| Taco Air International Thermal Systems Private Limited | ||||
| Rating upgraded to 'CRISIL A+/Positive' | ||||
| 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 upgraded its rating on the long-term bank facilities of Taco Air International Thermal Systems Private Limited (TACO Air; erstwhile AIR International TTR Thermal Systems Pvt Ltd [AITPL]) to 'CRISIL A+/Positive' from 'CRISIL A/Stable'.
The rating upgrade reflects significant improvement in the business risk profile of TACO Air, driven by diversification of product portfolio, rising scale of operations and increasing proportion of revenue from new products carrying higher margins. The growth in the new products and existing products was supported by large order inflows from the key customer - Tata Motors Ltd (TML; ‘CRISIL AA/Stable/CRISIL A1+’) as well as addition of new customers. The rating action also considers improving financial risk profile driven by debt free balance sheet and large unencumbered cash balance as on October 31, 2023.
The revision in outlook follows a similar action in that of parent – Tata Autocomp Systems Ltd driven by improving scale of operations and operating profitability which is expected to sustain over the medium term owing to growing demand for auto components from the key customer Tata Motors Passenger Vehicle Ltd (TMPVL; ‘CRISIL AA/Stable/CRISIL A1+’), given its healthy share in domestic passenger vehicles (PV) market. The market position TMPVL in the PV segment is further augmented by its portfolio of electric vehicles (EVs) wherein it commands a dominant market share of around 75%. Going ahead, focus of the TACO group to increase the share of EV components over the medium term should boost business growth while maintaining a strong financial risk profile.
Revenue has more than doubled to Rs.362 crore in fiscal 2023 and expected to continue strong growth momentum in double digits over the medium term. The same is owing to improved product mix and strong PV volume offtake of its largest customer TML which contributes to more than 80% of the overall revenue. TACO Air has been expanding its product portfolio leading to reduced concentration risk arising from single product. With better operating leverage benefit from increased scale coupled with diversification into better margin products, operating margins in fiscal 2023 expanded by over 150 basis points Going forward, new programs, expansion of customer base along with increasing proportion of newer products will lead to further increase in scale of operations and expansion of operating margins over the medium term.
TACO Air is expected to incur capital expenditure (capex) in the range of Rs.200-240 crores over next three years primarily towards augmenting capacities for newer and existing products alongwith upgradation in technology. The same is expected to be funded through a mix of debt and internal accruals in the 60:40 ratio. Financial risk profile will remain comfortable despite availment of debt owing to expected improvement in profitability and efficient working capital management. Debt protection metrics will remain adequate with interest coverage ratio estimated remaining above 10.5 times and net cash accrual to adjusted debt ratio (NCA/AD) projected more than 0.75 times over the medium term.
Liquidity is also expected to remain adequate supported by cash surplus of Rs 23 crore as on March 31, 2023. Cash accruals of Rs 60-90 crore per annum along with cash equivalents of Rs 30-40 crore over the medium term will be sufficient to fund the yearly repayment obligations of Rs 15-30 crore. The company also has unutilised bank lines of around Rs 25 crore. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial support available from Tata AutoComp Systems Limited (TACO). |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
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Liquidity: Adequate Despite healthy cash generation, liquidity is expected to remain stable owing to the significant capex investments planned during fiscal 2025 to 2026. As on March 31, 2023, the company had adequate liquidity in the form of cash and equivalent of Rs 23 crore and unutilised bank lines worth around Rs 25 crore. |
Outlook: Positive Taco Air will benefit from its diverse product portfolio and offerings, growing demand prospects from TML/TMPVL and addition of new customers, supported by healthy operating capabilities. Significant increase in operating profitability will lead to better cash accrual, which shall help partly fund capex needs. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company AITPL was established in 2014 as a 50:50 joint venture between Air International Thermal China Pty Ltd, and Tata Toyo Radiator Ltd. In September 2021, the stake of Tata Toyo Radiator Ltd has however been replaced by TACO, while the shareholding of Air International Thermal China Pty Ltd remains the same. AITPL is based in Pune and is engaged in designing, assembling and manufacturing of heating ventilation and air conditioning (HVAC) units for PVs, commercial vehicles and off- highway vehicles. The name of the company was changed to TACO Air (from AITPL) vide a Ministry of Corporate Affairs certificate dated June 16, 2023. |
Key Financial Indicators (adjusted by CRISIL Ratings)
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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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