August 10, 2017

Tata Hitachi Construction Machinery Company Private Limited

Instrument* Rated Amount Rating Action
(Rs. crore)
Fund based/ non- fund based (inter- 900.00 [ICRA]A+ (Positive)/ Long term rating
changeable) facilities reaffirmed on the long term bank
facilities; outlook revised to positive;
short term rating upgraded to
[ICRA]A1+
Total 900.00
*Instrument details are provided in Annexure-1

Rating action
ICRA has re-affirmed the long-term rating of [ICRA]A+ (pronounced ICRA A plus)1 while upgrading the
short-term rating to [ICRA]A1+ (pronounced ICRA A one plus) for the Rs. 900.0 crore fund based and
non-fund based (inter-changeable facilities) facilities of Tata Hitachi Construction Machinery Company
Private limited ( Tata Hitachi or the company)2. The outlook on the long-term rating is ‘positive’.

Rationale
The revision in outlook to positive takes into account the revival in the domestic mining and construction
equipment (MCE) industry during the past year leading to sharp scale up in volumes for Tata Hitachi;
demand outlook for the company remains robust underpinned by continued infrastructure investments in
the country.

The revision in short term rating factors in the significant easing in liquidity position of the company over
the past few quarters, with robust demand driving high margins and cash accruals. The company has
prepaid some liabilities during March 17 and has a surplus cash position of Rs. 70 crore as on July 30,
2017. The company’s average working capital utilization stood at 27% of limits and 73% of drawing
power during the six months period ending June 30, 2017. The company does not have any repayments
during FY2018; repayment increase sharply during FY2019.

The ratings factor in Tata Hitachi’s established position in the domestic MCE industry as the market
leader in the excavator segment, strong support - both business and financial - enjoyed by the Company
by virtue of its parentage (being a 60:40 joint venture between Hitachi Construction Machinery Company
Limited {HCM, rated Baa1-/ Negative by Moody’s} and Tata Motors Limited {TML, rated [ICRA]AA /
Stable / [ICRA]A1+}). During FY2017, the parent companies converted optionally convertible preference
shares of Rs. 400.0 crore to equity to correct the net worth position of the company.

Heavy provisioning and write off undertaken, during the period FY2012-FY2017, on investments in one
Concrete Solution and one Road Compaction Equipment companies Serviplem S.A. and Lebrero S.A.
located in Spain, eroded the company’s networth.

The company recorded growth (yoy) of 35% in operating income during FY2017 supported by the 45%
increase in volumes on the back of upswing in excavator demand. Operating margins of the company
improved from 5.6% in FY2015 to 11.1% in FY2017. The company registered a healthy net profit of Rs.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications
183.3 crore after five consecutive years of net losses. In the prior years, company has incurred
cumulative amount of Rs 675 crore as extraordinary losses leading to these losses.

While the company has a wide product portfolio, excavators account for bulk of the revenues (>90%
during FY2017) followed by backhoes at 6% of revenues. The company derives its revenues primarily
from the domestic market; export to Africa, Middle East and South East Asia; the company plans to
increase export contribution over the next five years to 12% of revenues. Tata Hitachi is exposed to
exchange rate fluctuations on account of high imports for raw materials (44.6%), partially denominated in
JPY, which the company actively hedges based on forecasted market movements.

The ratings are constrained by the strong competition faced by the company in the MCE market. In
addition, the company’s product portfolio is heavily concentrated on excavator (contributing more than
90% of the revenue), though the company is looking at increasing diversification in backhoe loaders. The
MCE industry is highly cyclical in nature with demand firmly linked to infrastructure investment in the
country.

