Detailed Rationale

Crisil Ratings has reaffirmed its ratings the bank facilities of Tata AutoComp Systems Limited (TACO) at ‘Crisil AA/Positive/Crisil A1+’.

 

The ratings continue to reflect the healthy business risk profile, as indicated by its leading market position in the automotive (auto) components business, as well as diversified product profile and technological tie-ups with global auto component manufacturers. The ratings also factor in the support TACO receives from Tata Sons Pvt Ltd (Tata Sons; rated ‘Crisil AAA/Stable'). These strengths are partially offset by customer concentration risk in revenue and exposure to industry cyclicality.

 

TACO has entered into deal purchase agreements for the purchase of IAC (Sweden) through bankruptcy proceeding for around Rs. 500 crore and purchase of 80% equity stake of Artifex Interior Systems Ltd (Artifex) through the acquisition of corresponding stake in Jaguar Land Rover Ventures Ltd (JLRV) from Jaguar Land Rover Ltd (JLR) for around Rs. 850 crore. The acquisition of Artifex has been completed on March 28, 2025, and the acquisition of specific assets and liabilities of IAC (Sweden) is expected to completed in June / July 2025 post the receipt of regulatory clearances which are yet underway. The combined acquisition is around Rs. 1,350 crore and around 80% of the acquisition will be funded through debt and balance shall be funded through internal cash accruals. For calendar year (CY2024), IAC (Sweden) has revenues of $850 million with earnings before interest, tax, depreciation and amortisation (EBITDA) of around $25 million dollars, and Artifex has revenues of £300 million with EBITDA of around £11 million. The acquisitions will enhance TACO’s offerings in the automotive cockpit segment, besides increasing share of wallet with existing customers. Also, the interior plastic division of TACO will benefit from synergies with the recent acquisitions.

 

During the first nine months of fiscal 2025, TACO’s revenues at aggregate level (before interparty eliminations) stood at around Rs. 12,673 crore and for the full fiscal year, revenues (before interparty eliminations) are estimated above Rs. 16,500 crore. The consolidated revenue compared to fiscal 2024, are expected to remain muted, owing to subdued volume growth of primary customer, TMPVL, due to moderation in demand for electric vehicles (EV) and also for commercial vehicles (CV) owing to demand slowdown given decline in government spending, and continuing high interest rates. The flattish revenues in fiscal 2025, comes after two consecutive fiscals of high double-digit growth. Revenues during fiscal 2024, increased by around 14% on-year to Rs. 16,387 crore owing to strong demand from TMPVL on the back of healthy volume growth. During fiscal 2024, operating margins expanded by around 127 basis points (bps) to around 12.3%, on the back of improving product mix owing to increasing share of value-added products, and cost optimisation measures implemented across subsidiaries and joint venture (JV) partnerships. For fiscal 2025, operating margins are expected to sustain around similar levels despite muted revenue growth owing to the continuing benefits of the cost optimisation measures and increased share of value-added products. For the period ended December 31, 2024, operating margins based on aggregate revenues, stood at around 12%.

 

The recent acquisitions will enable sizeable improvement in TACO’s revenues, which are estimated to rise to around Rs.23,500-24,000 crore in fiscal 2026. Albeit, lower operating margins from these acquisitions, will result in TACO’s operating margins sliding to around 9-10% from fiscal 2026, though absolute EBITDA will rise by around 10-15% compared with earlier expectations. Revenues post fiscal 2027, are expected to grow largely in line with auto sector demand, and operating margins sustaining at close to 10% levels.

 

The financial risk profile is expected to remain comfortable over the medium term on the back of large adjusted networth, comfortable capital structure, healthy debt protection metrics, and large unencumbered cash reserves. Adjusted networth and adjusted gearing (including financial lease liabilities) stood at Rs. 2,517 crore and 0.9 time respectively as on March 31, 2024. Internal cash accruals Rs. 1,400-1,700 crore shall be sufficient to cover yearly capex spends of Rs. 1,000-1,200 crore (excluding acquisitions), and debt re-payment obligations of Rs. 200-450 crore per annum on existing debt levels over fiscals 2026-27. Gross debt to EBITDA is expected to increase and sustain around 1.50-1.60 times over fiscal 2026-27 (1.11 times as on March 31, 2024) owing to the parlty debt funded acquisitions undertaken by the company; however, adjusted gearing will continue to remain below 1.0 time and key debt protection metrics i.e., interest cover and net cash accruals to adj. debt (NCA/AD) shall also remain at comfortable levels, i.e., above 6 times and 0.40 time respectively over the same period. The debt taken for acquisition shall have a 2-year moratorium, and debt repayment obligations will begin from fiscal 2028 onwards. In addition, the company’s aggregate unencumbered cash reserves are expected to remain above Rs. 1,300 crore (Rs. 1,734 crore as on March 31, 2024).

