025, and total outside liabilities to adjusted networth (TOL/ANW) ratio is expected to stand comfortable at 0.3 time on the same date. In the absence of any debt funded capex or incremental borrowing plans in the near-to-medium term, financial risk profile will continue to be healthy.

 

The company is expected to incur yearly capex of Rs 200-400 crore, which will be met through internal accruals with minimal reliance on external funding. Key debt protection metrics, such as interest coverage ratio is expected to remain healthy at above 60 times over the medium term on account of no long term or short-term borrowings but relatively lower lease liability. While the company has sizeable quantum of funds being blocked in subsidy receivables of over Rs 2,600 crore, liquidity remains healthy with nil utilisation of fund based working capital limits and unencumbered cash and liquid investment of over Rs 350 crore as on March 31, 2025.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of FIAPL as the company does not have any subsidiaries.

Key Rating Drivers & Detailed Description

Strengths:

• Strong operational support from the JV partners to ensure protection of revenue: FIAPL is the sole manufacturer and assembler of Tata Curvv model variant and Fiat branded Jeep cars in India. Further, FIAPL also manufactures and assembles Tata Nexon and Altroz. Going ahead the company is expected to add newer models, which would be launched by the JV partners. Over the medium-term due to new model launches and growing competition in the utility vehicle segment, the addition of new car models from the JV partners ensuring higher plant capacity utilisation shall result in revenue protection and lower reliance on the take-or-pay arrangement.

 

Higher growth in the production and sales volume of powertrain is expected on account of the higher demand for Tata Punch, Nexon and other models wherein 1.2L petrol is utilised. Further, company has also tested newer engine variants which can be manufactured for other cars of TMPVL adding to overall volumes. Current capacity utilisation is around ~85%. To match the expected growth in volumes, capital expenditure (capex) is expected to be incurred to increase the overall capacity in the power train division in the upcoming years.

 

• Cost neutral model and take-or-pay arrangement offsets profitability risks: The company’s downside risk in profitability is limited on account of cost neutral policy and take-or-pay arrangement with TMPVL and Fiat Group Automobiles S.p.A. As a result, irrespective of commodity inflation and volume fluctuations, the company is ensured a minimum profitability to cover fixed overheads and operational expenses.

 

While the company’s profitability is safeguarded against downside risk, the growth in profitability is dependent on higher receipts under the Industrial Promotion Scheme (IPS scheme applicable till 20243) of the Government of Maharashtra. Under this scheme, the company receives refund of state goods and services tax (SGST) portion for all vehicles manufactured and sold in Maharashtra. Hence, with higher vehicle sales, operating profitability improves on account of greater accruals under the IPS scheme. Accruals under IPS (net of unwinding) increased from Rs 166 crore in fiscal 2019 to over Rs 500 crore estimated for fiscal 2025, on the back of strong growth in sales volumes of Tata Nexon and newer Tata models such as Curvv and Altroz. As a result, operating profitability is estimated to remain at Rs 800 -1000 crore in the medium term.

 

• Healthy financial risk profile: FIAPL has been deleveraging its balance sheet through debt servicing. Healthy net cash accrual followed by effective working capital management on the back of low net working capital cycle offsetting the impact of build-up of IPS receivables has not only resulted in sufficient coverage of capex investments and debt re-payment obligations but also the pre-payment of rupee term loan in fiscal 2023. The company became debt free on March 31, 2025. As a result, capital structure marked by total outside liabilities to adjusted networth (TOL/ANW) ratio improved from 0.86 time as on March 31, 2022, to ~0.30 time as on March 31, 2025, and is expected to remain stable at 0.30 time over the medium term on the back of limited dependence on external borrowings and stable working capital cycle. Key debt protections such as interest coverage ratio is expected to remain above 62 times over the medium term, thereby providing more than sufficient buffer to cash flows. In addition, the financial risk profile is further strengthened due to strong cash reserves, which is expected to be in excess of Rs. 350 crore as on March 31, 2025 (Rs 587 crore as on December 31, 2024).

 

Weaknesses:

• Modest market position of key customers: FIAPL’s principal customer, TMPVL’s market share in the domestic passenger vehicle segment is moderate at ~13.2% as on March 31, 2025, a moderate decline from 13.82% as on March 31, 2024. The market share of Fiat branded Jeep cars is modest at ~0.1% as on March 31, 2025, and in absolute terms, domestic sales volumes declined more than 28% during fiscal 2025 owing to the discontinuance of petrol variants due to certain non-compliance issues related to BS-VI emission norms. That said, given most of the revenue is driven from TMPVL, the overall dependance on the take-or-pay arrangement has been negligible during fiscal 2025.

