| Tata Toyo Radiator Limited | ||||
| Rating outlook revised to 'Positive', Ratings 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 revised its outlook on the long term bank facilities of Tata Toyo Radiator Limited (Tata Toyo) to ‘Positive’ from ‘Stable’ and reaffirmed its ratings at ‘CRISIL AA-’. The rating on the short term debt has been reaffirmed at ‘CRISIL A1+.
The outlook revision follows similar action of parent Tata Autocomp Systems Ltd (CRISIL AA-/Positive/CRISIL A1+), wherein the outlook was revised to Positive on account of expected improvement in business profile driven by healthy operating performance, and improvement in financial risk profile.
The ratings also factor in support from T Rad Co Ltd (T Rad), Japan, a leading global player in the engine-cooling systems segment for providing technical assistance. Tata Toyo has a healthy financial risk profile marked by steady cash accrual and comfortable capital structure. These rating strengths are partially offset by customer and segment concentration risks in revenue and exposure to cyclicality in demand in automobile industry.
Revenue is expected to recover in fiscal 2022 , after flat growth in fiscal 2021 with healthy demand prospects of its end key customers Tata Motors Ltd (TML; rated 'CRISIL AA-/Stable/CRISIL A1+') Mahindra & Mahindra (M&M rated 'CRISIL AAA/Stable/CRISIL A1+'), addition of new customers and healthy market position across product segments. Operating margin to improve to 10-11% led by focus on cost cutting measures.
Operating performance over the medium term is expected to steadily improve driven by addition of new customers, better demand and healthy market position across product segments. Going forward, the company is planning to incur moderate capex over next 2 fiscals which would be partly funded through proceeds from sale of its land at Hinjewadi. Hence, gearing is estimated to improve to 1.1 time in fiscal 2022 and will remain below 0.8 times over next two fiscals. Debt metrics are estimated to gradually improve with ramp up of scale and expected increase in net cash accruals over next two fiscals. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has factored in strong operational, financial, and managerial support from TACO. |
Key Rating Drivers & Detailed Description Strengths:
Tata Toyo's established position as the market leader for engine-cooling components is because it caters to a major portion of the requirements of Tata Motors, which is the leader in the domestic commercial vehicles (CV) segment.
Furthermore, Tata Toyo receives steady support from its parent TACO. TACO provides managerial support to its portfolio of joint ventures (JVs) and subsidiaries, including Tata Toyo, and helps them obtain loans from lenders at attractive rates. With Tata Toyo among the strongest performing companies in the TACO fold, the company is likely to receive support on a priority basis in case of exigencies.
Tata Toyo’s healthy operating performance is characterized by astute cost control and efficient asset and working capital management leading to healthy operating profitability of 11. Tata Toyo will maintain its operating profitability over the medium term through prudent cost control measures.
T Rad initially provided the technology for establishing the facility and continues to work closely with Tata Toyo, providing latest technological updates and helping implement processes to reduce wastage and improve efficiency. Besides free flow of technology to Tata Toyo, T Rad has also made available the services of its senior technicians to Tata Toyo.
Tata Toyo has a healthy financial risk profile, driven by healthy cash accruals and a comfortable capital structure. The company maintained a conservative gearing policy over last five fiscals. However gearing has increased gradually from 0.75 time in fiscal 2018 expected to be around 1.78 time in fiscal 2021 mainly on account of debt funded capex undertaken by the company. Tata Toyo is expected to carry out a capex programme in next 2 fiscals, Tata Toyo is expected to fund the capex through prudent mix of internal accruals and proceeds from sale of land. Tata Toyo is likely to generate healthy cash accruals over the medium term, supported by steady revenue growth and operating profitability, which will be adequate for the debt servicing obligations. Therefore, CRISIL believes that the company will maintain its comfortable gearing and debt protection metrics over the medium term.
Weaknesses:
The performance for the fiscal has remained in line with the end user demand as the auto and auto ancillary industry has experienced a slowdown in sales for the commercial vehicle (CV) segment which is not expected to show a substantial uptick in the next fiscal. Tata Toyo derives a substantial portion of its revenue from this CV segment. As a result the revenue is expected to remain exposed to any sustained downturn in demand in the domestic automobile industry.
Tata Toyo's revenue is dependent on the sales of Tata Motors, exposing the company to revenue concentration risk. This trend is expected to continue over the medium term with new products being catered mainly to Tata Motors. Also, despite Tata Toyo's presence in all the domestic automotive segments, the CV segment accounts for most of its revenue. Tata Toyo has marginal presence in the passenger car market and does not supply to Maruti Suzuki India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+') and Hyundai Motor India Ltd ('CRISIL AAA/Stable/CRISIL A1+'), which together control nearly two-thirds of the domestic passenger car market. CRISIL, therefore, believes that Tata Toyo's revenue will be vulnerable to fluctuations in offtake by Tata Motors and to cyclicality in the CV segment over the medium term. |
Liquidity: Strong Tata Toyo has strong liquidity driven by expected healthy cash accruals which will be adequate to service the expected repayment obligations of Rs 14-19 crore in fiscal 2022. The company also sold its land parcel in Hinjewadi in the current fiscal. The company also has access to fund based limits which remain moderately utilised with average utilisation of 35% over 12 months ended January 2022. Tata Toyo will continue to receive need based financial support from the parent. |
Outlook: Positive CRISIL Ratings believes that Tata Toyo will continue to benefit over the medium term from its steady cash accruals and healthy capital structure. Company revenues will grow at steady pace in BS VI regime aided by new technologies like Exhaust Gas Recirculation and addition of new clients. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Tata Toyo, based in Pune (Maharashtra), was established in 1997 as a three-way JV of TACO (51% ownership), T Rad (40.25 per cent), and Mitsubishi Corporation (8.75 per cent). Tata Toyo pioneered the production of aluminium radiators in India, and currently manufactures a range of engine cooling systems and components used therein. In 2018-19, around 45% per cent of Tata Toyo's revenue came from Tata Motors, while Mahindra & Mahindra Ltd ('CRISIL AAA/Stable/CRISIL A1+') and Ashok Leyland Ltd together accounted for about 20 % |
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)
*Credit exposure of Rs.1 crore as sub-limit for cash credit limit @With sub-limit of WCDL & PCFC, fully interchangeable ***Interchangeable with buyer's credit |
| 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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*Credit exposure of Rs.1 crore as sub-limit for cash credit limit
@With sub-limit of WCDL & PCFC, fully interchangeable
***Interchangeable with buyer's credit
Criteria Details
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