| Titan Engineering and Automation Limited | ||||
| Rating reaffirmed at 'CRISIL AA- / Stable' | ||||
| Rating Action | ||||
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| 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 strong support received from the parent, Titan Company Ltd (Titan; ‘CRISIL AAA/Stable/CRISIL A1+’) along with healthy topline growth and financial risk profile of TEAL. These strengths are partially offset by exposure to modest scale of operations, intense competition in the industry.
Revenue grew ~35% in fiscal 2023 to Rs 510 crore, driven by a strong order book (estimated over Rs 750 crore). Operating margin, however, declined to 10.0% owing to supply chain issues and increase in material cost and other expenses.
Under the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)’, TEAL will be undertaking a debt-funded capital expenditure (capex) of Rs 225 crore (over the next four years in a phased manner) to establish a new unit for manufacturing parts in semi-conductor Industry.
TEAL is expected to report strong topline over the medium term, driven by healthy order book, increased brand recognition and repeat orders from existing customers. Operating margin should also pick up due to the asset light model of automation business, increasing experience and better absorption of fixed costs with increasing scale of operations. |
Analytical Approach The rating factors in support from the parent, Titan. TEAL will receive operational, managerial and financial support from the parent, considering its 100% stake in TEAL.
CRISIL Ratings has combined the business and financial risk profiles of TEAL and its subsidiary, TEAL USA Inc, as both 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. It may continue to receive the support due to its strategic importance and ownership structure. Titan had infused an equity share capital of Rs 47 crore during the inception of TEAL. While both companies have different models of business and operate in different industries, TEAL has a common treasury structure with Titan and has common bankers.
Healthy topline growth driven by improving order book, increased brand recognition and repeat orders from existing customers TEAL is expected to report strong topline growth, driven by healthy order book due to continued orders from automation business and steady increase in the aerospace segment post the Covid-19 pandemic. Order book will further be supported by increased brand recognition and repeat orders from existing customers. The company caters to a wide range of industries such as automobile, healthcare, and fast-moving consumer goods. It also operates in the aerospace segment, catering to key suppliers to large aircraft manufacturing companies.
Healthy financial risk profile Financial risk profile should remain supported by low debt and steady cash accruals. Project type nature of orders and structured payments help the company to fund the working capital through internal resources. This in turn reduces the requirement of external working capital funding. However, with increasing scale of operations, TEAL may avail additional external debt in the form of working capital borrowings. Going ahead, TEAL is expected to onboard incremental debt, to fund its ongoing capacity expansion plans. The debt protection metrics are expected to remain healthy with comfortable capital structure and adequate internal accruals sufficient to fund future repayment obligations.
Weaknesses Competition in the automation industry and scale of aerospace business TEAL faces competition from several companies in the automation solutions segment. However, it draws competitive edge due to increasing brand presence and experience of executing large-scale automation projects. Scale of operations for the aerospace business stays modest as compared to large manufacturers in the industry.
Scale of operations and competitive position of the company shall improve over the medium term, aided by strong brand name and order execution capabilities.
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 higher working capital, which will be partly funded through cash accrual. Effective management of the working capital cycle remains a key monitorable. |
Liquidity: Adequate Liquidity should remain supported by adequate cash accrual, unutilised bank lines and healthy cash and cash equivalents. Cash accrual is projected at Rs 70-110 crore per annum, against yearly repayment obligation of Rs 25-40 crore over the medium term. TEAL has unutilised limit of Rs 106 crore as of April 2023. The parent, Titan, is likely to provide timely, need-based support, in case of exigencies. |
Outlook: Stable The business risk profile of TEAL will continue to be supported by continued performance of its automation and aerospace businesses. The company is also expected to sustain healthy financial risk profile, supported by steady cash generation, adequate networth and healthy capital structure. |
Rating Sensitivity factors Upward factors • Better-than-expected improvement in operating performance, in terms of revenue and profitability at 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 rises more than 2 times • Diminution in support from the parent |
About the Company TEAL is a wholly owned subsidiary of Titan, a part of the Tata group. TEAL is involved in providing automation solutions and supplying 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. Precision engineering components business began in 2002. With these capabilities, a separate business unit in the form of Precision Engineering Division (PED) was formed 2004 and external customers were acquired. PED was demerged from Titan into TEAL, a wholly owned subsidiary in 2015-16. TEAL has two facilities in Hosur, Tamil Nadu. |
Key Financial Indicators
CRISIL Ratings-adjusted |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with Import letter of credit, foreign letters of credit, standby letters of credit, bank guarantees, Cash Credit and WCDL. |
Annexure – List of entities consolidated
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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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