CRISIL Ratings stated that the outlook revision factors the healthy improvement in credit profile of its main operating company, TVS Motor Company (TVSM).
The improvement is driven by healthy gain in market share for TVSM over the past 3-4 fiscals in motorcycle and scooter segments backed by expansion of product portfolio including launch of electric scooters and market reach through dealership expansion.
The growth momentum of TVSM will continue over the medium term as well supported by healthy market position in motorcycle and scooter segment.
Operating profitability at consolidated level is constrained on account of losses in the overseas subsidiaries due to product development costs and muted demand scenario in Europe. The losses are expected to gradually decline over the medium term with launch of new products and ramp up of utilization levels. which will aid TVSM’s overall operating profitability.
Besides, TVSM’s financial risk profile also continues to improve over time, driven by healthy cash generation and prudent capital spend.
In addition, TVSHL holds 50.26% stake in TVSM which is valued at Rs 68,718 crore as on 27 September 2024 which translates to healthy debt cover of over 100x (debt of Rs 650 crore as on date). The healthy debt cover provides adequate financial flexibility for TVSHL.
"Owing to healthy relationships with lending community and comfortable debt cover because of the holding in TVSM, refinancing will not be a challenge. However, material decline in debt cover, including debt raised for sizeable additional acquisition or investments in subsidiaries, or fall in share price of TVSM will remain monitorables," the rating agency said.
TVS Holdings (TVSHL) [formerly Sundaram Clayton (SCL)] was a leading manufacturer of aluminium die-casting components. Until fiscal 2007, SCL’s financials included the CV brakes business. With effect from March 28, 2008, the Madras High Court approved the de-merger of the brakes business into a separate company, Wabco India Ltd. The non-brakes business (aluminium die-casting) and investments in the TVS group entities remained with SCL. During fiscal 2012, SCL restructured its businesses, hiving off the non-automotive businesses into its erstwhile subsidiary, Sundaram Investments Ltd (SIL).
In August 2023, the aluminium diecasting business of SCL was demerged into a separate entity, SCL DCD and SCL was renamed as TVSHL which retained the investments in TVS Motor Company (TVSM) and real estate entity TVS Emerald (TEL).
The scrip lost 0.41% to end at Rs 13290.30 on the BSE today.