Rating Rationale
July 03, 2020 | Mumbai
Titan Engineering and Automation Limited
Rated amount enhanced; CP Withdrawn
 
Rating Action
Total Bank Loan Facilities Rated Rs.150 Crore (Enhanced from Rs.100 Crore)
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
 
Rs.20 Crore Commercial Paper CRISIL A1+ (Withdrawn)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'CRISIL AA-/Stable' rating on the long-term bank facilities of Titan Engineering and Automation Limited (TEAL) and has withdrawn its rating on the commercial paper on receipt of request from the company. The withdrawal of rating is in line with CRISIL's withdrawal policy.
 
The ratings reflect strong support from the parent, Titan Company Ltd (Titan; 'CRISIL AAA/Stable/CRISIL A1+'), and healthy financial risk profile. These strengths are partially offset by modest scale and exposure to competition in the industry.

Analytical Approach

The ratings factor in support from its parent, Titan. CRISIL believes that TEAL will receive operational, managerial and financial support from its parent, Titan, considering Titan's ownership of 100% stake in TEAL.

Key Rating Drivers & Detailed Description
Strengths:
* Operational, managerial, and financial support from Titan
TEAL receives operational, managerial and financial support from Titan. TEAL is expected to continue to receive the support due to strategic importance and ownership structure. Titan has infused an equity share capital of Rs 47 crores in TEAL during its inception. 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 financial risk profile
TEAL's healthy financial risk is marked by nil term debt, adequate internal accruals and low reliance on external debt. 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 have external debt in form of working capital borrowings. The debt protection metrics are expected to stay healthy with strong capital structure, low debt and adequate internal accruals.
 
Weaknesses:
* Competition in the automation industry and scale of aerospace business
TEAL faces competition from a number of small scale companies in the automation solutions business. However, TEAL draws competitive edge due to increasing brand presence and experience of executing large scale automation projects. The scale of operations for aerospace business stays modest as compared to large manufacturers in the industry.
 
However, going forward, CRISIL believes that scale of operations and competitive position of the company shall improve aided by its strong brand name and order execution capabilities.
Liquidity Strong

Strong liquidity is marked by adequate internal accruals, largely unutilised bank lines and healthy cash and cash equivalents. TEAL is expected to generate accruals of Rs 40-60 crore per annum over medium term which is expected to be sufficient to fund moderate capex of Rs 20-25 crore and incremental working capital requirements. TEAL's bank limits of Rs 120 crore were largely unutilised over 6 months ended May-2020. The limits were utilised only for non-fund based requirements. TEAL had cash and cash equivalents (including liquid investments) of Rs 64 crore as on June 23, 2020. TEAL has no long-term debt obligation. CRISIL expects the parent, Titan, to provide need based support, in case of exigencies.

Outlook: Stable

CRISIL believes TEAL will maintain its business risk profile over the medium term, driven by healthy growth expectations, while sustaining healthy financial risk profile.

Rating Sensitivity factors
Upward factors:
* Better than expected improvement in operating performance, in terms of revenue and profitability, and return on capital employed
* Significant improvement in scale with revenue while maintaining operating profitability around 20%.
 
Downward factors:
* Significant impact of operating performance with profitability below 15% on sustainable basis
* Larger-than-expected, debt-funded capital expenditure affecting the debt protection metrics
* Diminution in support from the parent
About the Company

TEAL is a wholly owned subsidiary of Titan, a part of 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 watch plant. Precision engineering components business began in 2002. With these capabilities, a separate SBU 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.
 
For the year ended March 31, 2020, TEAL reported revenue of Rs 462 crore with profit before tax of Rs 78 crore.

Key Financial Indicators
As on / for the period ended March 31,   2019 2018
Revenue Rs crore 343 252
Adjusted profit after tax Rs crore 43 13
PAT margin % 12.5 5.3
Adjusted debt/adjusted networth Times - 0.1
Interest coverage* Times 57.2 52.3
*CRISIL adjusted numbers

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 Proposed Long Term
Bank Loan Facility		 NA NA NA 150 NA CRISIL AA-/Stable
NA Commercial Paper NA NA 7-365 days 20 Simple Withdrawn
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  20.00  Withdrawn      31-12-19  CRISIL A1+  07-12-18  CRISIL A1+    --  -- 
Fund-based Bank Facilities  LT/ST  150.00  CRISIL AA-/Stable      31-12-19  CRISIL AA-/Stable  07-12-18  CRISIL AA-/Stable    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 150 CRISIL AA-/Stable Proposed Long Term Bank Loan Facility 100 CRISIL AA-/Stable
Total 150 -- Total 100 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Understanding CRISILs Ratings and Rating Scales

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