Rating Rationale
July 12, 2021 | Mumbai
Tata Industries Limited
Ratings Reaffirmed
 
Rating Action
Rs.6000 Crore Non Convertible DebenturesCRISIL AAA/Stable (Reaffirmed)
Rs.50 Crore Short Term DebtCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+' ratings on the non-convertible debentures (NCD) and short-term debt of Tata Industries Limited (TIL).

 

The ratings reflect the strong parentage of, and high strategic importance to, Tata Sons Pvt Ltd (Tata Sons; ‘CRISIL AAA/FAAA/Stable/CRISIL A1+’). The ratings also factor in the outstanding track record of need-based support extended by Tata Sons to group companies, along with its articulation to support TIL in debt servicing.

 

TIL operates as an investment holding company of the Tata group, and further incubates new business ventures. Tata Sons holds a dominant stake of 53.62% (directly and through subsidiaries) in TIL. TIL may further increase investments in various divisions/subsidiaries and JVs of TIL, including the new ventures.

 

Strong support from the parent, Tata Sons, is demonstrated through articulation of its intention to (i) maintain dominant shareholding in TIL and (ii) assist TIL in performing its obligations to all lenders and debt holders in full and in a timely manner.

 

The second wave of the Covid-19 pandemic outbreak may not have a material impact on TIL, given its technology-oriented nature of business, viz.  E-commerce, healthcare, food technology, advisory and e-learning, among others.

 

The ratings also factors in the adequate financial flexibility of TIL, supported by its significant investments in various flagship companies such as Tata Motors (‘CRISIL AA-/ Stable/ CRISIL A1+’) and Tata Steel, which have a healthy credit profile. The ratings also reflect the strong expertise of the management in incubating new businesses. These strengths are partially offset by exposure to volatility in returns from incipient business ventures and their inherent risk.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in the support available to TIL from Tata Sons, given the company’s strategic importance to the parent. CRISIL Ratings believes the total adjusted debt of TIL will not exceed Rs 6,000 crore.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong parentage of, and high strategic importance to, Tata Sons and expectation of parent support

As the vehicle for strategic investments of the Tata group in new and high-technology areas, TIL complements the investment philosophy of Tata Sons. TIL has played a central role in the group’s entry into several new business areas and also provides advisory services to other group companies. Tata Sons has articulated its intent to maintain a dominant shareholding in TIL and assist TIL in meetings its debt obligations. Tata Sons has an excellent track record of extending need-based support to subsidiaries and group companies, as seen in the case of Tata Teleservices Ltd. TIL may raise borrowings of up to Rs 6,000 crore to invest in Tata companies over the medium term. CRISIL Ratings believes given the strategic significance of TIL and parent’s articulation of support, the company will continue to receive need-based support from the parent.

 

  • Successful track record in incubating business ventures

The board of TIL comprises senior members from other group entities, lending high management strength. The company has successfully incubated several businesses, including auto ancillaries (Tata Autocomp Systems Ltd (TACO; CRISIL AA-/Stable/CRISIL A1+), telecom, logistics and supply chain solutions (Drive India Enterprise Solutions Ltd). In May 2019, it concluded the sale of its entire stake in defence, Tata Advanced Materials Ltd (TAML), to group entity, Tata Advanced Systems Ltd (TASL; ‘CRISIL AA/Stable/ CRISIL A1+’). Major businesses being promoted by TIL include Tata UniStore, a retail e-commerce portal which operates under the brand of Tata CliQ, and Tata SmartFoodz, a manufacturer of ready-to-eat foods using proprietary technology. TIL is also incubating businesses in healthcare, education, management consulting and analytics. 

 

Once a venture becomes self-reliant, TIL offers the entity support to sustain its growth. In some cases, partnerships are forged with separate verticals within the group. Few ventures which do not scale up or lack a strategic fit, are considered for sale/divestment. The proceeds from divestment are invested in ongoing businesses such as e-commerce, healthcare and technology. A prudent investment approach, combined with timely divestment in incubated businesses, has enabled TIL to operate with zero or limited debt over the past decade. During fiscal 2021, TIL raised external borrowings of about Rs 500 crore to support its JVs/subsidiaries.