 

• Revenue prospects highly dependent on the performance of key models catered to by FIAPL: The car assembly division generates more than 70% of FIAPL’s total revenue. Out of the total volume sales from the car division, ~52% pertain to the assembly of Tata Nexon car model variants and 29% to Tata Curvv, and in addition, within the Powertrain division, TMPVL accounts for ~99% of the segment’s volume. Hence, the revenue prospects are dependent on the performance of key models catered to by FIAPL. Non-performance due to varied reasons such as discontinuation, loss of market share, risk of volume off-take, among others, can have a bearing on FIAPL’s revenue structure, resulting in higher dependence on JV partners for take-or-pay payments.

Liquidity: Strong

Post the re-payment of long-term debt obligations, the company’s balance sheet is virtually debt free. Expected net cash accrual of around Rs. 875 crore per annum and expected cash surplus in excess of Rs 350 crore as on March 31, 2025 (Rs. 298 crore as on March 31, 2024) will sufficiently cover yearly capex requirements of Rs 200-400 crore and working capital requirement with minimal dependence on external borrowings. Besides, the company has access to fund-based limits of Rs 610 crore, which were utilised ~8% on average over the 12 months through February 2025.

Outlook: Stable

The business risk profile of FIAPL will continue to benefit from the established market position of TMPVL in the passenger vehicle industry. The business risk profile is further supported by limited profitability downside risk on the back of cost neutral model and take-or-pay arrangement. The financial risk profile shall also remain comfortable, driven by strong networth, net debt free balance sheet, and robust debt protection metrics.

Rating sensitivity factors

Upward factors:

• New car model additions to the product mix from principal OEMs resulting in diversified product mix.
• Increase in principal OEMs resulting in diversified revenue stream and reducing dependence on current JV partners.
• Steady growth in scale of operations with return on capital employed above 15% on a sustained basis.

 

Downward factors:

• Significant decline in demand from the principal customers, leading to higher dependence on take-or-pay agreement for managing operations.
• Delay in realisations of take-or-pay receivables, adverse changes in sales agreement with principal customers or substantial build-up in IPS receivables leading to weakening of the liquidity position.
• Weakening of the financial risk profile because of large, debt-funded capex or stretched working capital cycle leading to TOL/ANW ratio above 1.2 times on a sustained basis.
• Material changes in the credit profile of JV partners.

About the Company

FIAPL is a 50:50 JV between Fiat Group Automobiles S.p.A (subsidiary of Fiat Chrysler Automobiles N.V. which along with Peugeot S.A. merged to form Stellantis N.V., rated 'BBB/Stable/A-2' by S&P Global Ratings) and Tata Motors Ltd (TML, rated ‘Crisil AA+/Stable/ Crisil A1+’). The JV was constituted on December 28, 2007, for:

 

a)      Producing Fiat-branded cars to be sold in the Indian markets and for exports

b)      Producing powertrains (transmissions and engines) for Tata, FCA (Stellantis), and other potential third parties

c)       Assembly of Tata branded cars

 

Both JV partners have equal voting rights and together currently have 7 members on the board (TML has 4 directors and FCA (Stellantis) has currently 3 directors). The board is in the process of appointing the 4th director for FCA.

 

The plant has two divisions—for cars and powertrains, with annual production capacities of 200,000 cars and 400,000 powertrains (300,000 for 1.2-litre petrol engines and 100,000 2-litre diesel engines). The company has entered a take-or-pay agreement with both JV partners who are also its key customers. The take or pay agreement was further revised in fiscal 2013 through restructuring framework agreement wherein certain accounting changes were done and margins were set for the company.

 

During fiscal 2021, the company completed the last phase of capex to be done for conversion of 1.3 litre diesel engine powertrain capacity (which was earlier being used by Maruti) to 1.2 litre petrol engine. The current capacity of 1.2 litre engine is 3 lakh.

Key Financial Indicators - Crisil Ratings adjusted numbers

Particulars	Unit	2024*	2023
Revenue	Rs crore	20,608	21,434
Profit after tax (PAT)	Rs crore	500	759
PAT margin	%	2.4	3.54
Adjusted debt / Adjusted networth	Times	0.01	0.09
Interest cover	Times	37.79	22.24

* Year 2024 connotes FY 2023-24 Numbers.

Any other information: Not applicable