| TM Automotive Seating Systems Private Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A2+' ratings on the bank facilities of TM Automotive Seating Systems Private Limited (TMAS).
The rating continues to reflect expected sharp increase in scale to ~Rs 600 crore in fiscal 2022 from Rs 239 crore in fiscal 2021 supported by new orders from Tata Motors Ltd (TML; rated ‘CRISIL AA-/Stable/CRISIL A1+’) and addition of new customers and segments. It also reflects expected improvement in parent Tata Autocomp Systems Ltd’s (TACO; CRISIL AA-/Positive/CRISIL A1+) business profile driven by healthy operating performance, and improvement in financial risk profile.
Operating profitability of TMAS is expected to improve to 10-11% in fiscal 2022 owing to higher capacity utilization of ~80-85% and improved operating efficiencies from increased scale. In medium term, revenue growth is expected to normalise, while operating profitability is expected to sustain above 10% supported by setting up of a new backward integration unit. As a result, TMAS is expected to generate net cash accruals of Rs 28-50 crore in the medium term.
Given the healthy order book from TML and addition of new orders from PSA, Renault, TMAS has set up a new facility in Chennai to cater to these new orders. The Company has diversified into new segments such as railways, industrial products and 2-wheeler in current fiscal. The Company is already supplying to OLA Electric scooter program from its Chennai facility. Company to be incur capex of ~Rs 22 crore towards setting up of Chennai facility and expansion of Pant Nagar facility in fiscal 2022 to be financed through internal accruals resulting in minimal dependence of debt. In medium term, capex of ~Rs 27 crore is to be undertaken for setting up of backward integration unit in Chakan, Pune region which is also be financed entirely from internal accruals. For next 2 years, debt protection metrics will be comfortable, with interest coverage at over 21 times and net cash accrual to total debt ratios at ~195%, respectively in fiscal 2022.
Liquidity is expected to remain comfortable with unutilized bank lines of about Rs 15 crore and Rs 15 crore short term loan. The company has ~Rs 50 crore of cash equivalents as on 31st December 2021.
The ratings reflect TMAS’ healthy business and financial risk profiles. These strengths are partially offset by exposure to intense competition and cyclicality in demand from few end-users. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has factored in the strong operational, financial, and managerial support that TMAS receives from Tata Autocomp Systems Ltd (TACO; rated ‘CRISIL AA-/Positive/CRISIL A1+’). |
Key Rating Drivers & Detailed Description Strengths:
TMAS' presence in the domestic and export markets is underpinned by its collaboration with promoters, TACO and Magna International (Magna). Association with TACO has enabled TMAS to be the preferred supplier of seats and seating systems to the passenger vehicle models of Tata Motors Ltd (Tata Motors; rated ‘CRISIL AA-/Negative/CRISIL A1+’). CRISIL believes TMAS will remain strategically important to TACO, considering the favorable business opportunities in the auto-component space, and thus, should receive need-based financial support from the parent.
CRISIL Ratings believes strong linkages with promoters will further sharpen TMAS's technical edge, strengthen customer relationships, and translate into revenue growth, over the medium term. The joint venture (JV) partners are also likely to continue extending financial support to TMAS, in the event of financial exigencies.
Expected increase in scale of operations from Rs 239 crore in fiscal 2021 to ~Rs 600 crore in fiscal 2022 owing to new orders from TML, strong demand in PV segment and onboarding of new customers (Renault, PSA, Ashok Leyland etc.). TML solely contributes 80-85% of the overall revenue. TMAS has a diverse portfolio, catering to multiple product segments. It supplies to the passenger vehicle, Commercial vehicle as well as agriculture, off road and railways segments. There is a healthy order pipeline for new launches from its key customer-Tata Motors. The Company has also diversified into new segments such as railways, industrial products and 2-wheeler, in the current fiscal. The Company is already supplying to OLA Electric scooter program from its Chennai facility. As a result, CAGR growth is likely to be ~70% over next three-year period.
TMAS should maintain a stable business risk profile over the medium term, supported by an expanding customer base, and strong share of business with major domestic original equipment manufacturers (OEMs). As a result, market position is likely to strengthen further.
Cash accrual of Rs 28-40 crore expected in 2022, should cover the moderate capex spend, in the absence of any long-term repayment obligations in fiscal 2022. Hence, total debt is expected to remain at nil levels. As a result, gearing will remain comfortable below 0.2 time in this fiscal. Debt protection metrics to remain healthy, with interest coverage and net cash accrual to total debt ratios being comfortable over 21 times and 200--250%, respectively, in the medium term. Debt protection metrics will improve further once the benefits from the capex are realized. TOL/TNW is on improving trend at 2.64 times in fiscal 2021 and is expected to further improve to below 2 times in medium term.
Weakness:
As TMAS supplies largely to OEMs, profitability is vulnerable to pricing pressures from customers and peers. Certain players with surplus capacity, even offer to supply products to OEMs, at lower rates to procure orders. These factors constrain the pricing power of TMAS, affecting its profitability, despite the company having competitive technologies and a diversified segment profile. Strong performance from its key customer TML has aided in recent year. However, any decline in demand may impact margin of the company. |
Liquidity: Adequate Liquidity will remain adequate, driven by expected cash accrual of Rs 28-40 crore per annum, nil debt obligations in the medium term. Cash and cash equivalents were ~Rs 50 crore as on December 31, 2021. Bank limit of Rs 15 crore remain unutilized. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company TM Automotive Seating system was incorporated on 20th March 2015 and is a 50:50 joint venture company between Tata AutoComp Systems and Magna International. TM Automotive seating system is into designing and manufacturing of seating systems for passenger cars, SUV and commercial vehicles. TM Seating have manufacturing footprints in Pune, Maharastra and Dharwad, Karnataka. Products of the company include Passenger vehicle seating, Bus seating, SCV seating, M & HCV, Agri & Off-highway seating.
For nine months ended December 31, 2021, TMAS has reported a PAT of Rs 27 crore on total revenue of Rs 409 crore. |
Key Financial Indicators
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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)
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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 | ||||||
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Criteria Details
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