Tata Electronics Private Limited (TEPL) is planning to raise over Rs 500 crore as term loan for the expansion of its electronics manufacturing capacity at Hosur in Tamil Nadu.
The cost of the expansion is pegged at Rs 3,400 crore.
TEPL is a greenfield venture of the Tata Group with expertise in manufacturing precision components.
The first phase (dubbed as 1A) of the manufacturing facility was commissioned in December 2022.
The company incurred a cost of Rs 4,225 crore for the project, which was funded in a debt-equity ratio of 70:30.
TEPL plans to retain a similar capital structure for capacity expansion project (dubbed as 1B).
The capacity expansion is expected to be complete in the current financial year (FY24).
The total project cost to set up the manufacturing facility (1A plus 1B) is estimated to be Rs 7,650 crore, according to India Ratings and Research Limited.
The rating agency has assigned “AA-” for its term loan of Rs 587 crore.
There is also an element of non-fund based limit of Rs 267 crore.
The outlook on ratings is a positive reflecting expectation that the project’s brownfield expansion (aka 1B) would result in a material ramp-up in the total production capacity, being commissioned by FY24 and the resultant profitability.
TEPL is a contract manufacturer of mobile enclosures and expects to produce around 15 million units for one of the leading mobile manufacturers of the world.
For Phase 1A, the repayment of external commercial borrowings, foreign currency term loan and rupee term loan will start from September 2024. The company would be availing additional debt for Phase 1B, the repayment for which is likely to begin in FY27.
The project (expanded capacity) is scheduled to be fully commissioned much before the debt repayment start date, limiting any liquidity risk for the project. Each loan facility has a door-to-door tenure of seven years with an effective average tenure of about five years.
The project’s liquidity would further be supported by receipt of subsidies from the central and state government, to compensate for the huge capex outlay, the rating agency said.
The company is exposed to forex risk, albeit with a natural hedge on account of the revenue being entirely denominated in foreign currency, with a part of the operating cost and capital expenditure being incurred in foreign currency.
According to the management, the risk would be partly mitigated by currency hedging using forward contracts and partly through foreign currency borrowings. Business Standard