Detailed Rationale

Crisil Ratings has upgraded its ratings on the bank facilities of Automotive Stampings and Assemblies Limited (ASAL) to ‘Crisil A-/Stable/Crisil A2+’ from ‘Crisil BBB+/Stable/Crisil A2’.

 

The rating upgrade reflects ASAL’s steadily improving operating performance, thus resulting in an improvement in the financial risk profile. The company’s scale of operations have increased to Rs. 880 crore during fiscal 2024 from Rs. 339 crore during fiscal 2021 and operating margins have also expanded to 5.8% from 0.0% over the same period. The profitability expansion is driven by increasing share of value-added products such as battery trays for electric vehicles (EV) and aluminum cooling tubes, fabrication parts, tooling order etc. besides streamlining of variable and fixed overheads. Revenues during the first nine months of fiscal 2025 stood at Rs. 588 crores (vs. Rs. 647 crores during the same period of last fiscal). This decline is owing to subdued volume growth of primary customer, Tata Motors Ltd (TML, rated Crisil AA+/Stable/Crisil A1+) and Tata Motors Passenger Vehicles Ltd (TMPVL, rated Crisil AA+/Stable/Crisil A1+) due to moderation in demand for passenger vehicles (PV) and also for commercial vehicles (CV) owing to demand slowdown given decline in government spending, and continuing high interest rates. However, operating margins continued to sustain around 6.1% during the first nine months of fiscal 2025, and the same is expected to marginally improve over the medium term.

 

The financial risk profile while it continues to be modest has been improving since the last three fiscal years owing to consistent improvement in the operating performance. This, along with deleveraged balance sheet, adjusted networth which was negative, has achieved breakeven during the second quarter of fiscal 2025. Furthermore, the external borrowings as on December 30, 2024, stood at Rs. 42 crore, which includes related party debt (from TACO). The cash generation of Rs. 30-45 crore per annum vis-à-vis yearly capital expenditure (capex) spends of Rs. 20-45 crore, and hence long-term external borrowings are anticipated to remain at similar levels of fiscal 2024. In addition, the net working capital cycle is also expected to remain low, thus the dependance on external working capital borrowings is also expected to remain limited. The sustenance of a low working cycle of around -21 days during fiscal 2024 is on account of non-recourse customer, and the same is expected to largely remain at similar levels of the medium term. That said, shortfall if any, will be bridged through funds from the parent company or group entities.

 

The ratings also continue to reflect the strong support ASAL receives from its parent, Tata AutoComp Systems Ltd (TACO; 'Crisil AA/Positive/Crisil A1+'), and the stable business risk profile of the company. These strengths are partially offset by high product and customer concentration in revenue, limited value addition in products and cyclicality in the automotive industry.

Analytical Approach

Crisil Ratings has applied its parent notch-up framework to factor in strong operational, financial and managerial support from TACO, which holds 75% equity stake in ASPL and has a track record of providing financial support by way of unsecured loans and intercorporate deposits.

Key Rating Drivers & Detailed Description

Strengths:

• Strong business and financial support from TACO and other group companies: ASAL is a key supplier of sheet-metal stampings, welded assemblies and modules for passenger vehicles and commercial vehicles manufactured by TMPVL and TML, respectively. TML is the largest commercial vehicle player with around 36% market share as of December 2024, while TMPVL has the highest market share of around 65% in the passenger electric vehicle (EV) segment and is a leading player in the passenger vehicle segment with market share of around 13.3% as of December 2024. TMPVL and TML will maintain their market share over the medium term, aided by improved product portfolio and new product launches. ASAL will benefit from the growth of TML and TMPVL.

 

TACO has provided inter-corporate debt to ASAL to ensure timely debt servicing, which is expected to continue, if required.

 

• Improving operating performance: The operating performance of ASAL turned around in fiscal 2022, largely because of increased production of TML and TMPVL because of positive demand sentiments. Over fiscals 2020 to 2021, the automotive industry was in a downcycle on account of demand contraction owing to introduction of BS-VI emissions norms and the pandemic-induced lockdowns and disruptions, such as curtailment of consumption and infrastructure spending, and labour shortage. Economic activity resumed in fiscal 2022, leading to a revival in demand for automotives, with TML and TMPVL leading the way through new product launches, revamped product portfolio, first-mover advantage in EVs, and high brand value in commercial vehicles. In addition, owing to the expansion of ASAL’s product portfolio towards new value-added products such as battery trays and aluminum cooling tubes, etc. also resulted in increasing share of business with TML and TMPVL. Thus, while revenue increased from Rs. 339 crore during fiscal 2021 to Rs. 880 crore during fiscal 2024, operating margins have expanded from 0.0% to 5.8% over the same period.

