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Sundaram Auto Components Limited March 11, 2021 Ratings Amount Facilities Rating1 Rating Action (Rs. crore) 166.99 CARE A+; Stable Long Term Bank Facilities Reaffirmed (Reduced from 210.00) (Single A Plus; Outlook: Stable) CARE A+; Stable / CARE A1+ Long Term / Short Term Bank 43.01 (Single A Plus; Outlook: Stable / Reaffirmed Facilities (Enhanced from 20.00) A One Plus) 85.00 CARE A1+ Short Term Bank Facilities Reaffirmed (Enhanced from 65.00) (A One Plus) 295.00 Total Facilities (Rs. Two Hundred Ninety-Five Crore Only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities of Sundaram Auto Components Limited (SACL) continue to draw strength from SACL being a part of the TVS group & wholly owned subsidiary of TVS Motor Company Limited (TVSM; rated CARE AA+; Stable/ CARE A1+). SACL’s experienced management team, synergies of operations with its parent, established track record of SACL as a supplier to Original Equipment Manufacturers (OEMs) and Tier-I suppliers in the domestic automobile market also adds to the strength of the credit profile of company. Company’s scale of operations was impacted in FY20 due to slowdown in automobile sector in FY20. Covid-19 led lockdown further impacted company’s business in H1FY21 but has shown recovery during Q3FY21 with sales returning to pre-Covid levels. However, the profitability for FY21 may come under pressure. Apart from weak sales in Q1FY21 and similar fixed expenses, increase in RM prices during H2FY21 which the company would be able to pass on to its customers with 1 quarter lag, is likely to affect profitability. Nevertheless, company derives benefit from being part of TVS group which enables it to raise additional funding from banks, if required. With addition of several new customers during the year and repeated order from existing clients is expected to translate into improved business potential, going forward.. These ratings strengths are partially offset by SACL’s dependence on TVSM for majority of its business though declining over the years. Company’s return indicators are also weak due to investments made in its US subsidiary which is yet to generate returns for SACL. The ratings are also constrained by vulnerability of volumes to cyclicality associated with the automobile industry and consequent impact on the profitability parameters. Company has several capital expenditure plans in place and SACL’s ability to reap benefits out of it as envisaged would be key to its credit profile.

Rating Sensitivities Positive Rating sensitivity- Factors that could lead to positive rating action/ upgrade  Significant improvement in sales and cash profits of the company and improvement in overall gearing to below 0.20x Negative Rating sensitivity- Factors that could lead to negative rating action/ downgrade  Sharp deterioration in credit profile of parent  Significant increase in Investments to the group companies/subsidiaries funded through debt or internal accruals.

Detailed description of the key rating drivers Key Rating Strengths Wholly-owned subsidiary of TVSM, part of TVS Group: SACL is a wholly-owned subsidiary of TVSM which is one of the leading two-wheeler manufacturers in the country and belongs to the TVS group of companies. TVS Group is a diversified automotive conglomerate with a presence in the manufacturing of two/three wheelers, auto components, high tensile fasteners, die casting products, brakes, wheels, tyres, axles, seating systems, fuel injection components, electronic and electrical components, with interests in the areas of finance and information technology. In FY20, TVSM reported PAT of Rs.592 crore on total operating income of Rs. 16,452 crore. In the past, TVSM has exhibited support by bringing in funds as equity share capital/ unsecured loans. Also, the SACL has been able to manage the slowdown in automotive industry, on the back of steady orders from TVSM and addition of new customers.

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited

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Long operational track record and strong management team: SACL has a track record of operations spanning for more than 20 years and is headed by Mr Lakshmanan, Chairman, who has over 60 years of experience in the industry. TVSM and SACL are both under the same management with a few common directors. Hence, SACL benefits from the vast experience of the TVS group management. Mr. Lakshmanan is on the Board of various companies in the TVS Group including TVSM. The day-to-day affairs of the company are managed by well- experienced professionals.

Synergies of operations with the parent company: The manufacturing facilities of SACL are in close proximity to TVSM’s facilities and the majority requirement of plastic moulded components used in two-wheelers and three-wheelers of TVSM is sourced from SACL. The design engineers from SACL work in close coordination with TVSM right from the design stage of new vehicle launches, as there is a high level of importance associated with safeguarding the product design knowledge. A large part of the sale (~51% in FY20) of SACL’s products is being made to its parent (TVSM).

