Rating Rationale
March 18, 2020 | Mumbai
TVS Sensing Solutions Private Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.26.5 Crore (Enhanced from Rs.24 Crore)
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL rating on the bank facilities of TVS Sensing Solutions Private Limited (TVSSPL) reflects the steady improvement in the credit risk profile of TVSSPL, driven by the increased operational and financial integration with its ultimate parent, TVS Srichakra Limited (rated 'CRISIL A1+', TSL) as well as the expanding order book (especially Tier I customers) over the medium term. TSL plans to scale up operations of TVSSPL by providing required operational and financial support for capitalizing on the strong deal pipeline. In addition, TSL has also articulated its intent to provide support to TVSSPL in meeting its debt obligations in a timely manner.
 
During fiscal 2019, TVSSPL's operating profitability improved to 5.6% from 1.6% driven by higher scale benefits from larger volumes, cost optimization measures as well as higher share of profitable orders executed. During fiscal 2020, TVSSPL has floated a new subsidiary, Fiber Optics to capitalize on the opportunities in the smart sensing solutions. TSL has infused equity of Rs 2 Cr to support the initial capex requirements for the new subsidiary.
 
The ratings also reflect the expected improvement in revenues and profitability of TVSSPL, supported by diversified customer base and high growth prospects in the solenoids and sensor components. These strengths are partially offset by modest scale of operations, exposure to intense competition and volatility in raw material prices and forex rates and below-average financial risk profile.

Analytical Approach

For arriving at the ratings, CRISIL has applied its parent notch-up framework to factor in the extent of financial and managerial support available from the parent, TSL. CRISIL believes that TVSSPL will, in case of exigencies, receive distress support from TSL for timely repayment of debt obligations, driven by its 100% shareholding in TVSSPL and intend to provide financial support. TSL has infused equity to the tune of Rs 6 crore into TVSSPL in fiscal 2019 to support capex and debt reduction.

Key Rating Drivers & Detailed Description
Strengths:
* Strong financial support from parent TSL:
TVSSPL will receive strong business and financial support from ultimate parent, TSL. TSL has infused equity of Rs 6 crore in fiscal 2019 and Rs 2 crore in fiscal 2020 towards debt reduction and capex requirements. TSL has also articulated its clear intent in providing financial support to scale up operations in TVSSPL.
 
* Diversified customer base and healthy growth prospects:
The company manufactures electro-magnetic switches for the consumer durables industry and sensors and solenoids for the automotive components industry. Over the years, TVSSPL has established a well-diversified profile of customers to support the business profile. Despite exiting, the erstwhile JV partner, ZF Electronics continues to remain one of the key customers for TVSSPL. TVSSPL has received a number of high value deals from Tier I customers like Brakes India Private Limited (rated CRISIL AA+/Stable/CRISIL A1+) and is in discussion with potential customers for business expansion over the medium term. CRISIL expects healthy medium term prospects for automotive components (specifically electronic control units and sensors) driven by requirements for safety systems, changing regulations and emerging smart sensor technologies.
 
Weaknesses:
* Modest scale of operations and profitability; albeit improving
TVSSPL's scale of operations, though gradually improving, remains small with revenues of Rs 57 crore in fiscal 2019. This limits the ability to bargain with suppliers and customers, and also restricts improvement in profitability due to low economies of scale. Although company has expanded its deal pipeline and announced plans to scale up operations, timely execution of orders and steady improvement in profitability will remain key monitorable.
 
* Below-average financial risk profile
Despite equity infusion from TSL, TVSSPL's networth remains modest at Rs 18 crore as on March 31, 2019 on account of continued losses since fiscal 2015. While gearing is estimated at about 1.0 times as on March 31, 2020, debt protection metrics are expected to remain weak due to low albeit improving profitability. Interest coverage ratio is estimated to improve to greater than 2.0 times from fiscal 2020 (from 1.91 times in fiscal 2019). TVSSPL is also planning to invest about Rs 6.0 crore in line expansion for scaling up operations, part-funded by debt in fiscal 2020. Financial risk profile is expected to improve over the medium term driven by better accruals through monetization of the proposed capex investments and improving profitability over the medium term.
 
