Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Negative/Crisil A1+’ ratings on the bank loan facilities and non convertible debentures (NCD) of Sundaram-Clayton Limited (SCL). Further Crisil Ratings has withdrawn Rs 50 crores of NCD upon repayment, receipt of confirmation from debenture trustee and request from the client. The withdrawal is in line with the Crisil Ratings’ policy on withdrawal of ratings.

 

Earlier on October 9,2024, Crisil Ratings had revised the outlook to ‘Negative’ from ‘Stable’ following moderation in the credit risk profile of SCL owing to higher than expected losses at its wholly owned subsidiary, Sundaram Holdings USA Inc (SHUI) in fiscal 2024, and continuing losses in fiscal 2025, with delay in ramping up operations owing to modest demand for castings in US markets. This, along with high debt levels due to capital expenditure for modernization and setting up new plant at Thervoykandigai (TK), on the outskirts of Chennai, as well as for funding losses and refinancing of debt obligations in fiscal 2025, resulted in continued weak debt metrics. Meanwhile, cognizant of the rising debt levels, SCL’s management raised ~Rs.400 crores of equity via a Qualified Institutional Placement (QIP) in October 2024 which was used to pare down debt. Further, SCL was expected to monetize non-core assets, mainly land at its Padi unit, and use the proceeds to pare down debt to Rs 800-900 crores by end of fiscal 2025. The monetization of land at the erstwhile Padi unit has been delayed and is expected to be completed in calendar year 2025. Ergo, debt levels are expected to be higher than expected at Rs.1400-1500 crores by end fiscal 2025, resulting in continuing modest debt metrics.

 

Completion of the monetization of the land at Padi unit will be critical and any further sizeable delay in the same along with larger than expected losses at SHUI, resulting in debt levels remaining elevated, may result in a downgrade in the ratings.

 

Crisil Ratings estimates that SCL’s consolidated revenues to have registered a growth of 4-6% in fiscal 2025 driven by stable exports, better realisations due to uptick in aluminium prices which are a pass through, steady demand from domestic passenger vehicle (PV) and commercial vehicle (CV) original equipment manufacturers (OEMs). While standalone operating profitability is estimated to remain healthy at 12-14%, the consolidated operating profitability will remain constrained at 4-5% in fiscal 2025 (similar as fiscal 2024) due to continuing large losses at SHUI impacting cash generation as well. SCL ensured the availability of sufficient inventory to service customer obligations during shift to the TK plant, hence the sales were not impacted due to shift to new plant. In March 2025, SCL had divested its high pressure and low pressure aluminium die-casting businesses at its Hosur plant to Sandhar Ascast Pvt Ltd, a wholly owned subsidiary of Sandhar Technologies Limited for a consideration of Rs 163 crores. The castings from the Hosur plant was primarily supplied to two-wheeler original equipment manufacturers (OEMs). The business has been divested in line with the strategy of SCL to focus on high value PV and CV businesses which are at superior margins. Crisil Ratings expect SCL’s revenues to decline next fiscal owing to the divestment of 2W business which contributed around Rs 357 crores of revenues in fiscal 2024. However, steady demand from domestic PV, CV OEMs and exports will support revenues. Crisil Ratings expect the standalone operating profitability to register an improvement to 15-17% owing to enhanced operating efficiencies due to shift to new plant and divestment of low margin 2W business. Healthy orders from a leading OEM in the USA, and ramp up of operations are expected to aid SHUI to breakeven in the second half of fiscal 2026, resulting in lower losses for the full year. Crisil Ratings expect consolidated operating profitability at 9-11% in fiscal 2026. SCL derives ~40-45% of its revenues from exports with a sizeable US exposure and therefore its profitability is exposed to impact of US tariffs. While a sizeable portion of exports to US are basis duty paid by the customers, quantum of pass on to the customers, basis negotiations and its impact on operating profitability will remain a monitorable, and can impact cash generation.