Key rating drivers

Credit strengths
 Stable promoter relationship, with continuing support from both parents: The company derives
considerable technological and financial support from the promoter group, HCM, one of the largest
players in the global excavator market and Tata Motors Limited. Promoter supported the net worth of
the company by converting their Optionally Convertible Cumulative Preference Shares of Rs. 400
crore during FY2017.
 Dominant market position of the company in excavators: The company is a market leader in the
Indian excavator market, with market share of over 35%, supported by HCMC’s technological
strength.
 Positive immediate and long-term demand outlook for the domestic MCE industry driven by
large infrastructure investments: Over the past year, the MCE industry has revived on the back of
investments in infrastructure projects by the government in various sectors. The industry is expected
to continue the uptrend for FY2018 also.
 Strong revival in financial metrics of the company: Supported by the high-volume offtake, the
company registered a sharp improvement in all the revenue and profitability indicators, with
operating margins improving by 90 bps to 11.1% in FY2017. Net cash accruals of the company
increased substantially from a deficit of Rs 250.5 crore in FY2016 to Rs 257.8 crore in FY2017.
Debt/ EDBITDA and OPBDITA/ interest cover improved from -3.6x and 1.8x during FY2016 to
1.5x and 3.9x respectively during FY2017 .

Credit weaknesses
 Portfolio concentrated on excavators: The company derives 90% of its revenues from its range of
excavators, which registered a 45% Y-o-Y growth in FY2017. While the company is a marginal
player in the Indian backhoe market, the company proposes to diversify its product portfolio by
increasing focus on the backhoe segment going forward.
 Although Tata Hitachi is a market leader for excavators in India, it faces intense competition
from global and Indian competitors: The company also faces high competition from incumbents in
the backhoe segment.
 Exposure to cyclicality in the industry: Demand for MCE is highly cyclical and intrinsically linked
to infrastructure investments. Road projects are primarily contributing to the revival of MCE industry
by increasing demand for excavator, backhoe loaders, dumpers, etc. For long term stability of the
 industry more broad based revival, private participation and continued investments in infrastructure is
required.
 Exposure to currency fluctuations: The company is exposed to risk of rupee depreciation owing to
high import content (about 44.6%), however, the same is mitigated to an extent by the company’s
policy of hedging payables. The company also has sizable foreign currency loan, which it hedges.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated
below.

Links to applicable criteria:

Corporate Credit Rating Methodology
Rating Methodology for Construction equipment

About the company:

Tata Hitachi Construction Machinery Company Private Limited ( Tata Hitachi), formerly Telco
Construction Equipment Company Limited, is one of the major players in the Indian Mining and
Construction Equipment (MCE) industry with a healthy market share in the excavators industry in India.
The company’s product range primarily consists of hydraulic excavators; it also sells other products like
crawler cranes, wheel loaders, backhoe loaders, off-highway dumpers, motor graders, soil compacters,
tandem rollers, motor graders, dumpers, transit mixers, skid steer loaders, crawler cranes and hydraulic
cranes albeit in lower quantities. Tata Hitachi has manufacturing facilities in Jamshedpur, Dharwad and
Kharagpur.

Tata Hitachi started off as the Construction Equipment Division of Tata Engineering in 1961 and was
incorporated as Telco Construction Equipment Company Limited in 1998 under the ownership of the Tata
Group. In the year 2000, HCM picked up 20% stake in the company, subsequently raising it to 40% in
December 2005 and 60% in March 2010. In December 2012, the company’s name was changed to Tata
Hitachi Construction Machinery Company Limited and subsequently to the current Tata Hitachi
Construction Machinery Company Private Limited. Currently, Tata Hitachi is a joint venture between
HCM (60% stake) and Tata Motors Limited (40% stake).

Key Financial Indicators (Audited)

FY2016 FY2017
Operating Income (Rs. crore) 2,204.9 3,049.9
PAT (Rs. crore) -332.6 183.3
OPBDIT/ OI (%) 9.8% 9.0%
RoCE (%) -22.0% 32.4%

Total Debt/ TNW (times) -3.6 1.5

Total Debt/ OPBDIT (times) 5.4 1.4
Interest coverage (times) 1.8 3.9
NWC/ OI (%) -2.2% -7.4%
OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation;
ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth + Deferred Tax Liability - Capital Work - in Progress);
NWC: Net Working Capital

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years:

Table:
S. No. Instrument Current Rating (FY2018) Chronology of Rating History for the past
Type Amoun Date & Date & Rating Date & Rating in Date &
t Rated Rating in FY2017 FY2015 Rating in
(Rs. FY
crore) FY2013

