Rating Rationale
April 04, 2024 | Mumbai
Titan Engineering and Automation Limited
Rating reaffirmed at 'CRISIL AA-/Stable'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.600 Crore (Enhanced from Rs.500 Crore)
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable’ rating on the long-term bank facilities of Titan Engineering And Automation Ltd (TEAL).

 

The rating continues to reflect the strong support TEAL receives from its parent, Titan Company Ltd (Titan; ‘CRISIL AAA/Stable/CRISIL A1+’), and the company’s healthy topline growth and financial risk profile. These strengths are partially offset by modest scale operations and exposure to intense competition.

 

Revenue grew ~15% to Rs 388 crore for the first nine months of fiscal 2024, driven by a robust order book, especially in the automation segment, led by increased demand from the electric vehicle (EV) sector. This growth was supported by a continued uptick in the average ticket size of orders. Along with revenue growth, the operating margin is expected to improve in fiscal 2024 as the asset-light nature of the automation business model allows better absorption of fixed costs as the scale of operations expands.

 

Under the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), TEAL is in the midst of debt-funded capital expenditure (capex) of Rs 225 crore (in phases over the next four years) to establish a unit for manufacturing parts for the semi-conductor industry. Additionally, over the next 3-5 years, TEAL will undertake capacity expansion to grow its Aerospace segment, which is expected to be funded through internal accrual.

 

TEAL is likely to report healthy topline over the medium term, driven by a growing order book, increased brand recognition and repeat orders from existing customers.

Analytical Approach

The rating factors in support from Titan. TEAL will receive operational, managerial and financial support from the parent, which has 100% stake in the company.

 

CRISIL Ratings has combined the business and financial risk profiles of TEAL and its subsidiary, TEAL USA Inc, as both the entities have operational and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Operational, managerial, and financial support from Titan: TEAL receives operational, managerial, and financial support from Titan, and will likely continue to receive support due to its strategic importance and ownership structure. Titan had infused equity share capital of Rs 47 crore during the inception of TEAL. While both companies have varying business models and operate in different industries, TEAL has a common treasury structure with Titan and has common bankers.

 

  • Healthy topline growth driven by growing order book, increased brand recognition and repeat orders from customers: TEAL is likely to report strong topline growth, driven by healthy order book with continued orders in the automation business and steady increase in the aerospace segment post the Covid-19 pandemic. The order book will also be supported by increased brand recognition and repeat orders from customers. TEAL caters to a wide range of industries, such as automobile, healthcare and fast-moving consumer goods, and recently entered the EV sector. It also operates in the aerospace segment, catering to key suppliers to large aircraft manufacturing companies.

 

  • Healthy financial risk profile: The financial risk profile should remain supported by moderate debt to fund capex and steady cash accrual. Project-type orders and structured payments help the company fund the working capital requirement through internal resources, thereby reducing the need for working capital debt. However, as scale of operations increases, TEAL may avail of additional working capital borrowings. The debt protection metrics are expected to remain healthy, despite incremental debt to fund the ongoing capex, backed by comfortable capital structure and adequate internal accrual to service the debt.

 

Weaknesses:

  • Exposure to competition in the automation industry and modest scale of the aerospace business: TEAL faces competition from several companies in the automation solutions segment. However, increasing brand presence and experience of executing large-scale automation projects gives the company a competitive edge. 

 

In the aerospace business, the company’s scale remains modest compared to large manufacturers. The scale of operations and competitive position will improve over the medium term, aided by strong brand and order execution capability.

 

  • Working capital-intensive operations: Gross current assets were 250 days as on March 31, 2023, due to staggered and milestone-based project receipts, leading to increased inventory and receivables. As TEAL continues to grow, it will require more working capital, which will be partly funded through cash accrual. Effective management of the working capital cycle will be a key monitorable.

Liquidity: Strong

Liquidity should remain supported by adequate cash accrual, unutilised bank lines and healthy cash and equivalents. Cash accrual is projected at Rs 70-100 crore per annum, against yearly debt obligation of Rs 30-40 crore over the medium term. TEAL had unutilised fund-based limit of Rs 267 crore as of January 2024. The parent, Titan, is likely to provide timely support when needed.

Outlook: Stable

The business risk profile of TEAL will continue to be supported by continued healthy performance of its automation and aerospace businesses. The financial risk profile should remain healthy, supported by steady cash generation, adequate networth and comfortable capital structure.

Rating Sensitivity factors

Upward factors

  • Better-than-expected improvement in operating performance, in terms of revenue, operating profitability (15-17%) and return on capital employed.
  • Improvement in the working capital cycle and sustenance of healthy financial risk profile with comfortable capital structure.

 

Downward factors

  • Significant impact of operating performance with Operating margins below 10% on a sustainable basis.
  • Further stretch in the working capital cycle or debt-funded capex affecting the debt protection metrics such that total outside liabilities to tangible networth ratio above 2 times.
  • Any change in the credit profile of Titan or reduction in its ownership in TEAL to less than 51%.

About the Company

TEAL is a wholly owned subsidiary of Titan, a part of the Tata group. TEAL provides automation solutions and supplies aerospace components.

 

The first machine was built by the automation team within Titan for the watch plant in 1989. By 2004, more than 300 machines and automation solutions were provided to the watch plant. The precision engineering components business began in 2002. With these capabilities, a separate business unit, Precision Engineering Division (PED), was formed in 2004 and external customers were acquired. PED was demerged from Titan into TEAL, a wholly owned subsidiary in fiscal 2016. TEAL has two facilities in Hosur, Tamil Nadu.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

510

379

Reported profit after tax (PAT)

Rs.Crore

21

16

PAT margin

%

4.2

4.1

Adjusted debt/adjusted networth

Times

0.12

0.03

Interest coverage

Times

20

64

CRISIL Ratings-adjusted

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 levels Rating assigned with outlook
NA Working capital facility* NA NA NA 375 NA CRISIL AA-/Stable
NA Term loan NA NA Mar-2028 110 NA CRISIL AA-/Stable
NA Term loan NA NA Mar-2029 115 NA CRISIL AA-/Stable

*Interchangeable with import letter of credit, foreign letters of credit, standby letters of credit, bank guarantees, cash credit and working capital demand loan

Annexure - List of Entities Consolidated

Names of entities consolidated

Extent of consolidation 

Rationale for consolidation 

TEAL USA Inc

Full

Operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 600.0 CRISIL AA-/Stable   -- 30-08-23 CRISIL AA-/Stable 02-05-22 CRISIL AA-/Stable 08-09-21 CRISIL AA-/Stable CRISIL AA-/Stable
      --   -- 31-07-23 CRISIL AA-/Stable   -- 16-07-21 CRISIL AA-/Stable --
      --   -- 03-03-23 CRISIL AA-/Stable   --   -- --
Commercial Paper ST   --   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Term Loan 110 RBL Bank Limited CRISIL AA-/Stable
Term Loan 115 Axis Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 45 HDFC Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 30 Standard Chartered Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 15 Standard Chartered Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 116 Standard Chartered Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 5 ICICI Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 4 Canara Bank CRISIL AA-/Stable
Working Capital Facility^ 20 ICICI Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 5 Axis Bank Limited CRISIL AA-/Stable
Working Capital Facility^ 135 HDFC Bank Limited CRISIL AA-/Stable
^ - Interchangeable with import letter of credit, foreign letters of credit, standby letters of credit, bank guarantees, cash credit and working capital demand loan
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for Consolidation

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