* Exposure to intense competition and vulnerability to volatility in raw material prices and forex rates:
The business, characterized by relatively lower entry barriers is exposed to high degree of competition with a presence of variety of players from domestic manufacturers to cheaper imports. As a result, TVSSPL has low flexibility to fully pass on price increases on to end customers. Additionally, the business remains exposed to fluctuations in raw material prices, which is partly mitigated by in house manufacturing of plastic components. TVSSPL procures a majority of its raw material requirements from other countries (about 60%), any adverse movement in forex can further impact the business risk profile.
Liquidity Adequate

TVSSPL's liquidity is adequate, largely driven by support from the parent, TSL.  In fiscal 2019, TSL infused Rs 6 crore for capex requirements and repayment of debt obligations; further Rs 2 crore were infused for supporting the capital requirements for the new subsidiary, Fiber Optics. While the repayment obligations in fiscal 2020 remains high at Rs 6 crore, the same has been re-financed in July 2019 for a three-year period tenure. For working capital requirements, TVSSPL has access to fund based limits of Rs 10 crore, which are ~ 63% utilized over the past 12 months through October 2019. TVSSPL is expected to invest Rs 6 crore per annum for line expansions over the medium term; it has already tied up the debt requirement for the same with the bankers for fiscal 2020. TVSSPL liquidity will continue to benefit from the financial support it receives from its parent, TSL.

Outlook: Stable

CRISIL believes TVSSPL will benefit from the strong operational and financial support it receives from its parent, TSL, along with expanding order book acquired through established relationships with customers and suppliers.

Rating Sensitivity factors
Upward factors
* Steady execution of orders in pipeline, along with profitable orders from new customers, leading to sustainable revenue growth rate of greater than 20% over the medium term
* Sustainable improvement in profitability above 7% driven by higher share of profitable orders and benefits from economies of scale.
 
Downward factors
* Decline in EBITDA profitability below 2% leading to marked decline in cash accruals over the medium term
* Large debt funded capex leading to gearing above 2.0 times over the medium term
* Steep increase in working capital requirements as marked by gross current asset days of greater than 200 days
 
Ratings will remain sensitive to any change in the credit risk profile of TVS Sricahkra Limited.
About the Company

Set up in 1993 in Madurai, Tamil Nadu, TVSSPL (erstwhile ZF Electronics TVS (India) Private Limited) manufactures switches, sensors, solenoids and electromagnetic components used in industrial, consumer durable, automotive and IT segments.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs Crore 56.96 47.41
Profit after tax Rs Crore 2.16 (2.44)
PAT margin % 3.79 (5.2)
Adjusted debt/adjusted networth Times 0.75 1.61
Interest coverage Times 1.91 (0.43)

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity
Date		 Issue Size
(Rs Cr)		 Rating Assigned
with Outlook
NA Working Capital Facility* NA NA NA 10.0 CRISIL BBB+/Stable
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 6.0 CRISIL BBB+/Stable
NA Term Loan NA NA Jul-24 4.5 CRISIL BBB+/Stable
NA Term Loan NA NA Jul-22 6.0 CRISIL BBB+/Stable
*Including sub-limit of INR 2 Cr for Bank Guarantee & INR 2 Cr for LC
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  26.50  CRISIL BBB+/Stable      26-12-19  CRISIL BBB+/Stable  19-12-18  CRISIL BBB+/Stable  21-12-17  CRISIL B+/Stable  CRISIL B+/Stable 
                15-11-18  CRISIL BB/Watch Positive       
                21-08-18  CRISIL BB/Watch Positive       
                29-05-18  CRISIL BB/Watch Positive       
                09-03-18  CRISIL BB/Watch Positive       
Non Fund-based Bank Facilities  LT/ST    --    --    --  19-12-18  CRISIL A2  21-12-17  CRISIL A4  CRISIL A4 
                15-11-18  CRISIL A4+/Watch Positive       
                21-08-18  CRISIL A4+/Watch Positive       
                29-05-18  CRISIL A4+/Watch Positive       
                09-03-18  CRISIL A4+/Watch Positive       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 6 CRISIL BBB+/Stable Proposed Long Term Bank Loan Facility 3.5 CRISIL BBB+/Stable
Term Loan 10.5 CRISIL BBB+/Stable Term Loan 10.5 CRISIL BBB+/Stable
Working Capital Facility* 10 CRISIL BBB+/Stable Working Capital Facility* 10 CRISIL BBB+/Stable
Total 26.5 -- Total 24 --
*Including sub-limit of INR 2 Cr for Bank Guarantee & INR 2 Cr for LC
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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