Analytical Approach

For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of TACO and its subsidiaries, Ryhpez Holding (Sweden) AB and its subsidiaries, Nanjing Tata AutoComp Systems Limited and its subsidiaries, Tata Toyo Radiator Limited, Automotive Stampings and Assemblies Limited, Tata AutoComp Hendrickson Suspension Private Limited, Taco Punch Powertrain Private Limited, TACO Engineering Service GmbH, Taco EV Component Solution Private Limited, Tata AutoComp Gotion Green Energy Solutions Private Limited, TACO Prestolite Electric Private Limited, Jaguar Land Rover Ventures Ltd and the joint ventures (JVs), namely, Tata Ficosa Automotive Systems Limited, Tata AutoComp GY Batteries Pvt Limited, TM Automotive Seating Systems Pvt Limited, Tata AutoComp Katcon Exhaust Systems Pvt Limited and TACO Air International Thermal Systems Private Limited to full extent. In addition, IAC (Sweden) shall also be consolidated post the completion of the acquisition. This is because all these companies, collectively referred as the TACO group, have business and financial linkages.

 

Crisil Ratings has also applied parent notch-up framework to factor support available to TACO from Tata Sons Pvt Limited ('Crisil AAA/Stable') as TACO is the subsidiary of Tata Sons Pvt Limited.

 

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:

Established position in the auto components business and diversified revenue profile:

The TACO group is one of the leading players in the auto components industry with a track record of over two decades. The diversity and scale of operations have also benefited significantly from the acquisition of TitanX in fiscal 2017, which helped the group to gain a foothold in the global radiator industry. Furthermore, TACO is present in diverse product segments such as interior plastics and composites, radiators, exhaust systems, batteries, stampings, suspensions, seating, mirror assemblies, EV powertrains, EV battery energy storage systems, and engine cooling systems. Enhanced geographical and product diversity will benefit the TACO group in achieving growth in operating performance over the medium term.

 

Technological tie-ups with global component manufacturers:

Over the years, TACO has actively forged technical and financial JVs with major global auto component manufacturers such as Hendrickson International (USA), Ficosa International SA (Spain), GS Yuasa International (Japan), Magna International Inc (Canada), T Rad & Co Ltd (Japan), Hefei Gotion (China), Prestolite Electric Beijing Limited (China), and Katcon Global SA DE CV (Mexico). Most of these JV partners are among the market leaders in their respective product lines and have technological acumen and years of working relationships with leading global original equipment manufacturers (OEMs).

 

Adequate and improving financial risk profile:

Improving market share of TMPVL within the domestic PV market followed by more than ~60% market within the EV vertical, along with turnaround in operations of TitanX, leverage marked by adj. gearing (including financial lease liabilities) improved from 2.11 times in fiscal 2022 to 0.88 time in fiscal 2024. In addition, while the company’s debt levels are expected to increase owing to the acquisition of Artifex and IAC (Sweden), adj. gearing will continue to remain below 1.0 time owing to healthy cash flow generation which is sufficient to cover organic capex requirements and yearly debt re-payment obligations on existing debt levels. While gross debt to EBITDA is expected to increase and sustain around 1.50-1.60 times over fiscal 2026-27 key debt protection metrics i.e., interest cover and net cash accruals to adj. debt (NCA/AD) shall also remain at comfortable levels, i.e., above 6 times and 0.40 time respectively over the same period. The debt taken for acquisition shall have a 2-year moratorium, and debt repayment obligations will begin from fiscal 2028 onwards. In addition, the company’s aggregate unencumbered cash reserves are expected to remain above Rs. 1,300 crore (Rs. 1,774 crore as on March 31, 2024).

 

Support from and strategic importance to parent:

TACO is strategically important to the Tata group, because of its status as the holding company for the group’s ventures into the auto components sector. The group has been set up primarily with a view to creating captive consumption and ecosystem and more recently to tap into the EV market. Over the years, the group has entered strategic partnerships to enable synergies for Tata Motors Limited (TML, ‘Crisil AA+/Stable/Crisil A1+’) and Tata Motors Passenger Vehicle Limited in terms of technology adoption and know-how. The group having gained from the partnerships is now looking to add other clients and leverage on the technical know-how. TACO, along with various group companies, is a major supplier of components for a number of existing as well as proposed models of TML and TMPVL.

 

TACO is owned fully by Tata group entities with direct holding by Tata Sons (38.25%), and indirect holding of Tata Sons through Tata Industries Limited, and Tata Motors Limited (TML, ‘Crisil AA+/Stable/Crisil A1+’). Tata Sons Pvt Ltd along with Tata Industries Ltd ('Crisil AAA/Stable') are actively involved in TACO’s management and strategic decisions. TACO benefits from healthy financial flexibility on account of it being a part of the Tata group. In the past, the Tata group has demonstrated its support to TACO to tide over exigencies by extending unsecured loans in fiscal 2010 and preference capital, inter-corporate deposits between fiscals 2005 and 2009 to fund investment plans. Crisil believes strong management and financial support from the Tata group will remain a key rating driver for TACO.

