Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Tata Ficosa Automotive Systems Private Limited (Tata Ficosa) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.

 

The upgrade in the rating follows a similar rating action as that on the Joint Venture (JV) partner Tata AutoComp Systems Ltd (TACO; rated CRISIL AA/Stable/CRISIL A1+) wherein rating has been upgraded on account of higher-than-expected improvement in overall operating and financial profile of the group backed by healthy increase in revenue and operating profitability, and strong internal cash accruals.

 

The rating action in Tata Ficosa also takes into account the significant improvement in the performance of Tata Ficosa in fiscal 2022 and during the interim period of fiscal 2023 driven by increased offtake from its largest customer Tata Motors Ltd (TML, rated ‘CRISIL AA-/Stable/CRISIL A1+’) (which accounts for ~50% of revenues).

 

Revenues grew by ~66% y-o-y in fiscal 2022 to Rs. 461 crores, while operating margins improved by 320bps to 10.7% during the same period on the back of positive operating leverage benefits aided by higher capacity utilization. Sales volume improved sharply due to increased demand post slowdown in fiscal 2021 and fiscal 2020, with uptick in demand for TML’s passenger vehicles (Altros and Nexon models), one of the key customers for Tata Ficosa. Demand also improved for vehicles of other key customers like Renault and FIAT. The trend is expected to continue over the medium term on the back of new orders from TML, addition of new customers, and product diversification consisting of electric vehicles (EV) auto components. The Company’s top-line is expected to show strong growth in fiscal 2023, and operating margins are expected to sustain above ~10%.

 

Tata Ficosa’s financial risk profile remains robust on the back of strong credit metrics. Gross leverage (Total Debt / OPBDIT) and gearing stands at 0.3 times and 0.1 times respectively as on March 31, 2022. With higher cash generation, the company reduced its debt levels (Rs. 13 crores as on March 31, 2022, vs. Rs. 31 crores as on March 31, 2021) and the Company expects to be debt free at the end of fiscal 2025. Furthermore, the Company’s capex spending is to be ~Rs. 120 crores over fiscal 2024 to fiscal 2025, which shall be entirely funded through internal cash accruals and cash surplus.

 

The ratings continue to reflect the diversified clientele of the company, its healthy financial risk profile and the strong support from the parent, TACO. These strengths are partially offset by exposure to intense competition and cyclicality in demand from few end-users.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial support that Tata Ficosa receives from Tata AutoComp Systems Ltd (TACO; rated 'CRISIL AA/Stable/CRISIL A1+').

Key Rating Drivers & Detailed Description

Strengths:

Continued strong support from TACO:

Tata Ficosa's position in the automotive industry is underpinned by its collaboration with the promoters, TACO and Ficosa International, Spain (Ficosa). Association with TACO has ensured Tata Ficosa is the major supplier of mirrors and control cables for the passenger vehicles (PVs) of Tata Motors. The company will remain strategically important to TACO, considering the favorable business opportunities in the auto component segment, and thus, will receive need-based financial support from the parent.

 

Strong linkages with the parent entities will further enhance Tata Ficosa's technical edge and strengthen customer relationships, translating into revenue growth over the medium term. The joint venture (JV) partners will likely continue to extend financial support to Tata Ficosa during financial exigencies.

 

Wide product range and diversified clientele:

The company has a wide range of products and revenue diversity in terms of market segments and geography. It has a healthy order pipeline from new launches of Tata Motors and Renault. It is the second-largest player in the rear-view mirrors and parking brake segments in India, and has moderate presence in gear-shifting systems, control cables and washer systems. The Company derives around ~50% of revenue from Tata Motors and 10-15% from other customers such as Renault, FIAT, and Volkswagen. Demand for PVs of these companies has picked up in the second half of fiscal 2021 through to fiscal 2022. Over the medium term, sales will be driven by orders from these OEMs as they start ramping up production even further to meet improving demand. In addition, the company is planning to introduce new products such as the surround view system.

 

Tata Ficosa should maintain a stable business risk profile over the medium term, supported by expanding customer base and strong demand from major domestic OEMs.

