Tata Electronics plans over Rs 500 Cr loan for Hosur Expansion

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Tata Electronics plans over Rs 500 Cr loan for Hosur Expansion

Tata Electronics plans over Rs 500 Cr loan for Hosur Expansion

Industry News
Sep 12,23

The inaugural phase (referred to as 1A) of its manufacturing facility commenced operations in December 2022, with a total project cost of Rs 4,225 crore, funded in a 70:30 debt-equity ratio.

Tata Electronics plans over Rs 500 Cr loan for Hosur Expansion

Tata Electronics Private Limited (TEPL) has strategic plans to secure a term loan exceeding Rs 500 crore for augmenting its electronics manufacturing capacity in Hosur, Tamil Nadu. This significant expansion project carries a price tag of Rs 3,400 crore.

TEPL, an innovative venture within the Tata Group, boasts proficiency in the precision component manufacturing domain. The inaugural phase (referred to as 1A) of its manufacturing facility commenced operations in December 2022, with a total project cost of Rs 4,225 crore, funded in a 70:30 debt-equity ratio.

Maintaining a similar capital structure, TEPL is poised to propel its capacity expansion project (referred to as 1B) towards completion within the current fiscal year (FY24). The comprehensive investment required for establishing both phases of the manufacturing facility (1A and 1B) is estimated at Rs 7,650 crore, as indicated by India Ratings and Research Limited.

The rating agency has bestowed a rating of "AA-" upon TEPL's term loan of Rs 587 crore, with an additional non-fund based limit of Rs 267 crore in play. As a contract manufacturer specialising in mobile enclosures, TEPL anticipates producing approximately 15 million units for one of the world's foremost mobile device manufacturers.

Regarding Phase 1A, the repayment schedule for external commercial borrowings, foreign currency term loans, and rupee term loans will commence from September 2024. The company intends to secure further debt for Phase 1B, with repayment projected to initiate in FY27. Notably, the expanded capacity is scheduled for full commissioning well before the commencement of debt repayments, mitigating potential liquidity risks for the project.

Each loan facility offers a door-to-door tenure of seven years, with an effective average tenure of approximately five years. The project's liquidity will receive additional support through subsidies from both the central and state governments, intended to offset the substantial capital expenditure, as indicated by the rating agency.

While TEPL faces forex risk, this risk is partially offset by a natural hedge resulting from its revenue being entirely denominated in foreign currency, coupled with a portion of its operating costs and capital expenditures incurred in foreign currency. The management intends to further mitigate this risk through currency hedging using forward contracts and foreign currency borrowings.

Source: Business Standard