| TATA AutoComp Hendrickson Suspensions Private Limited | ||||||
| Rating outlook revised to 'Positive': Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of TATA AutoComp Hendrickson Suspensions Private Limited (THSPL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A+’; the short-term rating has been reaffirmed at ‘CRISIL A1+’.
The outlook revision follows a similar rating action as that on the joint venture (JV) partner Tata Autocomp Systems Ltd (TACO; rated CRISIL AA-/Positive/CRISIL A1+), wherein the outlook was revised to ‘Positive’ on account of expected improvement in the business risk profile, driven by healthy operating performance and an enhanced financial risk profile.
The rating action also reflects improvement in the operating performance of THSPL, as revenue over the nine months through fiscal 2022 picked up on account of revival in sales in the medium and heavy commercial vehicle (MHCV) segment of Tata Motors Ltd (TML; CRISIL AA-/Stable/CRISIL A1+). THSPL derives more than 90% of its total revenue from TML. The company has crossed the revenue earned in fiscals 2021 and 2020 in the first three quarters of the ongoing fiscal. This trend is expected to continue in the coming quarter on account of opening up of the economy, revival in infrastructure and mining activities and higher offtake by the customers. Improved demand from the end-user industry is also expected to benefit the operations in the ongoing fiscal. Recovery in MHCV demand, higher contribution from new products, increased sales from the current customers and a strong market position in the suspension systems segment will drive healthy, double-digit revenue growth from fiscal 2023 onwards.
Furthermore, the financial risk profile should remain supported by improvement in the performance in fiscal 2022 and absence of debt. Net cash accrual is expected at Rs 20-25 crore in fiscals 2023 and 2024 each. The ratings reflect the company’s strong liquidity, driven by large unencumbered cash balance of Rs 75 crore as on December 31, 2021. Liquidity should remain healthy over the medium term.
The company has planned large capital expenditure (capex) for construction of the building on the newly leased land. The company is proposing to shift its premises from its current lease and rented property to the new location, where it has entered into a 99-year-long lease contract with Maharashtra Industrial Development Corporation. The cost of construction of the building will be Rs 70 crore, while Rs 7 crore will go towards property, plant and equipment.
The planned capex of Rs 77 crore in fiscal 2023 will be funded by internal accrual (currently invested in mutual funds/fixed deposits.)
The ratings continue to reflect the company’s strong operational and financial linkages with TML and the JV partner, TACO. TACO is expected to provide financial support in case of distress, which is unlikely to occur over the medium term given the company’s strong financial and business risk profiles. These strengths are partially offset by the risk of high customer concentration in revenue and susceptibility to downturns in the commercial vehicle (CV) sector. |
Analytical Approach CRISIL Ratings has factored in the strong operational, financial and managerial support from TACO. |
Key Rating Drivers & Detailed Description Strengths Strong business linkages with TML and steady support from TACO The company derives more than 90% of its revenue from TML and benefits from its association and linkages with it in terms of launches and the strong market position of TML in the MHCV segment. The company has shown substantial revenue growth, benefiting from the increasing penetration of its lift axles and suspension systems in the CVs of TML and application of its new tipper models. New models from TML are also expected to boost sales over the coming years. Moreover, expected increase in contribution from new products, such as ULTIMAAX and HAULMAAX, over the next 2-3 years will help improve product diversity and increase the scale of operations.
THSPL continues to receive steady support from its holding company, TACO, and benefits from technical and financial collaboration with Hendrickson International, USA. TACO is also committed to extending need-based financial support to THSPL.
Healthy financial risk profile in the absence of debt THSPL has a debt-free capital structure, strong debt protection metrics, robust liquidity and moderate networth. Despite fluctuations in business over the past few years, the operating margin has remained healthy at 15-20% because of the company's strong competitive position. The company’s operations largely involve assembling of components, resulting in negligible capex. The capex being undertaken in fiscal 2023 is for constructing its own building on the new leased premises.
Weakness High customer concentration in revenue and exposure to cyclicality in the CV sector The company derives most of its revenue from TML despite addition of customers, such as Daimler India Commercial Vehicles Pvt Ltd (DICV) and Volvo Eicher Commercial Vehicles Ltd (VECV). Hence, THSPL is highly dependent on TML for maintaining and growing its business volume. Revenue declined 19% in fiscal 2021 on account of fall in MHCV volume. The customer concentration risk is partially offset by the leading market position of TML in the CV segment. In addition to high client concentration, THSPL faces segment concentration risk, with business limited to the cyclical CV sector, specifically the MHCV segment. |
Liquidity: Strong Liquidity is likely to remain strong over the medium term, driven by expected cash accrual of Rs 20-25 crore per fiscal in fiscals 2023 and 2024 in the absence of any debt obligation. Cash and equivalents stood at Rs 75 crore as on December 31, 2021. The company has sufficient cash accrual and cash equivalents to meet the capex of Rs 77 crore in fiscal 2023. Liquidity should remain strong, supported by stable operating performance of 20% and adequate cash generation. However, cash outflow has been high in fiscal 2022 because of large dividend pay-outs in the fiscal. This is expected to moderate in the coming fiscals. |
Outlook: Positive THSPL will maintain its healthy market position and benefit from increased demand from existing customers and venturing into newer segments. The financial risk profile should remain healthy over the medium term, driven by the absence of debt, steady cash generation and surplus liquidity. The outlook has been revised to ‘Positive’ from ‘Stable’ on account of better-than-expected performance of TACO, the JV partner that extends its operational, financial and managerial support to the company. |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Company Incorporated in June 2006, THSPL is an equal JV between TACO and US-based Hendrickson International. The company began commercial production in October 2007. It manufactures lift axles and tandem-boogie suspensions (TBS) for heavy CVs. Lift axles are auxiliary axles that can be used in rigid trucks to enhance their load-carrying capacity. TBS is a six-rod suspension system used in multiaxle vehicles to provide better on-road comfort and cross-articulation compared with conventional leaf-spring systems. THSPL supplies mainly to TML, DICV and VECV.
Over the nine months through fiscal 2022, the company reported revenue of Rs 203 crore and profit after tax (PAT) of Rs 27 crore against Rs 92 crore and Rs 10 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
*Interchangeable with bank guarantee **Interchangeable with letter of credit |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||
|
*Interchangeable with bank guarantee
**Interchangeable with letter of credit
Criteria Details
|