Satisfactory performance during FY20 SACL has reported total operating income of Rs.525.94 crore in FY20, decline of 12.32% YoY. Slowdown in the automobile sector accentuated by Covid19 pandemic impacted the company’s income. Company reported marginally better PBILDT Margin of 7.64% for FY19 (PY: 7.57%). GCA was Rs. 28.2 crore as against Rs. 30.5 crore. For 9MFY21, SACL registered income of Rs. 310.5 crore with PBDIT margin of 4.40% (8.69% in 9MFY20) and earned GCA of Rs. 7.8 crore (Rs. 24.3 cr in 9MFY20) Besides the impact of pandemic led lockdown which resulted in loss of production in Q1FY21 and muted demand from auto industry till Sep’20 due to overall economic uncertainty and weak consumer sentiment, profitability and cash accruals during the 9MFY21 period was impacted by rise in one of the key raw material cost.

Comfortable financial risk profile With no major debt addition FY20, leverage indicators for the company stands improved. Long term debt equity ratio was at 0.36x (PY: 0.49x) and overall gearing was at 0.48x (PY: 0.62x) as on March 31, 2020. Interest coverage ratio deteriorated but remained comfortable at 2.64x as on March 31, 2020 (3.71x as on March 31, 2019).

Key rating weaknesses High customer concentration risk with majority sales to TVSM but declining with additional of several new customers In addition to the performance of the automobile industry, performance of TVSM assumes greater significance for SACL as TVSM continues to be the single largest OEM contributing to ~51% of the company’s net sales in FY20 (PY: 62%) and 50% for 9MFY21. This has resulted in the company’s fortunes being largely linked to that of TVSM. Company is operating from its 5 facilities viz. Hosur (which sells 60% to TVSM and contributes 50% of overall sales), Mysuru (which sells 100% to TVSM and contributes 15% of overall sales), Chennai (entire sales to non-TVSM and contributes 18% of overall sales), Nalagarh in HP (entire sales to TVSM and contributes 15% of overall sales). Newly commissioned Bhiwadi plant caters 100% to non-TVSM clients and contributes to less than 5% of overall sales. Over the past few years, the company is trying to diversify by adding new customers and thus reducing the dependence on TVSM. SACL caters to several other OEMs through Tier I suppliers in the 4W/ HCV segment and is constantly striving to diversify its customer base. The plastic products manufactured by SACL also find application in the non-automotive segments such as white goods; however, the contribution of the same is negligible in SACL’s overall income.

Capex and investments With increase in scale of operations of TVSM and other OEMs, SACL has been incurring capex pertaining to capacity expansion and process improvement. The company has incurred total capex along with capital advance of Rs.130 crore in FY18 mainly for automated paint shop at existing Hosur facility and land bought in SriCity industrial corridor near Chennai. The capex was mainly funded through debt of Rs.65 crore and remaining through internal accruals and capital infusion from TVSM. During FY18, TVSM has infused around Rs. 170.0 crore in SACL of which Rs 130 crore was used by SACL to invest in its newly formed subsidiary Sundaram holdings, USA (SACL holds around 75% in Sundaram Holdings, USA(SHU) and rest held by Sundaram Clayton Limited- ultimate holding company of TVS Motor Company Limited). SACL has invested around Rs.130 crore in Sundaram holdings, U.S.A in FY18. SACL has invested Rs.100 crore in Sundaram Holdings, USA in FY19. For the same the company has got sanction for Term loan of Rs.100 crore. During FY20, capex of Rs. 23.4 cr has been undertaken from internal accruals for refurbishment of its existing facilities. SACL invested Rs. 42.8 crore in its subsidiary Sundaram US in FY20 and further invested Rs. 23 cr during 9MFY21 funded from the Rs. 60 cr received from TVSM against proceed from issuance of shares and Rs. 24.9 cr invested as equity in 9MFY21. Sundaram Holdings, USA is mainly involved in die castings products. Sundaram Holdings, USA will mainly cater to Cummins- existing customer of Sundaram Clayton Limited (SCL) to whom SCL currently exports. The new plant will mainly help to

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Press Release reduce logistic and other cost and time. The company has started commercial operations during FY20 and any further investments in the Sundaram US is likely to be met through equity infusion from TVSM.

Liquidity: Adequate SACL derives financial flexibility in terms of it being part of TVSM group. Further, since majority of the sale is to TVSM (51% of FY20 sales), SACL is able to derive better credit terms. The comfortable liquidity position is also reflected from the lower utilization of working capital facilities (43% for the twelve month period ended Dec20). Company has not availed moratorium under RBI’s Covid-19 regulatory package.

Analytical approach: Standalone. Factoring in Linkages and support from Parent company- TVS Motor Company Limited (TVSM). CARE has assumed support from TVSM forthcoming in case of shortfall in debt servicing.

Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE's Policy on Default Recognition Criteria on Short Term Instruments Rating Methodology: Factoring Linkages in Ratings Financial Ratios- Non- Financial Sector Rating Methodology-Manufacturing Companies Rating Methodology- Auto Ancillary Companies Liquidity Analysis of Non-Financial Sector entities

About the Company SACL, incorporated in 1992 as a wholly-owned subsidiary of TVS Motor Company Limited (TVSM), is engaged in the manufacture of a wide range of plastic moulded components (such as fender front, fender assembly, side cover, housing head lamp, air cleaner, cam covers, dash board pannel, front grill and mesh, glove box, air vents, door trims, radiator top cover, transmission components, tipper cover, air filter assembly etc.). During the year, the Company has added new parts like Canister, Mirror covers and parts for electric power steering to its existing portfolio. As at the end of December 2019, SACL was operating five manufacturing facilities of which two are situated in Tamil Nadu (at Hosur and Oragadam respectively), one in Mysore (Karnataka) and one in Nalagarh (Himachal Pradesh) and one in Bhiwadi, Rajasthan. Currently, all five facilities are equipped to manufacture plastic moulded components. Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3 Brief Financials (Rs. crore) FY19 (A) FY20 (A) Total operating income 599.86 525.94 PBILDT 45.38 40.17 PAT 9.33 4.90 Overall gearing (times) 0.62 0.48 Interest coverage (times) 3.71 2.64 A: Audited Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure-2

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Annexure-1: Details of Instruments/Facilities

ISIN Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Fund-based - LT-Term - 27 June 2023 (HDFC) CARE A+; Stable - - 121.99 Loan 28 March 2023 (ECB) Fund-based - LT-Cash - CARE A+; Stable - - - 45.00 Credit Non-fund-based - ST- - CARE A1+ - - - 35.00 BG/LC Fund-based - ST-Bills - CARE A1+ discounting/ Bills - - - 40.00 purchasing Fund-based - ST-Term - CARE A1+ - - - 10.00 loan - CARE A+; Stable / Fund-based/Non-fund- - - - 43.01 CARE A1+ based-LT/ST

Annexure-2: Rating History of last three years

Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Date(s) & Rating(s) No. Outstanding Facilities assigned in assigned in assigned in assigned in 2017-2018 (Rs. crore) 2020-2021 2019-2020 2018-2019 1)CARE A+; 1)CARE A+; Stable CARE 1)CARE A+; Stable (27-Feb-18) Fund-based - LT-Term A+; Stable 1. LT 121.99 - (05-Mar- 2)CARE A+; Stable Loan Stable (06-Apr-20) 19) (17-Apr-17)

1)CARE A+; 1)CARE A+; Stable CARE 1)CARE A+; Stable (27-Feb-18) Fund-based - LT-Cash A+; Stable 2. LT 45.00 - (05-Mar- 2)CARE A+; Stable Credit Stable (06-Apr-20) 19) (17-Apr-17)

1)CARE 1)CARE A1+ 1)CARE CARE A1+ (27-Feb-18) Non-fund-based - ST- A1+ 3. ST 35.00 A1+ - (05-Mar- 2)CARE A1+ BG/LC (06-Apr-20) 19) (17-Apr-17)

1)CARE 1)CARE A1+ 1)CARE Fund-based - ST-Bills CARE A1+ (27-Feb-18) A1+ 4. discounting/ Bills ST 40.00 A1+ - (05-Mar- 2)CARE A1+ (06-Apr-20) purchasing 19) (17-Apr-17)

1)CARE 1)CARE CARE A1+ 1)CARE A1+ Fund-based - ST-Term A1+ 5. ST 10.00 A1+ - (05-Mar- (27-Feb-18) loan (06-Apr-20) 19)

6. Fund-based/Non- LT/ST 43.01 CARE 1)CARE A+; - 1)CARE A+; 1)CARE A+; Stable /

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fund-based-LT/ST A+; Stable / Stable / CARE A1+ Stable / CARE A1+ CARE A1+ (27-Feb-18) CARE (06-Apr-20) (05-Mar- A1+ 19)

Annexure-3: Detailed explanation of covenants of the rated instrument / facilities Name of the Instrument Detailed explanation A. Financial covenants Min ISCR: 2.75 times Total debt/ATNW< 2.5x TOL/TNW <1x Total Debt/EBIDTA < 3.75x from FY21, <3.5x from FY22 onwards DSCR>1x TNW> Rs. 400 crore FACR> 1.10x

B. Non financial covenants TVSM stake in company to be not less than 51% during tenor of facility

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

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Contact us Media Contact Mr. Mradul Mishra Contact no. – +91-22-6837 4424 Email ID – [email protected]

Analyst Contact Mr. Himanshu Jain 080-46625528 [email protected]

Relationship Contact Mr. Nitin Dalmia 080-46625555 [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

Disclaimer CARE’s ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE’s ratings do not convey suitability or price for the investor. CARE’s ratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. CARE is not responsible for any errors and states that it has no financial liability whatsoever to the users of CARE’s rating. Our ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and if triggered, the ratings may see volatility and sharp downgrades.

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