Rating Rationale
July 14, 2020 | Mumbai
Tata Industries Limited
Ratings reaffirmed; CP withdrawn 
 
Rating Action
Rs.6000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.50 Crore Short Term Debt CRISIL A1+ (Reaffirmed)
Rs.200 Crore Commercial Paper CRISIL A1+ (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its CRISIL AAA/Stable/CRISIL A1+' ratings on the non-convertible debentures and short-term debt of Tata Industries Limited's (TIL's). CRISIL has withdrawn its 'CRISIL A1+' rating on commercial paper programme, at the company's request and on receipt of independent confirmation. This is in compliance with CRISIL's withdrawal policy.
 
The ratings are supported by the strategic importance of TIL to Tata Sons Pvt Ltd (Tata Sons; 'CRISIL AAA/FAAA/Stable/CRISIL A1+'). TIL operates as an investment holding company of the Tata group, in addition to incubating new business ventures. Going ahead, TIL is likely to increase investment in various divisions/subsidiaries and JVs of TIL, including newly incubated business ventures.
 
The ratings centrally factor in the strong support from the parent Tata Sons demonstrated by 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 impact of the Covid-19 pandemic outbreak is not likely to be material on TIL, given its technology oriented areas of operations, viz.  E-commerce, healthcare, life sciences, food technology, advisory and e-learning among others.
 
The ratings also reflect TIL's strong management strength in incubating new businesses. These strengths are partially offset by volatility in returns from incipient business ventures and their inherent risk.

Analytical Approach

CRISIL 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 believes the total adjusted debt of TIL will not exceed Rs 6,000 crore.

Key Rating Drivers & Detailed Description
Strengths
* Strategic importance to Tata Sons, and expectation of support from it  
TIL is the vehicle for the Tata group's strategic investments in new and high-technology areas, which complements the investment philosophy of Tata Sons. TIL has played a central role in the group's entry into several new business areas and provides strategic advisory services to other Tata group companies. The rating also factors in the dominant shareholding of Tata Sons in TIL.
 
TIL is expected to raise borrowings of up to Rs 6,000 crore for making investment in Tata companies. CRISIL believes that given the high strategic importance of TIL and the articulation of support, Tata Sons, as the largest shareholder, will continue to monitor and assist TIL to ensure that the debt obligations are met in full and on time.
 
* Successful track record in incubating business ventures
TIL's board comprises senior members within the group lending high management strength. TIL has successfully incubated several businesses, including auto ancillaries (Tata Autocomp Systems Limited -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; 'CRISIL A+/CRISIL A1/Watch Positive'), to group entity Tata Advanced Systems Ltd (TASL; 'CRISIL AA-/CRISIL A1+/Watch Developing'). 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. Apart from these, TIL is incubating businesses in healthcare, education, management consulting and analytics. 
 
These businesses are incubated in TIL. Once a venture scales to a self-reliant level, it is supported to continue on its growth journey. In some cases, it can forge partnerships with other Tata Companies. As part of the regular ongoing review of existing ventures, certain businesses which don't have the potential to scale or don't have strategic fit, are considered for sale/divestment. Proceeds of divestment are used for investment in ongoing businesses in areas 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 minimal debt in the past decade. CRISIL believes TIL will remain a strategically important entity and support the Tata group's entry in new segments.
 
Weaknesses
* Susceptibility to inherent risks in incipient business ventures
TIL is a core investment company engaged in incubating early stage business ventures with high degree of financial, commercial, technological and regulatory risk. Hence, returns from these investments may be volatile. Nonetheless, these risks are partially offset by strong parentage, access to capital, well qualified management and 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 about Rs 900 crore as on July 8, 2020, a major portion of which is in Tata Motors Ltd ('CRISIL AA-/Negative/CRISIL A1+'). Moreover, TIL had cash and cash equivalent of about Rs 425 crore and no external borrowings as on March 31, 2020, on a standalone level and Rs. 535 crore on a consolidated level. TIL is also supported by the strong financial flexibility of its parent, Tata Sons.
Outlook: Stable

CRISIL believes the strategic importance of TIL to Tata Sons will continue. This, together with the parentage, is expected to offset the risks associated with TIL's investments.
 
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's outlook on Tata Sons.

About the Company

TIL is one of the main investment vehicles of the Tata group, and spearheads investments in new business areas. Currently, the focus areas for investments 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 2019 2018
Revenue Rs.Cr 227 183
PAT Rs.Cr 151 -72
RPAT margin % 67% -39%
Adj. Gearing Times 0.02 0
Interest Cover Times 61 NM
NM: Not meaningful 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 Up to 365 days 50 NA CRISIL A1+
NA Commercial paper NA NA 7-365 days 200 Simple Withdrawn
NA Non-convertible debentures* NA NA NA 6000 NA CRISIL AAA/Stable
*Yet to be raised
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  200.00  Withdrawn  28-02-20  CRISIL A1+  12-02-19  CRISIL A1+          CRISIL A1+ 
            25-01-19  CRISIL A1+           
Non Convertible Debentures  LT  0.00
14-07-20 		 CRISIL AAA/Stable  28-02-20  CRISIL AAA/Stable  12-02-19  CRISIL AAA/Stable    --    --  -- 
Short Term Debt  ST  50.00  CRISIL A1+  28-02-20  CRISIL A1+  12-02-19  CRISIL A1+  13-04-18  CRISIL A1+  06-06-17  CRISIL A1+  CRISIL A1+ 
            25-01-19  CRISIL A1+           
Short Term Debt (including Commercial Paper and Short Term Non-Convertible Debentures)  ST    --    --    --  13-04-18  Withdrawn  06-06-17  CRISIL A1+  -- 
All amounts are in Rs.Cr.
 
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Securities Companies
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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