Rating Rationale
December 14, 2017 | Mumbai
Tube Investments of India Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.700 Crore
Long Term Rating CRISIL AA/Positive (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.150 Crore Non Convertible Debentures CRISIL AA/Positive (Reaffirmed)
Rs.100 Crore Non Convertible Debentures CRISIL AA/Positive (Reaffirmed)
Rs.100 Crore Non Convertible Debentures CRISIL AA/Positive (Reaffirmed)
Rs.100 Crore Non Convertible Debentures CRISIL AA/Positive (Reaffirmed)
Rs.75 Crore Non Convertible Debentures CRISIL AA/Positive (Reaffirmed)
Rs.525 Crore Commercial Paper Programme# CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
#Earlier STD (Including CP)
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank loan facilities, commercial paper programme and non-convertible debentures (NCD) programme of Tube Investments of India Limited (TI) at 'CRISIL AA/Positive/CRISIL A1+'.

The ratings continue to reflect the company's healthy business risk profile with diversified revenue streams and leading market positions in most of its businesses. The ratings also factor in its comfortable financial risk profile, and healthy financial flexibility, including due to its position as one of the leading companies of the Murugappa group. These strengths are partially offset by sluggish performance of TI's bicycles business, marginal vulnerability of TI's operating profitability to intense competition and to cyclicality in the automobile sector.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of TI, TI Tsubamex Pvt Ltd (TI Tsubamex), Shanthi Gears Ltd (SGL), and TI's wholly-owned subsidiary France-based Sedis group, which is engaged in the chain business. CRISIL has also proportionately consolidated TI's joint venture, TI Absolute Concepts Pvt Ltd from fiscal 2017, as TI has 50% stake in the company since September 2016.

CRISIL has not combined the business and financial risk profiles of TI's subsidiary, Cholamandalam MS General Insurance Company Ltd (Chola MS, rated 'CRISIL AA/Stable'), as it is in a different line of business. However, need-based support provided by TI to Chola MS and its financial associate, Cholamandalam Investment and Finance Company Ltd (CIFCO; 'CRISIL AA/Stable') has been factored into the ratings until fiscal 2017 (in line with the demerger announcement). CRISIL has also amortised the goodwill of Rs 285 crore on acquisition of SGL, over a period of 10 years commencing November 2012.

Key Rating Drivers & Detailed Description
* Healthy business risk profile marked by diversified revenue streams, and leading market positions in key business segments
TI has a strong presence in bicycle manufacturing (27% of consolidated revenue in fiscal 2017), engineering (42%), metal forming (27%), and gear and gear products (4%) businesses. The company is among the top-three players in these segments. Acquisition of 70.12% stake in SGL in fiscal 2013 has also helped diversify revenue further besides providing a leadership position in the special gears and gearboxes segment. The business risk profile continues to benefit from the ramp-up of its recently commissioned large diameter tubes plant and improving volume outlook across engineering and metal forming business segments, driven by better demand from the automotive sector. This is also expected to lead to better business performance by TI over the near-to-medium term.

TI's large diameter tubes capacity has stabilised after initial problems, which has led to the significant improvement in profitability for the engineering division in fiscal 2017. Over the medium term, tie-ups with both national and international customers should enable higher utilisation. Furthermore, the bicycle division is expected to benefit from the execution of institutional orders and the ramp-up of the new plant in Rajpura (Punjab), which will offer freight savings, as ancillary units are located at a short distance. Besides, engineering and metal form divisions are also expected to benefit from improving demand sentiment from the automotive sector. TI's subsidiary, SGL, too is benefitting from improving demand for gears, resulting in steady revenue growth and better coverage of fixed costs. 

Higher business levels across segments, initiatives to enhance value offerings, and continuing productivity initiatives (leading to better asset utilisation) is expected to result in revenue growth of around 7% over the medium term (against 5% revenue growth between fiscals 2014 and 2017), while TI's profitability is expected to be at 9.0-9.2%, against 8.8% over the three fiscals through 2017.