 

Weakness:

Customer concentration risk in the revenue profile:

Major portion of revenues, about 40-55% comes from sales to Tata Motors Passenger Vehicles Limited (TMPVL; rated, ‘Crisil AA+/Stable/Crisil A1+’), Tata Motors Limited (TML, ‘Crisil AA+/Stable/Crisil A1+’), and Fiat India Automobiles Pvt Ltd (FIAPL, rated 'Crisil AA/Stable/Crisil A1+') and the same is expected to continue owing to TACO being the major supplier of key EV and PV components to TMPVL. The group is looking to add new clients under certain business segments, however, given the growth expected to be continued for its key customer TMPVL owing to its first mover advantage in the EV space, revenue concentration is likely to be skewed to TMPVL. The recent acquisitions will help grow international revenues to almost 45% of revenues in fiscal 2026, from around 20% in fiscal 2025. However, revenue dependence on TML and group companies, including Jaguar Land Rover (JLR), will continue to remain high.

 

Susceptibility to inherent cyclicality in the auto industry: 

TACO group derives almost its entire revenue from the OEM segment, which is inherently cyclical. Automotive OEMs were adversely hit in fiscal 2020 due to drop in consumer spending, weak monsoon, and imposition of BS-VI. To add further pressure, fiscal 2021 was impacted by COVID-19 pandemic led disruption. Growth recovered only from the second-half of fiscal 2021. In fiscal 2025 as well, revenue growth was sluggish due to weak demand from commercial vehicle and slower than expected demand from passenger vehicles, including EVs. Hence, performance remains vulnerable to economic downturns largely related to macro-economic factors.

Liquidity: Strong

Liquidity is expected to remain strong, supported by cash surpluses of over Rs.1,300-1,400 crore, moderate utilization in fund-based limits, and expected annual cash accrual of more than Rs. 1,400-1,700 crore. The company has adequate liquidity in the form of unencumbered cash and cash equivalent of around Rs. 1,774 crore as on March 31, 2024, and also has access to aggregate level fund-based limits of Rs. 832.21 crore and non-fund based limits of Rs. 524.99 crore which are utilized to the extent of 48% and 51% respectively on average over the past nine months through to December 2024. Expected cash accruals over the medium term shall be more than sufficient to cover debt re-payment obligations of Rs. 200-450 crore per annum on existing debt levels, and capex and working capital requirements. The acquisition debt taken for Artifex and IAC (Sweden) shall have a 2-year moratorium.

Outlook: Positive

Crisil Ratings believes that TACO will benefit from TMPVL’s and TML’s healthy market share in the Indian automotive industry. Over the medium term, new program wins from TML and TMPVL, shall result in not only sustained growth in scale of operations, but also result in diversity of the product mix supporting overall revenue growth. TACO shall continue to maintain healthy operating efficiencies, with operating margins at around 12%, and return on capital employed at over 20% over the medium term. The financial risk profile shall also remain comfortable on the back of comfortable capital structure, healthy debt protection metrics, and large unencumbered cash reserves.

Rating Sensitivity Factors

Upward factors:

• Steady revenue growth, with steadily improving customer/ geographic diversity and sustenance of operating margins at around 8-10%.
• Sustenance of healthy debt metrics, while pursuing organic and inorganic growth opportunities.

 

Downward factors:

• Weakening of business performance and sharp decline in operating margins on a sustained basis
• Sizeable debt-funded capex or acquisitions, impacting debt metrics; for instance, gross debt to EBITDA above 2.5 times on a sustained basis.
• Change in stance of support from the promoter group or deterioration in credit risk profile of Tata Sons.

About the Company

TACO was promoted by the Tata group in 1995 and it operates as the vehicle for the group's ventures in the auto components business. TACO is owned by Tata group companies with Tata Sons Pvt Ltd holding 38.25%, Tata Industries Ltd holding 34.40%, and Tata Motors Limited holding 26.00%. TACO's own standalone operations include manufacture of auto plastic products and sheet-moulded composite parts. Furthermore, TACO offers services in engineering and supply chain management, and provides centralised corporate services to group companies. The TACO group currently operates in various products through multiple domestic subsidiaries and operating JVs. Furthermore, the TACO group has an overseas operating subsidiary in China and an overseas holding company. In September 2012, TACO completed the merger of TACO Composites Ltd (erstwhile wholly owned subsidiary of TACO) with itself. The merger was effective from April 1, 2011. The group operates 33 manufacturing facilities spread across India, including two facilities in China and four technology centres in India.

 

TACO acquired TitanX in fiscal 2017 through its subsidiary Ryhpez Holding (Sweden) AB. The acquisition of TitanX offers TACO the latest technology in engine cooling solutions for commercial vehicles outside India and helps TACO expand its reach globally, acquire new customers, as well as enhance its presence in the cooling and emission control segments. Customers for TitanX include Mercedes-Benz Group AG (Mercedes; rated A/Stable/A-1 by S&P Global), AB Volvo (Volvo; rated A/Stable/A-1 by S&P Global), Scania AB (Scania; rated BBB/Stable/A-2 by S&P Global) and IVECO S.P.A, Italy. Further, TACO has provided corporate guarantee towards loan facility obtained from lenders by Ryhpez Holding (Sweden) AB.

Any other information: Not Applicable