| Tractors and Farm Equipment Limited | ||||||
| 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 reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities and debt instruments of Tractors and Farm Equipment Limited (TAFE).
The domestic tractor volume declined by 6% in fiscal 2022 on account of negative farm sentiments due to delayed monsoon resulting in late harvest of kharif crops and impacting rural cashflows, steep increase in tractor costs due to commodity inflation, and normalization of government spending in rural schemes. The TAFE group’s tractor volume declined 9%, resulting in decline in market share by 50 basis points to around 18% during the fiscal. Decline in volumes and increase in key raw material prices has resulted in reduction of operating margins by ~300 bps to 12% in fiscal 2022 from ~15% in fiscal 2021 which was in line with industry. The group’s financial risk profile however continues to remain robust, supported by a debt-free balance sheet and sizeable cash surplus of over Rs 6,000 crore as of March 2022.
The TAFE group’s tractor volume growth is expected to improve due to moderate improvement in demand going forward, assuming normal monsoon and healthy reservoir levels. The improved farm sentiment at the beginning of fiscal 2023 has resulted in a 50.47% on-year growth in tractor volume for the group on a lower base, from 11,176 units in April 2021 to 16,817 in April 2022, against the industry growth of 40.59%, leading to improvement in market share to 18.85%. Continued initiatives to expand product offerings and geographical base should help the group maintain its market share and enable steady revenue growth for the company. Operating profitability is expected to improve in fiscal 2023 with expected improvement in domestic volume, softening of input prices and planned product price hikes. The group is likely to sustain its robust financial risk profile and liquidity given the steady accrual and moderate capex and working capital requirements.
The ratings continue to reflect the TAFE group’s established market position in the domestic tractor industry and healthy operating efficiency. The ratings also reflect the group’s robust financial risk profile and superior liquidity. These strengths are partially offset by the moderate diversity in revenue and susceptibility to downturns in the tractor industry. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of TAFE and its subsidiaries TAFE Motors and Tractors Ltd (TMTL; ‘CRISIL AA+/Stable/CRISIL A1+’) and TAFE Access Ltd (TAL; ‘CRISIL A+/Stable/CRISIL A1+’), collectively referred to as the TAFE group. This is because of the operational synergies and financial linkages among the companies.
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:
Weaknesses:
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Liquidity: Superior The TAFE group has superior liquidity driven by robust cash generating ability of over Rs 1,100 crore per annum and sizeable cash surplus of over Rs 6,000 crore as on March 31, 2022. The company is debt-free. Limited annual capex and incremental working capital requirement will be funded entirely through accrual. |
Outlook: Stable CRISIL Ratings believes the TAFE group will sustain its market position as the second largest domestic player in the tractor industry and will maintain its robust financial risk profile and liquidity . |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Set up in 1961, TAFE is the flagship company of the south India-based Amalgamations group. The company manufactures tractors in Madurai (Tamil Nadu) and Doddaballapur (Karnataka). TAFE also manufactures engineering plastics and power sources (batteries). TAFE was set up in technical and financial partnership with Massey Ferguson Ltd, which was acquired by AGCO, one of the largest farm equipment manufacturers in the world. As on March 31, 2022, Simpson & Co Ltd, a holding company of the Amalgamations group, owns 79.3% of TAFE, while AGCO owns the remaining 20.70%. In 2005, TAFE acquired the gears, tractors, and engine division of Eicher for Rs 350 crore through TMTL. |
Key Financial Indicators (Consolidated)
For FY22, the TAFE Group has achieved a Revenue of Rs.11464 Crore and PAT of Rs.1215 crore. |
| 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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||||||||
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Criteria Details
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