 

Turnover will continue to grow in line with the increase in production by the principal customers, and the operating margin is expected sustain around 6-7% largely on the back of increasing share of value-added products.

 

Balance sheet deleveraging through debt reduction in fiscal 2022 has reduced the interest expense burden, and the company is likely to continue to generate consistent profit after tax (PAT) as against losses over fiscals 2013 to 2021.

 

Weaknesses:

• Susceptibility to inherent cyclicality in the auto industry: ASAL caters to the automotive industry, which is highly sensitive to economic cycles. Automotive original equipment manufacturers (OEMs) were adversely hit in fiscal 2020 owing to drop in consumer spending, weak monsoon, and imposition of BS-VI emission norms, and in fiscal 2021 by disruptions because of Covid-19. Growth recovered only from the second half of fiscal 2021 and performance remains vulnerable to economic downturns.

 

• High customer concentration in revenue: ASAL derives more than 80% of revenue from TMPVL, TML and other TACO group companies, resulting in revenue concentration risk. While this will continue, the company is looking to add clients to reduce customer concentration.

 

• Weak, albeit improving, financial risk profile: The company’s adjusted networth which remained negative due to continued losses on account of low operating margin and high interest burden emanating from sizeable debt in earlier years, has turned breakeven at the end of the second quarter of fiscal 2025 owing to substantial debt reduction undertaken in fiscal 2022 and improvement in the operating performance. A large portion of external borrowings relates to loans and advances from the Tata group. However, owing to one-off asset monetization of Rs. 113 crore, the company was able to deleverage its balance sheet by bringing down total debt to Rs 43 crore as on March 31, 2022, from the peak of Rs 158 crore a year earlier. In addition, on the back of improving operating performance, translating to healthier cash generation vis-à-vis capex spends, the company’s external borrowings have remained stable since then, and as on March 31, 2024, the total external borrowings stood at Rs. 46 crore, which includes related party (TACO) debt of Rs. 44 crore.

 

Reliance on external funding is expected to be limited over the medium term, and external borrowings will remain stable owing to rising cash accrual and its adequacy to cover majority of capex requirement. In addition, working capital requirement is expected to be negligible due to sustenance of negative net working capital cycle.

Liquidity: Adequate

Expected net cash accruals of around Rs. 30-45 crore per annum shall be adequate to cover yearly capex spends of Rs. 20-45 crore, and shortfall, if any, will be bridged through debt from the parent company or group entities. The company has no external borrowing hence the repayment obligation remains nil. Working capital requirement is expected to remain modest on account of sustenance of a low net working capital cycle. Furthermore, the company has access to fund-based limits of Rs 5 crore, which were unutilized during the nine months through to December 2024.

Outlook: Stable

Crisil Ratings believes ASAL will continue to benefit from regular funding support from TACO though the business risk profile will be constrained by modest operating efficiency. The financial risk profile remains weak but is expected to improve with better operating efficiency.

Rating sensitivity factors

Upward factors

• Upgrade in the ratings of the parent company.
• Substantial increase in operating profitability to above 8% on a sustained basis
• Improvement in the financial risk profile supported by accretion of profits.

 

Downward factors

• Significant decline in revenue or operating margin falling below 3% on sustained basis
• Any change in stance of support from TACO or weakening in the credit profile of the parent.

About the Company

ASAL was set up as JBM Tools Ltd (JBM) by SK Arya and Associates (SKAA) in March 1990 and got its current name in August 2003. ASAL manufactures sheet-metal stampings, welded assemblies and modules for passenger cars and commercial vehicles, largely for TML. These products account for more than 95% of revenue. The company has manufacturing facilities in Pune, Maharashtra; and Pantnagar, Uttarakhand.

ASAL went public in March 1994, and TACO, a Tata group company, became a joint venture (JV) partner in 1997. In April 2002, SKAA exited the JV and transferred its entire holding to TACO and Tata Industries Ltd ('Crisil AAA/Stable').

 
In February 2007, TACO entered into an agreement with Gestamp Servicios S L (Gestamp), under which both the companies were to hold equal equity stakes in ASAL. Consequently, Gestamp acquired 0.01% stake through an open offer, and TACO transferred 37.49% of its stake in ASAL to Gestamp. In February 2007, TACO reduced its stake to 37.5% (same as Gestamp), while the remaining shares were owned by the public and others. With the purchase of Gestamp's stake in December 2010, TACO now holds 75% stake in ASAL.

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 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