* Comfortable financial risk profile, and healthy financial flexibility, including due to  its position as one of the leading companies of the Murugappa group
TI's financial risk profile is improving, supported by steep debt reduction initiatives undertaken by its management. It has retired a significant portion of its long-term debt from the proceeds (Rs 882 crore before tax) generated from 14% stake sale in Chola MS to the other joint venture partner, Mitsui Sumitomo Insurance Company Ltd (Mitsui), Japan. This has helped TI reduce its debt to earnings before interest, depreciation, tax and amortisation (EBITDA) to 2.07 times as on March 31, 2017, from over 4 times as on March 31, 2015.

Over the medium term, cash generation is expected to improve due to better business performance as well as lower interest payout, following the steep reduction in debt levels (Rs 850 crore by March 31, 2017, from Rs 1449 crore on March 31, 2016). Moreover, CRISIL does not expect TI to support the group's financial entities post the demerger. With only moderate capital spending expected to be incurred (Rs 200-225 crore annually) and prudent working capital management, CRISIL expects TI's gearing to gradually reduce to below 0.7-0.8 time, on a sustained basis over the medium term, while debt to EBITDA ratio is expected to be healthy at under 2 times over the medium term. Additionally, TI continues to benefit from the Murugappa group's strong relationships with the lending community, which facilitates debt raising at competitive rates.

* Sluggish performance of TI's bicycles business

TI's bicycle business has witnessed sluggish growth in recent times, due to intense competitive pressures and also sluggish offtake in the standards bicycle segment, which accounts for ~46% of industry volumes (though only 34% for TI). The overall bicycles industry is itself estimated to have witnessed a decline in volumes of 10-11% in fiscal 2017, as sale of special bicycles, too witnessed some pressure, including due to the impact of demonetisation. A sizeable part of the bicycle business is also dependent on government orders, which happen in spurts, and also has longer gestation period, besides being very competitively priced.

TI is the second largest player in the domestic bicycles market and enjoys market leadership in the faster growing specials segment. Yet its revenues registered a compounded annual growth rate of only 1.4% between fiscal 2013 and fiscal 2017, and witnessed a year-on-year decline of 9% in fiscal 2017, as special volume sales too turned sluggish. The share of bicycles in TI's overall revenues therefore declined to under 30% in fiscal 2017, and is unlikely to increase sharply again, due to better growth expected at the engineering and metal forming businesses of the company.

* Vulnerability to intense competition and cyclical slowdown in the automobile sector
Consolidated operating profitability, which averaged 8.8% between fiscal 2015 and fiscal 2017, remains vulnerable to increasing competition, cyclical automobile demand, volatile power costs, and only moderate pricing power. Also, SGL's operating profitability has moderated from healthy levels of around 25% in the past, as recent orders have not been as profitable as earlier ones, due to intense competition and modest economic conditions.

CRISIL expects TI's operating profitability to stabilise at 9.0-9.2% over the near to medium term, supported by higher business levels and better coverage of fixed costs, as well as increasing focus on profitable orders at SGL.
Outlook: Positive

CRISIL believes TI's overall credit profile will benefit from the well-diversified revenue profile and expectations of improved demand from customers in the automotive and industrial sectors.

Upside scenario
* Scale-up in business levels and operating profitability at a higher rate than expected, leading to significantly higher cash generation
* Prudent capital spending and management of working capital results in continued healthy gearing and strengthening of debt protection metrics; for instance, debt to EBITDA ratio improving to around 1.8 times, and gearing to 0.6-0.7 times over the medium term.

Downside scenario
* Lower-than-expected cash generation, due to modest business performance
* Slower-than-expected progress in correction of its gearing and debt protection metrics, due to large acquisitions or higher capital spending or elongation of working capital; for instance debt/EBITDA ratio of 2.3-2.5 times and gearing exceeding 1-1.2 times.

About the Company

TI, part of the Rs 30,023 crore Chennai-based Murugappa group, has interests in bicycle manufacturing, engineering, and metal-forming businesses. The company has four subsidiaries: it owns 100% of the France-based Sedis group, which is in the chain business; 70.1% of SGL, which manufactures specialised gears and gear boxes; 60% of Chola MS, which provides general insurance services and 75% in TI Tsubamex, which is into sheet metal stamping and design. In addition, TI holds a 49.5% stake in Cholamandalam MS Risk Services Ltd (Chola MS Risk), which provides risk management services and 46.2% in CIFCO, which is engaged in non-banking financial services. TI also holds 50% stake in TI Absolute Concepts Pvt Ltd, which operates bicycle cafes.

