| TAFE Access Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of TAFE Access Limited (TAL) to ‘Positive’ from ‘Stable’ and reaffirmed its ratings at ‘CRISIL A+’. The short-term rating has been reaffirmed at ‘CRISIL A1+’.
The revision in outlook for TAL is linked to the rating action on TAL’s parent, Tractors and Farm Equipment (TAFE). CRISIL Ratings has revised the rating outlook on the long term debt facilities of TAFE to ‘Positive’ from ‘Stable’ while reaffirming its ratings of ‘CRISIL AA+/CRISIL A1+. Revision in outlook for TAFE, factors in the strong business risk profile supported by its established market position as the second largest tractor manufacturer in India, adequate operating efficiencies and robust distribution network both in domestic and export markets. The ratings are also supported by TAFE’s robust financial risk profile and solid liquidity position.
TAL’s ratings benefits from strong operational and financial linkages with parent, TAFE, its own healthy financial risk profile with a debt free balance sheet along with sufficient liquidity. These strengths are partially offset by exposure to intense competition and cyclicality in the passenger vehicle (PV) dealership segment.
On the back of a healthy growth in fiscal 2023, TAL’s revenue grew by 4% in the first quarter of fiscal 2024, driven by steady demand for PVs owing to higher disposable incomes, increasing urbanisation and better access to vehicle loans. Revenue is expected to grow by 8-10% over the medium term, supported by increase in demand for PVs. Operating profitability stood at 3 % in the first quarter of fiscal 2024, and is expected to sustain at 3-4% over the medium term. |
Analytical Approach CRISIL Ratings has factored in support from TAL’s parent, TAFE, and the significant financial, operational and management benefits TAL derives from its strong linkages with the parent. Timely support if required, is expected to be forthcoming from the parent. |
Key Rating Drivers & Detailed Description Strengths:
TAL benefits from treasury, strategy, control and planning and financial support extended by TAFE and is able to get attractive rates due to the parent’s strong relationships with bankers. TAL (manufacturing division) sells its entire hydraulic pumps output to TAFE. TAL also manufactures hydraulic cylinder which majorly caters to Schwing Stetter (India) Ltd and few other players including group companies. TAFE is the second-largest player in the tractor segment in India, after M&M. The healthy relationship between TAFE and Tata Motors Ltd (TML; ‘CRISIL AA/Stable/CRISIL A1+’) has facilitated TAL with the dealership for TML cars. Furthermore, TAL operates from the group companies’ properties across its businesses.
The company’s financial risk profile is supported by a well-managed and strong balance sheet with nil debt on its books and sufficient liquidity. Further the company is unlikely to incur any additional debt over the medium term with cash accruals of Rs.20-25 crore sufficient for meeting the nominal capex and additional working capital requirements. This along with estimated net worth of over Rs 140 crore, ensure debt metrics are comfortable.
Weaknesses:
The automotive dealership business has low profitability because of the trading operations, intense competition and cyclicality. The competitive pressure creates a need for differentiation; accordingly, automobile dealers have to regularly refurbish their dealership outfits and service centres, which entails constant expenditure for upgrading the infrastructure at showrooms and service stations to support revenue growth and sustenance of operating efficiency. Accordingly intense competition will constrain any significant improvement in profitability.
80% of TAL’s revenue is from passenger car dealerships of TML and Skoda. Accordingly, sale volume of TAL are expected to remain linked to the performance of TML and Skoda. Uncertainties in the economy or monetary tightening measures may have a significant impact on the demand for PVs, demand for which can be cyclical. |
Liquidity: Strong TAL enjoys adequate liquidity, driven by expectation of ongoing and need-based support from TAFE in case of exigencies. TAL had investments and bank balances (liquid surplus) of Rs 65 crore as on March 2023. The company does not have any debt on its books as majorly relies on its internal accruals for its working capital and capex requirements. Capex is expected at Rs 2-3 crore annually, mainly towards maintenance, which TAL can comfortably meet through internal cash accrual, which is expected at Rs 20-25 crore per annum and shall support liquidity in the absence of any debt obligation over the medium term. |
Outlook: Positive TAL is expected to maintain its overall credit risk profile over the medium term and will continue to benefit from the operational support in areas of treasury, strategy, control & planning and financial support extended by parent, TAFE . |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company TAL was incorporated in 1992 as a subsidiary of TAFE, leading company of the Amalgamations Group. The dealership division, which contributes 80% to the revenue, has passenger car dealerships of TML in Chennai, Erode and Coimbatore. It also caters to Mettupalayam in Tamil Nadu, and Skoda Bengaluru caters to Mangaluru, Udipi and Shivamogga.
The manufacturing division produces auto components, mainly hydraulic pumps, for the domestic and overseas markets, and sales are through TAFE. TAL completed capex of about Rs 17 crore in fiscals 2009 and 2010 for setting up a manufacturing facility for hydraulic cylinders. |
About the Group Amalgamations Pvt Ltd (APL), the holding company of the group holds majority stake in TAL through TAFE. TAFE, along with its subsidiary TMTL, is the second largest player in domestic tractors market with a market share of 18% as on fiscal 2023. |
Key Financial Indicators
*Provisional **NA as company does not have any borrowings. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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