August 2017 Aug 2016 Feb 2015 Mar 2013

[ICRA]A+ /
[ICRA]A1/ [ICRA]A+ /
Fund based/ non- Long Reaffirmed/ [ICRA]A1/
1
fund based (inter- Term/Short term [ICRA]A+ outlook revised to Reaffirmed/
changeable) (interchangeable [ICRA]A+ (Stable) / stable from (negative)
facilities ) 900.0 (Positive) /A1+ [ICRA]A1 negative
[ICRA]A1/
2 Commercial Paper Rating [ICRA]A1/
(CP) CP 300.0 - - Withdrawn Reaffirmed

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
 Annexure-1
Instrument Details

ISIN No Instrument Date of Coupon Rate Maturity Date Amount Curre

Issuance / Rated
Sanction (Rs. crore)
NA Fund based/ non- - - - 900.0 [ICRA
fund based (inter-
changeable)
facilities
Source: the company
 Contact Details
Analyst Contacts
Subrata Ray Pavethra Ponniah
+91 22 6114 3408 +91 44 4596 4314
subrata@icraindia.com pavethrap@icraindia.com

Resham Trivedi
+91 80 4332 6417
resham.trivedi@icraindia.com

Relationship Contact
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and
financial services companies as an independent and professional investment Information and Credit
Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a
Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock
Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest
shareholder.
For more information, visit www.icra.in

© Copyright, 2017, ICRA Limited. All Rights Reserved

Contents may be used freely with due acknowledgement to ICRA
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to
a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current
opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument
rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding.
All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including
the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While
reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any
warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy,
timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other
than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA
shall not be liable for any losses incurred by users from any use of this publication or its contents.
Registered Office
ICRA Limited
1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi 110001
Tel: +91-11-23357940-50, Fax: +91-11-23357014

Corporate Office
Mr. Vivek Mathur
Mobile: +91 9871221122
Email: vivek@icraindia.com

Building No. 8, 2nd Floor, Tower A, DLF Cyber City, Phase II, Gurgaon 122002
Ph: +91-124-4545310 (D), 4545300 / 4545800 (B) Fax; +91- 124-4050424

Mumbai Kolkata
Mr. L. Shivakumar Mr. Jayanta Roy
Mobile: +91 9821086490 Mobile: +91 9903394664
Email: shivakumar@icraindia.com Email: jayanta@icraindia.com

3rd Floor, Electric Mansion A-10 & 11, 3rd Floor, FMC Fortuna
Appasaheb Marathe Marg, Prabhadevi 234/3A, A.J.C. Bose Road
Mumbai—400025, Kolkata—700020
Board : +91-22-61796300; Fax: +91-22-24331390 Tel +91-33-22876617/8839 22800008/22831411,
Fax +91-33-22870728
Chennai Bangalore
Mr. Jayanta Chatterjee Mr. Jayanta Chatterjee
Mobile: +91 9845022459 Mobile: +91 9845022459
Email: jayantac@icraindia.com Email: jayantac@icraindia.com

5th Floor, Karumuttu Centre 'The Millenia'

634 Anna Salai, Nandanam Tower B, Unit No. 1004,10th Floor, Level 2 12-14, 1 & 2,
Chennai—600035 Murphy Road, Bangalore 560 008
Tel: +91-44-45964300; Fax: +91-44 24343663 Tel: +91-80-43326400; Fax: +91-80-43326409
Ahmedabad Pune
Mr. L. Shivakumar Mr. L. Shivakumar
Mobile: +91 9821086490 Mobile: +91 9821086490
Email: shivakumar@icraindia.com Email: shivakumar@icraindia.com

907 & 908 Sakar -II, Ellisbridge, 5A, 5th Floor, Symphony, S.No. 210, CTS 3202, Range
Ahmedabad- 380006 Hills Road, Shivajinagar,Pune-411 020
Tel: +91-79-26585049, 26585494, 26584924; Fax: Tel: + 91-20-25561194-25560196; Fax: +91-20-
+91-79-25569231 25561231
Hyderabad
Mr. Jayanta Chatterjee
Mobile: +91 9845022459
Email: jayantac@icraindia.com

4th Floor, Shobhan, 6-3-927/A&B. Somajiguda, Raj

Bhavan Road, Hyderabad—500083
Tel:- +91-40-40676500