| Fiat India Automobiles Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper of Fiat India Automobiles Private Limited (FIAPL)
The ratings continue to reflect the inherent strength of the company’s business model owing to cost plus arrangements entered into with original equipment manufacturers (OEMs), insulating the company from fluctuations in input cost, and limited downside risks because of take-or-pay agreements. This has resulted in stable and healthy cash accrual and thereby further strengthening the capital structure and debt protection metrics. These strengths are partially offset by limited diversification in the revenue stream with heavy reliance on key models and modest market position of the OEM partners in the domestic passenger vehicle (PV) segment.
Revenue increased by 37% to Rs 21,434 crore in fiscal 2023 backed by strong volume growth in car and powertrain divisions primarily owing to strong order inflow from Tata Motors Passenger Vehicle Ltd (TMPVL; ‘CRISIL AA/Stable/CRISIL A1+’) aided by auto industry demand tailwinds. FIAPL is the sole partner for assembling Tata Nexon models. Strong demand and market share gains by Tata Nexon model variants resulted in increased volume sales. Furthermore, FIAPL is also the sole manufacturer of Fiat-branded Jeep cars in India and steady demand for Jeep variants. In addition, within the powertrains division, the company is the sole supplier for Tata Altroz, Tata Punch (for petrol engines), Tata Harrier and MG Hector (for diesel engines); strong demand for the said models resulted in healthy volume growth.
Operating profitability increased by 12% to Rs 1,414 crore in fiscal 2023. FIAPL follows a cost-neutral model and is insulated from variations in input prices and commodity inflation. In addition, assured take-or-pay arrangement with principal OEMs protects the company from downside risks arising out of volume fluctuations. Under the Industrial Promotion Scheme (IPS scheme applicable till 2043) of the Maharashtra government, the company receives refund of state goods and services tax (SGST) portion for all vehicles manufactured and sold in Maharashtra. Around 35% of the SGST refund is retained by the company while the balance of 65% is passed on to the respective joint venture (JV) partners. Hence, with higher vehicle sales, the bottom-line improves on account of higher receipts under the IPS scheme.
The financial risk profile remains strong, backed by robust capital structure and strong debt protection metrics. Capital structure marked by total outside liabilities to adjusted networth (TOL / ANW) stood at 0.60 times as on March 31, 2023, and over the medium term the said metric is expected to improve to under 0.50 times, despite capital expenditure (capex) investments of Rs. 750-850 crore expected over fiscal 2024-25 towards sustenance and capacity enhancement. The said capex is expected to be met through internal accruals with minimal reliance on external funding. Key debt protection metrics, such as interest coverage is expected to remain healthy at approximately 15 times over the medium term, thereby providing sufficient buffer to cash flows. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of FIAPL as the company does not have any subsidiaries. |
Key Rating Drivers & Detailed Description Strengths: Strong market position for FIAPL assembled or manufactured car variants for principal OEMs: FIAPL is the sole assembler of Tata Nexon model variants; robust demand for the same backed by premiumisation and electric vehicle acceleration resulted in higher volume offtake leading to consistent market share gain within the category for utility vehicles of less than Rs 20 lakh. Also, the company supplies powertrains for 1.2 litre petrol and 2 litre diesel engines; it is the sole supplier of powertrains to car variants Tata Altroz, Tata Punch (petrol engines), Tata Harrier and MG Hector (diesel engines). Strong demand offtake for the said variants resulting in incremental market share has in turn been beneficial to FIAPL’s powertrains division. As a result, FIAPL’s revenues have grown at nearly 25% 5-year CAGR.
Cost neutral model and take-or-pay arrangement offsets profitability risks: FIAPL follows a cost-neutral model, ensuring fixed contribution irrespective of volume transition. In addition, take-or-pay arrangement allows for effective fixed cost recovery, resulting in limited profitability downside risk. As a result, operating profitability remains stable.
Healthy and improving financial risk profile: FIAPL has been deleveraging its balance sheet through debt servicing. Effective working capital management has resulted in healthy cash conversion, enabling sufficient coverage of capex investments. This is despite build-up in IPS receivables over the past three fiscals owing to substantial volume offtake; time lag for receipt of IPS is 18-24 months. Because of effective cash flow management, adjusted gearing (gross debt to adjusted networth) improved to 0.09 time as on March 31, 2023, from 0.22 time as on March 31, 2022, and is expected below 0.10 time over the medium term despite capex investment of Rs 750-800 crore over fiscals 2024-25. The capex and working capital requirement will be funded through internal accrual, with minimal dependence on external funding. Interest coverage ratio is expected above 15 times over the medium term, providing sufficient buffer to cash flow.