 

SCL incurred around Rs 550-600 crores of capital expenditure (capex) towards the new TK plant which was partly debt funded. Further, debt addition for supporting losses and repayments at SHUI and delay in sale of Padi land and using proceeds to pare debt, has led to elevated debt levels for SCL – Rs.1400-1500 crore at March 31, 2025 (Rs 1417 crores as on March 31, 2024). During fiscal 2025, SCL’s debt had risen to Rs. 1700-1800 crores; however, the company raised Rs 400 crores through a QIP in October 2024 which was used to lower debt, besides improving net worth. Crisil Ratings estimates that the gearing to improve below 1.5 times in fiscal 2025 compared to 2.36 times in fiscal 2024. The ratio of debt to earnings before interest, tax, depreciation and amortization (debt/EBITDA) is estimated to remain high for the second fiscal in a row. The financial profile therefore remains moderate, and sale of land from Padi unit will be critical, for meaningful reduction in debt levels, and improvement in the financial risk profile. SCL also has sizeable repayment obligations in fiscal 2026, which are expected to be partly refinanced. The company has strong relationship with the lending community, and is part of the Venu Srinivasan led TVS group, which enjoys strong financial flexibility.

 

Erstwhile SCL (pre – demerger) held shares in TVS Motor Company Limited (TVSM) and also had aluminium die-casting component (ADCC) operations. SCL executed a composite scheme of arrangement which was approved by National Company Law Tribunal (NCLT) on March 6, 2023. Subsequently, on August 11, 2023, the ADCC business (manufacturing operations) in erstwhile SCL and its subsidiaries, was demerged into a separate entity, Sundaram Clayton DCD Ltd (SCLDCD). SCLDCD was again renamed as SCL in August 2023, and the erstwhile SCL was renamed as TVS Holdings Limited (THL, Crisil AA+/Stable). THL holds 50.26% stake in TVSM, India’s third largest two-wheeler manufacturer, and other group entities. 1 equity share of SCL was issued to the shareholders for every 1 equity share held in THL such that both have mirror shareholdings. The assets and liabilities which was on the books of the combined entity which are related to manufacturing operations was moved to SCL.  SCL was subsequently listed in the stock exchanges in December 2023.

 

The ratings reflect SCL’s diverse customer base across automobile sub-segments and geographies, above average standalone operating efficiency, and adequate financial flexibility. These strengths are partially offset by high revenue dependence on the cyclical commercial vehicle (CV) segment, and on OEMs and exposure to increasing competition, and moderate financial risk profile, resulting from losses at wholly owned subsidiary, Sundaram Holdings USA Inc (SHUI).

Analytical Approach

For arriving at the rating, Crisil Ratings has considered consolidated the credit risk profiles of SCL and SHUI.

 

SCL is also expected to provide managerial, organizational, and financial support to SHUI, which is in similar line of business.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Diverse customer base, spread across automotive sub-segments and geographies: SCL’s die casting business customer base is diverse, spread across sub-segments of the auto sector, such as two-wheelers, passenger cars, and CVs, and across geographies. The company has enhanced its production capacity, including for passenger OEM customers, which has enabled it to increase market share during the recovery in fiscal 2021, and benefits of same is continuing since fiscal 2022. While the two-wheelers business has been divested, the company’s healthy and diverse customer base across domestic PV and CV OEMs will ensure healthy business profile.

 

Healthy share of exports also enhances SCL’s revenue and geographic diversity. While the company’s share of export revenue declined to 35-37% in fiscals 2017 and 2018, from over 40% in fiscal 2016 due to sluggish demand from European customers, better demand from US markets helped exports recover to over 45% of revenues from fiscal 2021 onwards and share of exports is expected to sustain at ~ 40-45% in the near to medium term. With the sizeable share of exports to US, the company’s exports are exposed to risk of imposition of US tariffs. However, the company is unlikely to absorb the full impact of US tariffs and pass on majority of the impact of the tariff increase to customers.

 

Presence across sub-segments and geographies partially offsets the impact of cyclicality inherent in the business. The diverse customer base and increased demand from export as well as domestic customers, and increased contribution from recently expanded capacities should support revenue growth over the medium term. Sizeable ramp of US operations at SHUI, will also provide better geographical diversity to revenues.

