| Automotive Stampings and Assemblies Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Automotive Stampings and Assemblies Limited (ASAL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB/Positive/CRISIL A3+’.
The upgrade in the ratings follows a similar rating action as that of the parent 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 upgrade in ratings reflects improvement in business risk profile of ASAL driven by demand revival in automotive sector resulting in improvement in operating performance, addition of new customers, expected increase in order inflows from largest client i.e., Tata Motors Limited (TML, rated ‘CRISIL AA-/Stable/CRISIL A1+’; accounts for ~60% of revenues) and improvement in financial risk profile with steep reduction in debt levels. Networth, however continues to remain negative
Revenue grew by ~79% y-o-y in fiscal 2022 to Rs. 608 crores, while operating margins improved by 260bps to 2.6% during the same period on account of demand revival in the automobile sector post slowdown in fiscal 2020 and impact of covid in fiscal 2021. Sales volumes improved sharply largely due to strong demand for TML’s passenger vehicles and commercial vehicles on the back of economic revival driven by uptake in infrastructure spending and rise in consumption demand. The trend is expected to continue over the medium term on the back of new orders from TML and addition of new customers supported by positive Indian macro-economic environment and favorable growth prospects for automobiles sector. The Company’s top-line is expected to show strong growth in fiscal 2023 with margins sustaining at ~3%.
During fiscal 2022, ASAL’s cash accruals significantly improved due to strong growth in operating profits and one-off sale of land, and the proceeds were utilized to reduce debt levels (which reduced to Rs. 43 crores from Rs. 157 crores at the end of fiscal 2021). Major portion of total balance sheet debt represents loans from TACO. Despite negative net-worth and high volatility in operating profit generation, financial risk profile as on March 31, 2022, remains comfortable on the back of balance sheet de-leveraging. Furthermore, to support high top-line growth, the Company has ~Rs. 243 crores of capex planned over fiscal 2023 to fiscal 2025, and ~Rs. 200 crores is likely to be incurred in fiscal 2024. The capex investments shall be funded through external debt. Despite the debt funded capex plans, financial risk profile is expected to remain comfortable due to expected improvement in operating performance, resulting in de-leveraging.
The ratings continue to reflect strong support from TACO and improving business risk profile, however, these strengths are partially offset by high product and customer concentration, limited value addition in products and cyclicality in automobile industry. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial support ASAL receives from TACO, which holds 75% entity and has a track record of providing financial support by way of unsecured loans and intercorporate deposits. Adequate need-based support is likely to continue. |
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 the passenger car segment and commercial vehicle of TML. Tata Motors is the largest commercial vehicle manufacturer with ~42% market share; highest market share in passenger EV segment (~85%); and third largest player in passenger vehicles with consistent market share gains. TML’s market share is unlikely to be impacted over medium term driven by improved product portfolio and demand outlook. Hence, we expect ASAL to benefit from TML’s growth. In addition, TACO has provided inter-corporate debt to ASAL, to ensure timely servicing of debt obligation, and the same is expected to continue going forward as well.
Improving operating performance The Company’s operating performance witnessed a turnaround in fiscal 2022 largely on the back of TML’s passenger vehicle and commercial vehicle demand revival. In fiscal 2020, entire automobile industry witnessed downtrend on account of contraction in economic activity coupled with BS-VI norms; and in fiscal 2021, COVID-19 pandemic disruption resulted in large scale lockdowns, curtailment of consumption, labor shortage, and hence, resulting in severe economic contraction. However, in fiscal 2022, economic activity resumed, and strong offtake in demand resulted in revival of automobile demand, with Tata Motors leading the way due to new product launches, first mover advantage in EV, and high brand value in commercial vehicles. As a result of sharp top-line growth coupled with cost saving programmes, operating margins though low, improved to ~2.6%. Operating performance is further expected to slightly improve on account of positive macros, and addition of new customers, while and sustain above ~3%.
Weakness: Weak, albeit improving, financial risk profile The Company’s net-worth has remained negative due to continued losses on account of low operating margins, coupled with high interest payments due to high debt levels. Large portion of debt relates to loans & advances received from TATA Group (TACO, Tata Hendrickson, Tata Capital, etc.). However, due to improved cash accruals in fiscal 2022, driven by improved operating performance, and one-off land sale, the Company was able to de-leverage its balance sheet by repaying debt to the tune on ~Rs. 114 crores. Over fiscal 2023 to fiscal 2025, the Company expects to raise ~Rs. 130 crores debt to fund capex amounting to ~Rs. 243 crores during the same period. Despite the debt funded capex, financial risk profile is expected to remain comfortable on account de-leveraging through operating profits. Debt-to-EBITDA expected at 2.6 times in fiscal 2025 after initially peaking at 5.01 times in fiscal 2024. Net-worth is expected to remain negative in the medium term due to low operating margins and high interest payments. |
Liquidity: Adequate Liquidity will be driven by expected adequate cash accruals, unencumbered cash balance of Rs. 4 crores as on March 31, 2022, and cushion available in working capital bank limits. The Company has planned capex of ~Rs. 243 crores, out of which ~Rs. 130 crores shall be funded through debt. Financial risk profile remains comfortable despite debt-funded capex due to expected de-leveraging through operating profits, and continued support from parent. |
Outlook: Stable CRISIL Ratings believes ASAL will continue to benefit from the regular funding support from TACO, though the business risk profile will be constrained by low profitability and high dependence on TML. |
Rating Sensitivity Factors Upward factors
Downward factors
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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 the total revenue. It has manufacturing facilities in Pune and Pantnagar, Uttarakhand. |
Key Financial Indicators
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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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 9 | HDFC Bank Limited | CRISIL BBB+/Stable |
| Cash Credit | 2 | State Bank of India | CRISIL BBB+/Stable |
| Fund-Based Facilities | 10 | Axis Bank Limited | CRISIL BBB+/Stable |
| Letter of credit & Bank Guarantee | 15 | Axis Bank Limited | CRISIL A2 |
| Letter of credit & Bank Guarantee | 20 | HDFC Bank Limited | CRISIL A2 |
| Letter of credit & Bank Guarantee | 8 | State Bank of India | CRISIL A2 |
| Proposed Short Term Bank Loan Facility | 19 | Not Applicable | CRISIL A2 |
This Annexure has been updated on 16-Mar-2023 in line with the lender-wise facility details as on 10-Mar-2023 received from the rated entity.
Criteria Details
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