Weaknesses: Modest market position of key customers: Fiat India’s principal customer, TMPVL as on December 31, 2022, has a market share of 14% in the intensely competitive domestic passenger vehicle (PV) segment, which has increased from ~5% in fiscal 2020. Besides, FIAT’s own market share in the domestic PV segment remains low at around 1%. Though the take-or-pay arrangement covers the fixed cost the revenue and absolute profit are constrained due to the cost plus model and in case there is a moderation in sales, it would lead to reduction in Industrial Promotion Subsidy (IPS) refunds.
Limited diversity in revenue stream with heavy reliance on key models: The company’s business prospects are linked to the performance of the models Jeep Compass and Tata Nexon. While the company is likely to receive business for the upcoming models of its principal customers, owing to growing premiumisation and electric vehicle acceleration, demand within mid-price category utility vehicles remains robust, and hence, the segment is intensely competitive. Hence, the market share of Tata Nexon and Jeep Compass vis-a-vis industry transition will be a key monitorable. |
Liquidity: Strong Expected cash accrual of Rs 1,300-1,450 crore per annum and cash surplus of Rs 308 crore as on March 31, 2023, will sufficiently cover debt obligation of approximately Rs. 477 crore during fiscal 2023-24. Besides, utilisation of working capital limit of Rs 610 crore was moderate at 32% on average over the 12 months through March 2023. Working capital requirement and capex investment of Rs 750-800 crore over fiscals 2024-25 is expected to be funded through internal accrual, with minimal reliance on external funding. |
Outlook: Stable CRISIL Ratings believes the business risk profile of FIAPL will continue to benefit from new variants of Jeep and TMPVL, steady export and higher supplies of powertrain over the medium term. Furthermore, its cost-plus structure and the take-or-pay agreement with Stellantis and TMPVL will help the company generate healthy cash accrual. This, along with prudent funding of capex and progressive debt repayment, will strengthen the debt protection metrics and sustain a strong financial risk profile. |
Rating Sensitivity factors Upward factors • Upcoming new car model additions to the product mix from principal OEMs resulting in diversified product mix. • Increase in principal OEMs resulting in diversified revenue stream and reducing dependence on current JV partners. • Steady growth in scale of operations with return on capital employed above 15% on sustained basis.
Downward factors • Significant decline in demand from the principal customers, leading to higher dependence on take-or-pay agreement for managing operations. • Delay in realisations of take-or-pay receivables, adverse changes in sales agreement with principal customers or substantial build-up in IPS receivables. • Weakening of the financial risk profile because of large, debt-funded capex or stretched working capital cycle leading to debt to earnings before interest, tax, depreciation and amortisation ratio of more than 1.5 times. • Material change in credit profile of JV partners. |
About the Company Fiat India Automobiles Ltd (FIAPL) is a 50:50 JV between Fiat Group Automobiles S.p.A (subsidiary of Fiat Chrysler Automobiles N.V. which along with Peugeot S.A. merged to form Stellantis N.V., rated 'BBB/Stable/A-2' by S&P Global Ratings) and Tata Motors Ltd (TML, rated ‘CRISIL AA/Stable/CRISIL A1+’). The JV was constituted on December 28, 2007 for:
a) Producing Fiat-branded cars to be sold in the Indian markets and for exports b) Producing powertrains (transmissions & engines) for Tata, FCA (Stellantis), & other potential third parties c) Assembly of Tata branded cars
Both JV partners have equal voting rights and together have 8 members on the board (TML has 4 directors and FCA (Stellantis) also has 4 directors), however, on account of some internal realignment the current strength is at 4:3 (FCA: TML). However, the board intends to fill this vacancy promptly.
The plant has two divisions—for cars and powertrains, with annual production capacities of 200,000 cars and 400,000 powertrains (300,000 for 1.2L petrol engines and 100,000 2L diesel engines). The company has entered a take or pay agreement with both the JV partners who are also its key customers. The take or pay agreement was further revised in fiscal 2013 through restructuring framework agreement wherein certain accounting changes were done and margins were set for the company.
During fiscal 2021, company has completed the last phase of capex to be done for conversion of 1.3 litre diesel engine powertrain capacity (which was earlier being used by Maruti) to 1.2 litre petrol engine. The current capacity of 1.2L Engine being 3 lakhs. |
Key Financial Indicators – CRISIL Ratings Adjusted Numbers
*FY23 figures and ratios are based on provisional financials. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Interchangeable with bank guarantee |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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