 

• Above average standalone operating efficiencies: Operating profitability has been largely stable at 10-13% since fiscal 2014 (except a temporary blip in fiscal 2018), backed by ability to pass on changes in raw material prices onto end customers. Implementation of industry-wide best practices, such as Total Quality Management, enterprise resource planning and other internal automation measures, help products meet the rigorous standards of the top global auto manufacturers. Despite limited technological collaboration, SCL has maintained steady business with most customers, on the back of its adequate operating capabilities.

 

During fiscal 2020, SCL has implemented proactive cost optimization measures in low cost automations, employee consolidation, recycling of materials etc. which has facilitated better cost management during the downturn and weather the impact of pandemic related disruptions. Benefit of these has helped SCL maintain standalone operating margins at 12-14% between fiscal 2021-25. Supported by better operating efficiencies with shift to new plant at TK, which is highly automated, and divestment of low margin two-wheeler business, the standalone operating profitability is expected to improve to ~15-17% over the medium term.

 

However, the consolidated operating profitability will be constrained owing to the losses in SHUI. Crisil Ratings expects the consolidated operating profitability will remain at 4-5% in fiscal 2025 due to continuing losses in SHUI and is expected to recover in fiscal 2026 to 9-10% with SHUI breaking even at operating level in the second half of fiscal 2026. Consolidated operating margins should further improve to over 10%, when SHUI posts operating profits for the full year.

 

• Healthy financial flexibility: With the demerger, the stake in TVSM, which was earlier with SCL, has been retained in the holding company, THL. Nonetheless, due to common promoters and holding structures, Crisil Ratings expects both companies to benefit from the holding in TVSM.  Crisil Ratings believes THL is unlikely to dilute its stake materially in TVSM below 50% in the medium term. Any significant dilution in stake in TVSM or material decline in market value of holding, will remain a rating monitorable.  SCL also has a strong relationship with the lending community, and in the past as well, has successfully refinanced its obligations at attractive rates, including during the pandemic, when operating performance had been severely impacted.

 

Weaknesses:

• Significant exposure to cyclical CV segment: The die-casting business has high exposure to the CV segment given that it almost derives its entire export revenues from the CV segment, although the domestic customer base is spread across automotive industry sub-segments. Any cut in production schedules by key CV customers could result in a decline in capacity utilisation, and return on capital employed (RoCE), especially with specific lines being devoted to key customers.

 

While higher capacity, the die-casting business will be able to manage sudden surge in offtake by customers over the medium term. That said, it remains vulnerable to cyclical offtake mainly by the CV segment, which could affect both revenue and profitability.

 

• Susceptibility to pricing pressure from OEMs: The die-casting business is highly dependent on offtake by Tier-I auto component suppliers as well as OEMs, in both the domestic and export markets. High exposure to OEMs exposes the company to significant pricing pressure. While SCL is able to pass on key raw materials costs to its customers, it has limited flexibility in passing on increase in conversion costs like power costs, employee costs etc., although the continuous cost control measures and process improvements over the years have partly mitigated the impact.

 

• Moderation in financial risk profile due to higher than anticipated losses at SHUI: SHUI initially was set-up as subsidiary of SACL, a wholly owned subsidiary of TVSM with SACL holding 56% and SCL holding 44%. SHUI is primarily involved in die casting business in Delaware, USA, and began operations from fiscal 2021. Over the years, SCL increased its stake to 49%, and then also bought out 51% stake in SHUI from SACL, following which SHUI became the wholly owned subsidiary of SCL from September 2022.

 

SHUI has been making operational losses for the past 3-4 fiscals. The ramp up was delayed due to pandemic and subsequent moderation in demand from OEMs. While the losses were expected to decline materially in fiscal 2024 and the company was expected to turnaround, continuing sluggish demand in US market, has resulted in high operational losses of Rs 173 crores in fiscal 2024, and sizeable losses have continued in fiscal 2025 as well. Sizeable ramp up in operations and breakeven at operational level is expected in fiscal 2026, linked to strong orders from leading US based OEMs, mainly in the trucking business. This though will remain a monitorable.