In fiscal 2017, TI's board of directors approved a de-merger plan to separate its manufacturing and the financial services business into separate legal entities, with identical shareholding. The manufacturing business, comprising bicycles, metal forming, engineering, and TI's subsidiaries - SGL, TI Tsubamex, and Sedis will be demerged into TI Financial Holdings Ltd (TIFHL), a wholly owned subsidiary of TI. Post completion of the demerger process, the name of TIFHL will be changed to TI and the name of TI, which will initially hold the financial entities, namely, CIFCO, Chola MS, and Chola MS Risk, will be changed to TIFHL. Consequently, TI will hold the manufacturing businesses and TIFHL will hold the financial services businesses.

For fiscal 2017, TI, on a standalone basis, reported a profit after tax (PAT) of Rs 196 crore on revenue of Rs 4415 crore, against a PAT of Rs 730 crore on revenue of Rs 4211 crore for fiscal 2016. The PAT in fiscal 2016 benefitted from pre-tax gain of Rs 820 crore on sale of part-stake in Chola MS.
For fiscal 2017, SGL reported a PAT of Rs 22.5 crore on revenue of Rs 214 crore, against a PAT of Rs 17.7 crore on revenue of Rs 191 crore for fiscal 2016.

Key Financial Indicators (Consolidated)
As on / for the period ended March 31  Unit 2017 2016
Revenue Rs Crores 4505 4349
Profit After Tax (PAT) Rs Crores 174 716
PAT Margins % 3.9 16.5
Adjusted debt/adjusted net worth Times 0.87 0.74
Interest coverage Times 5.47 3.11
Note-Financial Summary is based on CRISIL's workings; this considers analytical approach taken by CRISIL

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. Crs.) Rating Assigned with Outlook
INE149A07121 Non-convertible debenture## 09-Aug-2012 9.81% 09-Aug-2017 75 CRISIL AA/Positive
INE149A07238 Non-convertible debenture 25-Sep-2015 8.90% 25-Sept-2018 100 CRISIL AA/Positive
INE149A07246 Non-convertible debenture 26-Oct-2015 8.79% 26-Oct-2018 150 CRISIL AA/Positive
INE149A07253 Non-convertible debenture 20-Feb-2017 7.55% 20-Feb-2020 100 CRISIL AA/Positive
NA Non-convertible debenture@ NA NA NA 100 CRISIL AA/Positive
NA Commercial Paper programme# NA NA 7-365 days 525 CRISIL A1+
NA Cash credit* NA NA NA 400 CRISIL AA/Positive
NA Letter of credit** NA NA NA 300 CRISIL A1+
*Interchangeable with short-term buyer's credit, packing credit, and working capital demand loan 
**Interchangeable with bank guarantee
@Yet to be issued
#Earlier STD (Including CP)
##CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these instruments
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  525  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Non Convertible Debentures  LT  525  CRISIL AA/Positive    No Rating Change  04-07-16  CRISIL AA/Positive    No Rating Change    No Rating Change  CRISIL AA/Stable 
Fund-based Bank Facilities  LT/ST  400  CRISIL AA/Positive    No Rating Change  04-07-16  CRISIL AA/Positive    No Rating Change    No Rating Change  CRISIL AA/Stable 
Non Fund-based Bank Facilities  LT/ST  300  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 400 CRISIL AA/Positive Cash Credit* 400 CRISIL AA/Positive
Letter of Credit** 300 CRISIL A1+ Letter of Credit** 300 CRISIL A1+
Total 700 -- Total 700 --
*Interchangeable with short-term buyer's credit, packing credit, and working capital demand loan 
**Interchangeable with bank guarantee
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
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100

Akshay Chitgopekar
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8309

Abhishek Anand
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 44 6656 3140
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
For Analytical queries:


Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.

About CRISIL Limited

CRISIL is an agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers.

We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com 


About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view the Company’s Customer Privacy at https://www.spglobal.com/privacy

Last updated: April 2016


This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL