June 28, 2019

Tata Advanced Materials Limited (TAML): Ratings reaffirmed and placed under Watch with
Developing Implications

Summary of rated instruments

Previous Rated Amount Current Rated
Instrument* Rating Action
(Rs. crore) Amount(Rs. crore)
[ICRA]A+&; Reaffirmed and placed under
Long-term - Cash Credit 7.50 7.50
watch with developing implications
[ICRA]A1&; Reaffirmed and placed under
Short-term - Non-fund Based 94.00 94.00
watch with developing implications
Long-term/Short-term - Fund [ICRA]A+&/[ICRA]A1&; reaffirmed and placed
308.50 308.50
Based/ Non-fund Based under watch with developing implications
Commercial Paper (CP) 50.00 - [ICRA]A1+ (SO) withdrawn ^
Total 460.00 410.00
*Instrument details are provided in Annexure-1; ^ Structured Obligation (SO) rating for the CP programme of the
company was based on corporate guarantee from Tata Industries Limited (TIL)

Rationale
The ratings for the bank lines have been reaffirmed and placed under watch with developing implications following the
transfer of 99.99% shareholding of Tata Advanced Materials Limited (TAML / the company) from Tata Industries Limited
(TIL) to Tata Advanced Systems Ltd (TASL), and the expected merger of TAML with its new holding company TASL. The
share transfer was concluded in May 2019 as part of Tata Group’s plan to consolidate all its aerospace and defence
operations. ICRA will continue to monitor the impact of the expected merger process on the business and financial
profile of TAML and take suitable rating action, if required.

The rating for the Commercial Paper Programme has been withdrawn as there is no amount outstanding against the
rated debt instrument.

The ratings continue to factor in the strong revenue growth in the recent years driven by healthy execution of existing
aerospace contracts. Given the long-term contracts with reputed aerospace companies and the large value of
unexecuted orders, the revenue visibility in the medium term remains strong. The increase in scale of operations,
combined with healthy gross margins from these contracts, has led to continued growth in the company’s profitability.
The ratings also take into consideration the robust technical and management team of TAML and the strong relationship
that the company has built with its suppliers and customers.

The ratings, however, are constrained by the company’s stretched capital structure on account of accumulated losses
during the period in which the current aerospace programmes were under development and stabilisation phases.
However, the company’s capital structure is expected to improve going forward supported by improved profitability and
cash accruals. The ratings also take into account the fixed-price contracts with customers (with the exception of pass-
through allowed for materials) that can expose the company’s profitability to increase in other input costs such as
labour, power and fuel.

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Outlook: Not Applicable

Key rating drivers

Credit strengths
Strong revenue growth driven by significant ramp up in execution pace of existing aerospace contracts: TAML’s
revenue has witnessed significant growth in the recent years driven by a major ramp up in the execution pace of existing
aerospace contracts. Consequently, the operating profit margins improved in the recent years due to better absorption
of fixed overhead expenses. Operating profit margins have also benefitted from higher gross margins associated with the
aerospace segment.

Significant order backlog/pipeline enhances revenue visibility in near-to-medium term: The company has strong
unexecuted order book that enhances the revenue visibility in the near-to-medium term. Though Spirit Aerosystems and
FACC AG contribute to most revenues, the company has diversified its customer profile in the recent years, thereby
reducing its customer-concentration risk to an extent.

Credit challenges
Stretched capital structure: Any programme that TAML enters into in the aerospace segment would be characterised by
long gestation and product development cycle, which would stress the company’s financials in the near term.
Nonetheless, this would be a credit positive in the long run as the order flow would be secured for that particular
programme. TAML incurred significant losses in the current aerospace programme, when it was under development.
However, the capital structure is expected to improve going forward supported by improved profitability and cash
accruals.

Moderately high working capital intensity due to high inventory and debtor days: Working capital intensity (measured
by NWC/OI) remained moderately high at 27% in FY2019 on account of high debtor and inventory days.

Fixed-price contracts: The contracts with all the customers are long term (ranging from 3 to 10 years) and are fixed price
in nature. However, the company can completely pass on the variation in raw material prices, protecting the margins
against raw material price fluctuations. Nevertheless, the company’s profitability remains exposed to increase in other
input costs such as labour, power and fuel as well as forex fluctuations.

Liquidity Position:
The company has repaid the Non-Convertible Debenture (NCD) of Rs. 100 crore that was due as on March 2019 funded
by mix of internal accruals and term loans drawn against fixed assets. The repayment of NCD has reduced the refinancing
risk to a large extent. Also, moderate utilisation of sanctioned working capital limits provides liquidity buffer to the
company. Moreover, the company is expected to generate healthy cash accruals vis a vis planned capex for the next 2-3
years. The company had cash and bank balances of around Rs 7 crore as on March 31, 2019.

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Analytical approach:
Analytical Approach
Applicable Rating Methodologies
Parent Support
Standalone
Comments
Corporate Credit Rating Methodology
Impact of Parent or Group Support on an Issuer’s Credit Rating
Parent Company: Tata Advanced Systems Ltd (TASL)
The impact of the ongoing consolidation of defence and aerospace businesses at
the group level on the standalone business and financial profile of TAML and the
impact of the proposed merger with the holding company, TASL, will be key
rating sensitivities.
For arriving at the ratings, ICRA has evaluated the standalone operational and
financial profile of TAML

About the company

TAML, a Tata Group company wholly owned by Tata Advanced Systems Ltd, is in the business of manufacturing polymer-
based fibre composites that find use in aerospace and defence-related industries. The company is involved in the design,
manufacture and supply of composite products for aerospace, armour, transportation and infrastructure sectors. It has
set up its manufacturing facility at Jigani Industrial Area, 30 km south of Bangalore, over an area of 16 acres.

Key financial indicators (audited)

FY2018 FY2019
Operating Income (Rs. crore) 395.1 410.8
PAT (Rs. crore) 49.9 58.7
OPBDIT/ OI (%) 21.0% 21.9%
RoCE (%) 31.1% 27.4%

Total Debt/ TNW (times) n.m 4.6

Total Debt/ OPBDIT (times) 3.6 3.1
Interest Coverage (times) 3.0 3.4
Source: company, ICRA; OPBDITA: Operating Profit before Depreciation, Interest, Taxes and Amortisation; PAT: Profit
after Tax; NWC: Net Working Capital; TNW: Tangible Net Worth; RoCE: Return on Capital Employed; OI: Operating
Income
n.m – not meaningful

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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 Rating history for last three years:
Current Rating (FY2020) Chronology of Rating History for the past 3 years

Date &
Instrument Amount Date &
Amount Date & Rating in FY2019 Date & Rating in FY2018 Rating in
Rated Rating
Type Outstanding FY2017
(Rs.
(Rs Crore) # December October October
crore) June 2019 May 2018 May 2017
2018 2017 2016
[ICRA]A1+
Commercial Short [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
1 50.00 Nil (SO)
Paper Term (SO) (SO) (SO) (SO) (SO)
withdrawn
[ICRA]A+&;
Reaffirmed
and placed
Fund based Long [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+
2 7.50 - under watch
limits - CC term (Stable) (Stable) (Stable) (Stable) (Stable)
with
developing
implications
[ICRA]A1&;
Reaffirmed
and placed
Non-Fund Short
3 94.00 - under watch [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1
based limits term
with
developing
implications
[ICRA]A+& /
[ICRA]A1&;
Long Reaffirmed
Fund based/ [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+ [ICRA]A+
term/ and placed
4 non-fund 308.50 - (Stable) / (Stable) / (Stable) / (Stable) / (Stable) /
Short under watch
based limits [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1 [ICRA]A1
term with
developing
implications
# As on March 2019, the company had Rs. 73.3 crore term loan, Rs. 95.4 crore fund based working capital facilities and
Rs. 63.6 crore non-fund based working capital facilities

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Amount
Date of
Instrument Coupon Maturity Rated
ISIN No Issuance / Current Rating and Outlook
Name Rate Date (Rs.
Sanction
crore)
Commercial
INE097C14108 - 7.2% Repaid 50.00 [ICRA]A1+ (SO) withdrawn
Paper
Fund based
- - - - 7.50 [ICRA]A+&
limits - CC
Non-Fund based
- - - - 94.00 [ICRA]A1&
limits
Fund based/
- non-fund based - - - 308.50 [ICRA]A+& /[ICRA]A1&
limits
Source: Tata Advanced Materials Limited
&: under watch with developing implications

Annexure-2: List of entities considered for consolidated analysis: Not applicable

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ANALYST CONTACTS
Shubham Jain Mathew Kurian Eranat
+91 124 4545 306 +91 80 4332 6415
shubhamj@icraindia.com mathew.eranat@icraindia.com

Pavan P
+91 80 4332 6418
pavan.p@icraindia.com

RELATIONSHIP CONTACT
L Shivakumar
+91 22 6114 3406
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

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+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
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For more information, visit www.icra.in

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