Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

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<h2>Executive summary</h2>
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We initiate our coverage on <a href="https://www.smartkarma.com/entities/216" target="_blank" data-smartkarma-citation="entities:216:1">Tata Motors Ltd (TTMT IN)</a> (“TM”) with a NEUTRAL recommendation on all TMIN complex on the following:
 (1) The lack of TMIN’s attractiveness versus its peers;
(2) Our negative outlook on TM’s credit metrics for the next 12 months on rising capex at Jaguar Land Rover Automotive PLC (JLR), TM’s 100%-owned subsidiary, which will lead to weakening credit metrics in the near term. We note that the recent rating downgrade by Moody’s and S&amp;P removed headline and downside risk in the near term.
(3)  Rising execution risk on the company’s investment in electric cars where more and more competitors are moving in.
Moody’s and S&amp;P downgraded TM’s senior unsecured debt ratings by one notch from Ba1 and BB+ to Ba2 and BB on 13-July and 26-July, respectively, on rising capex. We agree with Moody’s and S&amp;P that rising capex will result in negative free cashflow and a rising debt-to-EBITDA multiple. We expect TM’s debt-to-EBITDA multiple to increase to 3.5x by FY21 as the company continues to make significant investments in its electric car business via JLR (rated Ba2/BB by Moody’s and S&amp;P respectively).
We note that the automobile industry is evolving towards hybrid and electric cars and believe TM’s investment in this section is the right thing to do to stay ahead of the competition in the long run and that makes TM more of a long-term investment (rather than the current TMIN complex). However, the company’s investment in electric cars should boost the image of Jaguar and that could help with overall sales at TM. 
In our view, key credit drivers for TM include the following:
<ul>
<li>Diversified product mix with revenue widespread out across geographies (EXHIBIT 5) though JLR business accounts for more than 2/3rd of TM’s consolidated revenue and EBITDA. We see JLR driving overall performance of TM.</li>
<li>Market leading position in the domestic commercial vehicle business.</li>
<li>Strategic importance of TM to Tata group.</li>
<li>Investments in JLR, particularly electric car business</li>
</ul>


Executive summary

We initiate our coverage on Tata Motors Ltd (TTMT IN) (“TM”) with a NEUTRAL recommendation on all TMIN complex on the following:
 (1) The lack of TMIN’s attractiveness versus its peers;
(2) Our negative outlook on TM’s credit metrics for the next 12 months on rising capex at Jaguar Land Rover Automotive PLC (JLR), TM’s 100%-owned subsidiary, which will lead to weakening credit metrics in the near term. We note that the recent rating downgrade by Moody’s and S&amp;P removed headline and downside risk in the near term.
(3)  Rising execution risk on the company’s investment in electric cars where more and more competitors are moving in.
Moody’s and S&amp;P downgraded TM’s senior unsecured debt ratings by one notch from Ba1 and BB+ to Ba2 and BB on 13-July and 26-July, respectively, on rising capex. We agree with Moody’s and S&amp;P that rising capex will result in negative free cashflow and a rising debt-to-EBITDA multiple. We expect TM’s debt-to-EBITDA multiple to increase to 3.5x by FY21 as the company continues to make significant investments in its electric car business via JLR (rated Ba2/BB by Moody’s and S&amp;P respectively).
We note that the automobile industry is evolving towards hybrid and electric cars and believe TM’s investment in this section is the right thing to do to stay ahead of the competition in the long run and that makes TM more of a long-term investment (rather than the current TMIN complex). However, the company’s investment in electric cars should boost the image of Jaguar and that could help with overall sales at TM. 
In our view, key credit drivers for TM include the following:

Diversified product mix with revenue widespread out across geographies (EXHIBIT 5) though JLR business accounts for more than 2/3rd of TM’s consolidated revenue and EBITDA. We see JLR driving overall performance of TM.
Market leading position in the domestic commercial vehicle business.
Strategic importance of TM to Tata group.
Investments in JLR, particularly electric car business


Delhi International Airport Limited / Credit

We initiate our coverage on <a href="https://www.smartkarma.com/entities/27055" target="_blank" data-smartkarma-citation="entities:27055:1">Delhi International Airport Limited (0180331D IN)</a> (DIA) with a NEUTRAL recommendation on the DIALIN complex on the complex’s lack of upside potential against its Indian peers. However, we simply cannot recommend selling on this name either as we believe the complex’s carry, the scarcity value of owning an airport bond, DIA’s strategic importance to the Indian and Delhi’s economies, and DIA’s long-term recurring cashflow potential offer some stability in the coupon payment ability.Our NEUTRAL recommendation takes into account robust airport traffic, capacity expansion plans, and a rising  debt-to-EBITDA multiple over the next 12 months driven by (1) the reduction in airport charges (See airport charge reduction section) and (2) rising debt associated with the capacity expansion plan, partially offset by robust traffic and a long-term positive outlook for the Indian aviation sector (See strong traffic growth section).DIA continues to be the leading airport in India both in terms of passenger traffic and freight volumes. We expect DIA to maintain its leading position among Indian airports with passenger traffic to cross 70m in 2018, which is credit positive for DIA.  Key credit drivers for DIA include the following:<ul><li>Robust passenger traffic with a favorable long-term outlook for the Indian aviation sector.</li><li>Strong liquidity position with cash and cash equivalents of INR25.9bn as of last December - 22% of total assets.</li><li>No short-term debt with next debt repayment due only in 2022.</li></ul>

We initiate our coverage on Delhi International Airport Limited (0180331D IN) (DIA) with a NEUTRAL recommendation on the DIALIN complex on the complex’s lack of upside potential against its Indian peers. However, we simply cannot recommend selling on this name either as we believe the complex’s carry, the scarcity value of owning an airport bond, DIA’s strategic importance to the Indian and Delhi’s economies, and DIA’s long-term recurring cashflow potential offer some stability in the coupon payment ability.Our NEUTRAL recommendation takes into account robust airport traffic, capacity expansion plans, and a rising  debt-to-EBITDA multiple over the next 12 months driven by (1) the reduction in airport charges (See airport charge reduction section) and (2) rising debt associated with the capacity expansion plan, partially offset by robust traffic and a long-term positive outlook for the Indian aviation sector (See strong traffic growth section).DIA continues to be the leading airport in India both in terms of passenger traffic and freight volumes. We expect DIA to maintain its leading position among Indian airports with passenger traffic to cross 70m in 2018, which is credit positive for DIA.  Key credit drivers for DIA include the following:Robust passenger traffic with a favorable long-term outlook for the Indian aviation sector.Strong liquidity position with cash and cash equivalents of INR25.9bn as of last December - 22% of total assets.No short-term debt with next debt repayment due only in 2022.

Delhi International Airport: At a Steady Altitude

India

Delhi International Airport Limited owns and operates an airport. The Company offers baggage handling, cargo, flight information, airport facilities, transportation, and shopping services. Delhi International Airport serves customers in India.

Delhi International Airport Limited (0180331D IN)

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Delhi International Airport Limited (0180331D IN)

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Delhi International Airport: At a Steady Altitude

We initiate our coverage on Delhi International Airport Limited (0180331D IN) (DIA) with a NEUTRAL recommendation on the DIALIN complex on the...

Bondcritic

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