 

Comfortable financial risk profile:

With recovery in demand leading to improved performance, debt protection metrics remain comfortable in fiscal 2022. The Company expects to be debt free by fiscal 2025 by paying down debt from its internal cash accruals. Tata Ficosa has planned capex of ~Rs. 120 crores especially over fiscal 2024 to fiscal 2025, which shall be met through internal cash accruals and unencumbered cash balances.

 

Weakness:

Exposure to intense competition: The auto component industry is highly competitive, and players with surplus capacity offer to supply products to OEMs at lower rates to procure orders. This constrains the pricing power of the company, affecting its profitability.

Liquidity: Adequate

Liquidity will remain be driven by expected adequate cash accrual, against maturing debt of ~Rs 12 crore in the medium term and unencumbered cash surplus of Rs. 23 crores as on March 31, 2022, which shall be more than sufficient to cover capex investments planned in fiscal 2024 and fiscal 2025.

Outlook: Stable

CRISIL Ratings believes Tata Ficosa's financial risk profile will remain healthy, aided by comfortable gearing and debt protection metrics despite the sizeable capex planned over the medium term. The business risk profile should improve with the addition of products and increase in demand of existing products.

Rating Sensitivity Factors

Upward factors

• Substantial increase in scale of operations driven by increasing contribution from current and new product segments while maintaining operating margin above 12% on sustained basis
• Sustenance of healthy financial risk profile, with TOL/TNW below 1.0 time.

 

Downward factors

• Significant decline in revenue and profitability, or any large debt-funded capex, weakening financial risk profile, and leading to gearing above 1.0 time.
• Weakening in the credit risk profile of TACO.

About the Company

Set up as an equal JV between TACO and Ficosa in 1998, Tata Ficosa manufactures rear-view interior and exterior mirrors, mechanical control cables, parking-brake levers, rod-and-cable gear shifters, and washer systems. Its manufacturing units are in Pune, Maharashtra; Sanand, Gujarat; Pantnagar, Uttarakhand; and Chennai, Tamil Nadu. The key customer is Tata Motors, which accounts for around 50% of revenue. Other clients include Volkswagen India Pvt Ltd, Nissan Motor India Pvt Ltd, Mahindra & Mahindra Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Fiat India Automobiles Pvt Ltd (Fiat India; 'CRISIL AA-/Stable/CRISIL A1+') and Toyota Kirloskar Motor Pvt Ltd. Tata Ficosa also exports to OEMs in Europe, such as Ford Motor Co (rated 'BB+/Watch Negative' by S&P Global) and Renault SA (rated 'BB+/Negative by S&P Global).

About the Group

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 14.25%, Tata Industries Ltd holding 34.40%, TML holding 26% and Tata Capital Ltd (CRISIL AAA/Stable/CRISIL A1+) holding 24% stake. 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 through domestic subsidiaries and operating JVs, organised under Automotive Stampings & Assemblies Limited, Tata AutoComp Hendrickson Suspensions Private Limited, Tata Toyo Radiator Limited, Tata Ficosa Automotive Systems Limited, Tata AutoComp GY Batteries Limited, and TM Automotive Seatings Systems Private Limited , which are in auto stampings, lift axles and tandem-boogie suspensions, radiators, rear-view interior and exterior mirrors, auto storage batteries and seating systems, respectively. 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 Ryphez 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 Daimler AG (Daimler; rated BBB+/Negative/A-2 by S&P Global), AB Volvo (Volvo; rated A-/Stable/A-2 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  Ryphez Holding (Sweden) AB.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
NA	Packing credit in foreign currency	NA	NA	NA	5.00	NA	CRISIL A1
NA	Cash credit	NA	NA	NA	13.00	NA	CRISIL A/Stable
NA	Long-term loan	NA	NA	Jan-2023	11.13	NA	CRISIL A/Stable
NA	Letter of credit*	NA	NA	NA	4.00	NA	CRISIL A1
NA	Bill discounting	NA	NA	NA	7.5	NA	CRISIL A1
NA	Working capital demand loan	NA	NA	NA	10.00	NA	CRISIL A/Stable

*Interchangeable with bank guarantee to the extent of Rs.2.0 Crore