| Rs. 0.50 Billion Non-Convertible Debenture Issue | AA+/Stable (Reaffirmed) |
| Rs. 1.85 Billion Non-Convertible Debenture Issue | AA+/Stable (Rating Withdrawn) |
| Rs. 1.42 Billion Non-Convertible Debenture Issue | AA+/Stable (Rating Withdrawn) |
| Rs. 12.00 Billion Short-Term Debt Programme | P1+ (Reaffirmed) |
The ratings on the debt programmes of Tata Motors Limited continue to reflect its strong market position across commercial vehicles, passenger cars, and utility vehicles, and a strong financial profile. Tata Motors' strong market position stems from a dominant 60 per cent share in India's commercial vehicles market, supported by a widespread distribution and after-sales service network.
With a wide product portfolio of more than 130 models, Tata Motors has a strong presence across the light and heavy vehicles segment. This enables it to benefit from a shift in demand towards Medium & Heavy Commercial Vehicles (M&HCV) for longer haulage and light commercial vehicles (LCV) for distribution from prominent transport nodes.
In the LCV segment, the continued success of '207 DI/307 DI', and its variants and the recent success of 'Tata ACE' in the high growth sub-four tonne category, have improved Tata Motors' market share to an estimated 59 per cent in 2005-06 (refers to financial year from April 1 to March 31) from 43 per cent in 2002-03. Further, transfer of technology and newer designs from its overseas acquisitions (namely Tata Daewoo CV Ltd.) have resulted in reduced time and cost of new product developments. CRISIL believes that Tata Motors will continue to retain its strong position in the domestic CV industry.
In the passenger vehicle segment, Tata Motors is amongst the top three players in the domestic passenger cars segment, with an estimated market share of 17 per cent. High demand for passenger cars, coupled with increased acceptance of its products, especially in the niche diesel segment, has resulted in strong volume growth for Tata Motors. In the midsize segment, its model 'Indigo' is currently the largest selling car.
Despite the company's success in the passenger car segment, the domestic car market remains extremely competitive, with new product launches expected to be made by all major car manufacturers. Unlike other players in this segment, Tata Motors does not have access to a ready suite of products. Tata Motors plans to launch a new platform in 2006-07, which will gradually replace the existing 'Indica' platform.
The ratings also reflect the company's strong financial profile. High volume growth due to the extended upcycle in the CV segment and steady growth in the passenger car division since 2002-03, have strengthened Tata Motors' financial profile; the company's top line registered an average growth of 25 per cent over the past four years, led by volume growth. In addition, strong cash accruals and equity infusions following partial conversion of the first FCCB issue and the exercise of warrants (attached with the 2001-02 rights issue), have strengthened the company's capital structure. CRISIL has treated a part of the FCCB ($100 million) as equity and the rest (aggregating to $400 million including the recent FCCB issue in March 2006) as debt on the books of Tata Motors.
The cyclical nature of the Indian CV segment, which constitutes a dominant part of Tata Motors' business, and the high investment intensity of all its businesses that necessitates continuous capital expenditure, constrain the rating.
Tata Motors plans to incur capital expenditure of about Rs80 billion over next three years. In the medium term, CRISIL expects the company's leverage to increase, as the capital expenditure plans and capital needs of the vehicle-financing business would result in increased borrowings. Weaker domestic demand in CVs, and delays in stabilisation or market acceptance of the company's new products (including the 'small car') could result in a further increase in borrowings, which would weaken the company's financial profile. CRISIL believes that, despite this, Tata Motors will continue to maintain a strong financial profile, because of its comfortable net cash accruals (expected at around Rs. 16-18 billion annually) and its largely unutilised bank lines of Rs. 27 billion, during this period.
Outlook: CRISIL expects Tata Motors to maintain its credit profile over the medium term, supported by its robust market position and sound financial profile. The company's strong accretion and the success of its low cost FCCB issues aggregating to US $ 500 million are expected to provide adequate cushion against business downturns in the core CV business. The company's ability to successfully launch the small car in 2007-08, achieve a quick ramp-up, and demonstrate market acceptance, are crucial to maintain the credit quality at current levels.
Tata Motors is India's largest, fully integrated, automobile company, with a manufacturing capacity of 420,000 vehicles per year. Tata Motors' product range covers passenger cars, multi-utility vehicles, and light, medium, and heavy CVs, for goods and passenger transport. The company has over 130 models of light, medium, and heavy commercial vehicles, ranging from 0.75 to 40 tons, 12 to 60 seater buses, construction vehicles, off-road vehicles, and defence vehicles. Tata Motors' passenger vehicles include 'Indica' and 'Indigo' in petrol and diesel versions. The company's multi-utility vehicles include 'Tata Sumo', 'Spacio', and 'Tata Safari' (a sports utility vehicle).
Tata Motors' exports, including sales from its Korean subsidiary, are directed to markets such as South Africa, Turkey, Sri Lanka, Europe, and Asia. In August 2005, Tata Motors announced its acquisition of Incat International, a British engineering and design consultancy, for Rs. 4.15 billion.
For the year ended March 31, 2005, Tata Motors reported a net profit of Rs. 12.4 billion (Rs. 8.1 billion in 2003-04) on net sales of Rs. 175.8 billion (Rs. 132.8 billion in 2003-04). For the period ended December 2005, the company reported net sales and profits of Rs. 137.2 billion and Rs. 10.7 billion respectively (Rs. 120.8 billion and Rs. 8.5 billion respectively in the previous corresponding period).