Liquidity: Strong

SCL’s standalone liquidity is moderate, and largely supported by financial flexibility of the promoters. Even though the flexibility due to stake held in TVSM is not available directly post demerger, the flexibility comes from the promoter level who retains the ability to support SCL, if required. THL’s stake in TVSM is valued at around Rs 60,000 crores as on April 14, 2025 which provides adequate flexibility. SCL is not expected to generate meaningful accruals in fiscal 2026, as well, necessitating refinancing of debt obligations of Rs.300-310 crores. However, sale proceeds of Padi unit, when generated, will help pare down debt levels, as well as help reduce reliance on refinancing.  Adequate headroom in bank lines (Rs.805 crores of sanctioned limits including unsecured limits), also supports SCL’s liquidity. SCL also enjoys healthy relationship with lenders, and has demonstrated its able to raise funds at attractive coupon rates. 

Outlook: Negative

Crisil Ratings expects SCL’s operational performance will gradually improve over the near term, but remain constrained by continuing operational losses at SHUI, which is expected to break-even largely in fiscal 2027. Financial risk profile will also remain moderate due to elevated debt levels, until surplus land is monetized and proceeds used to pare down debt.

Rating sensitivity factors

Upward factors:

• Steady revenue growth on y-o-y basis driven by increased market share in both domestic and overseas markets and turnaround of SHUI, along with adequate operating profitability of 12-13%, leading to healthy cash generation.
• Improvement in financial risk profile and correction in debt metrics to adequate levels (Gross debt/EBITDA below 2.5-2.75 times), supported by monetization of assets and or significant further equity raise,

 

Downward factors:

• Sharp decline in revenues, owing to slowdown in demand from domestic and export markets, or due to delay in ramp up of operations at SHUI leading to operating margins sustaining below 8%
• Large debt funded capex or acquisition or significant stretch in working capital levels further denting key debt metrics
• Change in stance of support (if required), post movement of stake in TVSM to THL.

About the Company

SCL was incorporated in Chennai in 1962. The company is a leading manufacturer of aluminium die-casting components. It supplies to major automotive OEMs including TVSM, the Cummins group, the Volvo group, Hyundai Motor India Ltd (rated ‘Crisil AAA/Stable/Crisil A1+’), Ford Motors, the Daimler group, and to component suppliers such as Wabco India Ltd and the Visteon group. SCL was set up by the TVS group and the UK-based Clayton Dewandre Holdings Ltd. 

 

The company has its main die-casting component production facilities at TK, Mahindra City, and Oragadam in Chennai, and Belagondapalli at Hosur, in Tamil Nadu. Plant operations at the erstwhile Padi unit in Chennai were stopped in fiscal 2025 and moved to a highly automated facility at TK.

 

In August 2023, the aluminium diecasting business of erstwhile SCL was demerged into a separate entity, Sundaram- Clayton DCD Limited (SCL DCD) which was further renamed as SCL and erstwhile SCL was renamed as TVS Holdings Limited (THL). THL retained the investments in TVSM (earlier with SCL) and another promoter entity, Emerald Haven Realty Limited (EHRL). The demerger was done through an elaborate scheme of arrangement.

Key Financial Indicators (Consolidated)*

As on / for the period ended March 31	Unit	2024	2023
Revenue from operations**	Rs Crore	2209	2053
Profit after tax (PAT)	Rs Crore	-169	-108
EBITDA margin	%	4.5	6.1
PAT margins	%	-7.7	-5.3
Adjusted debt/adjusted net worth	Times	2.36	1.40
Interest coverage	Times	1.20	2.24

* The above financials are based on proforma condensed combined financial statement published by the company in which SHUI has been  consolidated with SCL completely in fiscal 2023 and fiscal 2024

** Rs 23.98 crores of miscellaneous income is considered in revenue from operations  in fiscal 2024

Any other information: Not Applicable