 

Weakness:

  • Susceptibility to inherent risks in incipient business ventures

TIL is a core investment company, engaged in incubating early stage business ventures involving a high degree of financial, commercial, technological and regulatory risk. Hence, returns from these investments may be volatile. Nonetheless, these risks are partially offset by the strong parentage, access to capital, a well-qualified management and an effective risk management framework.

Liquidity: Superior, supported by parent, Tata Sons

TIL has holdings in listed entities of the Tata group with market value of over Rs 2700 crore as on July 1, 2021, a major portion of which is in Tata Motors Ltd. Cash and cash equivalent was about Rs 310 crore (Rs 425 crore as on March 31, 2020) with outstanding debt of Rs 500 as on March 31, 2021 (nil as on March 31, 2020). TIL also benefits from the strong financial flexibility of its parent, Tata Sons, stemming from its significant liquid investments in listed entities of the Tata group.

Outlook: Stable

CRISIL Ratings believes TIL will remain strategically important to Tata Sons. This, together with the strong parentage, should mitigate the risks associated with TIL's investments.

Rating Sensitivity factors

Downward Factors:

  • Change in Tata Sons’ strategic view on TIL
  • Reduction in Tata Sons’ shareholding (direct and through subsidiaries) in TIL below 51%
  • Any change in CRISIL Ratings' outlook on Tata Sons

About the Company

As a key investment vehicle of the Tata group, TIL spearheads investments in new business areas. Current focus areas are technology-intensive sectors and consumer facing businesses such as e-commerce, healthcare, life sciences, and food technology. The company has an advisory services division, Tata Strategic Management Group (TSMG), and an education division, Tata Classedge.

Key Financial Indicators: TIL (Standalone)

Year Ended Mar 31

Unit

2021

2020

2019

Revenue

Rs.Cr

242

253

227

PAT

Rs.Cr

-66

293*

151

RPAT margin

%

-27%

116%

67%

Adj. Gearing

Times

0.09

0.00

0.02

Interest Cover

Times

NM

NM

61

NM: Not meaningful

*Includes profit of Rs 327 crore from sale of investment in TAML

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)

ISIN

Name of Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size (Rs.Crore)

Complexity Level

Rating Assigned with Outlook

NA

Short Term Debt

NA

NA

7 to 365 days

50

 Simple

CRISIL A1+

INE760E08166

NCD

18-Jan-2021

Zero Coupon

16-Jan-2026

250

Simple

CRISIL AAA/Stable

NA

NCD*

NA

NA

NA

5750

NA

CRISIL AAA/Stable

*Yet to be raised

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST   --   -- 14-07-20 Withdrawn 12-02-19 CRISIL A1+   -- --
      --   -- 28-02-20 CRISIL A1+ 25-01-19 CRISIL A1+   -- --
Non Convertible Debentures LT 6000.0 CRISIL AAA/Stable   -- 14-07-20 CRISIL AAA/Stable 12-02-19 CRISIL AAA/Stable   -- --
      --   -- 28-02-20 CRISIL AAA/Stable   --   -- --
Short Term Debt ST 50.0 CRISIL A1+   -- 14-07-20 CRISIL A1+ 12-02-19 CRISIL A1+ 13-04-18 CRISIL A1+ CRISIL A1+
      --   -- 28-02-20 CRISIL A1+ 25-01-19 CRISIL A1+   -- --
Short Term Debt (including Commercial Paper and Short Term Non-Convertible Debentures) ST   --   --   --   -- 13-04-18 Withdrawn CRISIL A1+
All amounts are in Rs.Cr.
 
 

  

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Criteria for rating holding companies (including debt backed by pledge of shares)
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Approach to Recognising Default

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