labels: automotive components, automobiles - general, crisil, investment - general
CRISIL "AA" for Tata Autocomp Systems NCD issuenews
10 June 2005

Rs. 250 Million Non-Convertible Debenture Issue AA/Stable
(Assigned)
Rs. 250 Million Non-Convertible Debenture Issue AA/Stable
(Reaffirmed)

Tata Autocomp Systems Limited's (Taco) Rs250 million NCD issue has been assigned CRISIL's AA / 'stable'and reflects the company's importance for the Tata Group's entry into the automotive components sector and for being its arm to enter the global auto components arena.. The rating factors in support from Tata Industries Limited (rated 'AA/Stable/P1+' by CRISIL), for its active involvement in the management and strategic decisions of Taco.

Taco has promoted various joint ventures that produce a variety of auto components such as automotive seating, radiators, plastic components, mirrors sheet metal parts, etc, and also offers services in the engineering, supply chain management and automotive electronics business.

The rating also factors in the merger of its 100 per cent subsidiary, Tata Auto Plastics Limited (Tata Auto Plastics) with itself. Tata Auto Plastics, with its strong engineering and tooling capabilities, is one of the leading suppliers in the domestic auto-plastic moulding components segment with around 30 per cent market share. Tata Auto Plastics also has a small, but growing, presence in the international market and is increasingly focusing on the export markets, CRISIL Ratings believes that the merged entity will benefit from Taco's large marketing network and have greater focus in pursuing orders from international OEMs.

The rating is, however, constrained by the inherent uncertainty associated with the returns on Taco's investment portfolio given the commercial risks. Of its total investments in the joint ventures, Taco had initially financed an estimated 85 per cent from its own funds. A majority of the early joint ventures have, however, started reporting profits and declaring dividends, which mitigates the investment risks to a large extent.

Post merger with Tata Auto Plastics, Taco has a moderate financial profile with an estimated gearing of around 0.70x and an interest cover of 4.45x in FY2004-05. Going forward, capex plans of the merged entity will be funded entirely by debt, which will prevent any significant improvement in its gearing. However, its overall financial profile is likely to improve significantly over the next 2 years given the capital infusion from the Tata group to fund its fresh investments and the higher dividend income and administrative services fees.

Outlook: CRISIL Ratings expects Taco's financial profile to improve as its joint ventures turn profitable over the next year or two and dividend streams from them augment its operating revenues. CRISIL Ratings also expects Tata Industries to support Taco's expansion plans and provide financial assistance in case of any exigencies in the medium term.

About the company: Promoted by the Tata group in October 1995, Taco is positioned in the auto components space as a technology company and is structured as a holding company for multiple joint ventures across five strategic business groups.

Its equity and technology partners include global majors like Johnson Controls, Inc, Yazaki Corp., Toyo Radiator Company and Sungwoo Hi-Tech. Taco's structure allows it to collaborate with several global majors to access their technology and customer relationships in different product categories. Currently, the Taco group has 15 manufacturing facilities across its various joint ventures. Taco is also expecting a few more joint ventures in the near future.

In 2003-04, Taco posted profits for the first time since its inception. Going forward, CRISIL expects the company's profitability to improve on the back of increasing revenues from the high-margin engineering business, dividends from its joint-ventures and the overall growth of the automobile sector.


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CRISIL "AA" for Tata Autocomp Systems NCD issue