Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1’ rating on the short-term bank facilities of TM Automotive Seating Systems Private Limited (TM Auto).

 

The reaffirmation considers the healthy business risk profile, supported by order inflows from its largest customer, Tata Motors Ltd (TML; ‘Crisil AA+/Stable/Crisil A1+’); addition of new customers; and backward integration of operations, thereby improving operating efficiency. The financial risk profile and liquidity remained sound, driven by a debt-free balance sheet and large unencumbered cash balance as on December 31, 2024. The rating continues to reflect strong support from its parent, Tata AutoComp Systems Ltd (TACO; ‘Crisil AA/Positive/Crisil A1+’). These strengths are partially offset by high client concentration and susceptibility to cyclicality in the auto industry.

 

The company reported revenue of Rs ~945 crore for the nine months of fiscal 2025, which remained flattish on-year. Hence, revenue for the full fiscal is also expected to remain flattish owing to an overall moderation in the volumes of TML on the back of sluggish demand across the passenger vehicles (PV) and commercial vehicles (CV) industries. This was after witnessing healthy growth of ~30% to Rs 1,306 crore in fiscal 2024, while operating margin is expected to improve and sustain at 15.5-16.5% over the medium term in comparison to 14.1% in fiscal 2024. Furthermore, TM Auto derives 60-65% of its revenue from PV and 20-25% from CV. TML, the largest customer accounting for ~79% of revenue, witnessed moderation in demand across the PV and CV segments, resulting in flattish revenue growth in fiscal 2025.

 

With entry into newer segments of two-wheelers and onboarding of new clients, new programmes for the upcoming variant launches by TML and diversification into railways will result in substantial revenue growth of 10-12% over the medium term from fiscal 2026. Furthermore, the plans for backward integration for key raw materials and localisation of some imported mechanisms, coupled with the initiation of an overhead optimisation programme, should help sustain the margin at 15.5-16.5% over the medium term.

 

The company has a strong financial risk profile, as reflected in debt-free balance sheet, healthy cash accrual, effective capital structure management with total outside liabilities to tangible networth ratio (TOLTNW) ratio maintained below 2 times over the past five fiscals. Furthermore, the company plans to incur capital expenditure (capex) of around Rs 100 crore in fiscal 2025 that includes investment in the JVs formed for backward integration, capex for additional capacity, maintenance capex and purchase of land for setting up a new unit. The capex will be funded entirely through internal cash accrual and unencumbered cash balance of Rs ~165 crore as on December 31, 2024. Furthermore, nil utilisation of working capital limit and estimated cash accrual of Rs 100-130 crore will aid the liquidity.

Analytical Approach

Crisil Ratings has consolidated the business and financial risk profiles of TM Auto and its subsidiary, TM Railway Seating Pvt Ltd, to the extent of shareholding by TM Auto because of business and financial linkages between the two companies.

 

Crisil Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial support that TM Auto receives from TACO.

 

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:

• Continued support from TACO: The presence of TM Auto in the domestic market is underpinned by its collaboration with promoters, TACO and Magna International Inc (Magna). Association with TACO has enabled TM Auto to become the preferred supplier of seats and seating systems to the PV and CV models of TML. Crisil Ratings believes TM Auto will remain strategically important to TACO, considering the favourable business opportunities in the auto components space, and will receive need-based financial support from the parent.

 

Crisil Ratings believes strong linkages with the promoters will help TM Auto sharpen its technical edge and strengthen customer relationships, translating into revenue growth. The JV partners are likely to continue extending financial support to TM Auto when needed.

 

• Healthy operating performance: TM Auto clocked a five-fiscal compound annual growth rate of ~70% in revenue (Rs 139 crore in fiscal 2020 to Rs 1,306 crore in fiscal 2024), riding on heavy order inflow from TML. Capacity enhancement to support the order inflow and growth, however, remained flat during the nine months of fiscal 2025 at Rs 945 crore. TML has a strong market position in CVs (largest producer of CVs with market share of ~35% as on December 31, 2024), PVs (joint third largest sales with market share rising from ~8% in fiscal 2021 to ~11.3% in the nine months of fiscal 2025), and electric vehicles (market share of more than ~67% and first mover advantage). This will benefit TM Auto due to consistent large order inflow.

 

• Healthy financial risk profile: TM Auto has a robust financial risk profile, as reflected in debt-free balance sheet, large cash balance of Rs 165 crore as on December 31, 2024, and strong internal cash accrual. The company will maintain its debt-free balance sheet status and will fund capex internally, given its strong internal cash accrual due to sharp growth in operating profitability. Furthermore, it has effectively managed its capital structure, as indicated by sustained TOLTNW ratio below 2 times historically. Furthermore, the company plans capex of around Rs 100 crore in fiscal 2025, which will be met through internal cash accrual and large unencumbered cash balance of Rs 165 crore as on December 31, 2024. The operating margin is expected to sustain at 15.5-16.5% on the back of positive operating leverage benefits driven by volume growth and the initiation of overhead optimisation programme.

 

Weaknesses:

• Customer concentration in revenue: TM Auto derives ~87% of its revenue from the Tata group companies - TML, Tata Marcopolo Motors Ltd and Tata Steel Ltd. Although TM Auto is looking to expand its customer base, the Tata group will remain its primary customer.

 

• Susceptibility to cyclicality inherent in the auto industry: TM Auto derives its entire revenue from the auto industry, which is cyclical. Auto original equipment manufacturers (OEMs) were adversely affected in fiscal 2020 by the drop in consumer spending, weak monsoon, and the imposition of BS-VI and in fiscal 2021 by disruptions because of Covid-19. Growth recovered only from the second half of fiscal 2021. Furthermore, the ongoing fiscal 2025 has witnessed a slowdown in growth due to weaker consumer sentiments and aggressive sales push by OEMs, which led to an inventory buildup at dealerships. Wholesale volumes in the first half of fiscal 2025 remained flat on-year, with large inventory and sluggish retail sales. However, market conditions improved in the third quarter of this fiscal, driven by strong festive season demand. Hence, revenue concentration and industry cyclicality could have a high impact on the operating performance and financial risk profile of TM Auto.

Liquidity: Strong

Liquidity is expected to remain strong, supported by cash accrual of Rs 100-130 crore per annum and cash balance of Rs 165 crore as on December 31, 2024. The liquidity will also remain supported by the company’s debt-free balance sheet and more-than-sufficient internal cash accrual and cash surplus to fund capex.

Rating sensitivity factors

Upward factors

• Sustained increase in scale of operations driven by increasing customer diversity with operating margin continuing at 15-16%
• Sustenance of healthy financial risk profile and strong liquidity on a sustained basis
• Improvement in the ratings of parent, TACO, by one or more notches

 

Downward factors

• Significant decline in revenue and profitability, or any large, debt-funded capex leading to weakening of financial risk profile with gearing above 1 time
• Any change in stance of support from parent company or weakening of parent company’s credit profile

About the Company

TM Auto was incorporated in 2015 and is a 50:50 JV between TACO and Magna Financing Luxembourg S.A.R.L. The company designs and manufactures seating systems for passenger cars, sports utility vehicles (SUVs), commercial vehicles, tractors, two-wheelers, industrial products and railways.

 

TM Auto has manufacturing units in Pune, Dharwad (Karnataka), Pant Nagar (Uttarakhand), Jamshedpur (Jharkhand), Lucknow (Uttar Pradesh) and Chennai. Products include PV seating, bus seating, small commercial vehicle seating, medium and heavy commercial vehicle seating, and agri and off-highway seating.

Key Financial Indicators

As on March 31	Unit	2024	2023
Revenue	Rs crore	1306	1004
Profit after tax (PAT)	Rs. crore	124	96
PAT margin	%	9.5	9.5
Adjusted debt/networth*	Times	NM	NM
Adjusted interest coverage	Times	21.89	28.62

*Not Meaningful

Any other information: Not Applicable