CRISIL has assigned its bank loan ratings of ‘BBB+/Stable’ to the bank facilities of Knorr-Bremse Systems for Commercial Vehicles India Pvt Ltd (KBSCV). The rating reflect the strong technical and financial support that KBSCV receives from Knorr-Bremse AG (rated ‘BBB+/Positive’ by Standard & Poor’s), a leading global player in rail and commercial braking systems. However, the aforesaid rating strength is partially offset by KBSCV’s high customer and segment concentration, and weak financial risk profile.

Outlook: Stable
CRISIL believes that KBSCV will be able to improve its business profile gradually, over the medium term, backed by new orders from Tata Motors Ltd (Tata Motors, rated ‘AA-/Stable/P1+’ by CRISIL) and other original equipment manufacturers. However, the overall credit profile will continue to be tempered by partly debt-funded capital expenditure (capex) under implementation and high working capital borrowings. The outlook could be revised to ‘Positive’ in case of better-than-expected profitability and improvement in capital structure. Conversely, it could be revised to ‘Negative’ in case of further debt-funded capex or in case of a prolonged slowdown in off-take, including from expanded facilities.

About the Company
KBSCV was incorporated in 2003 as a 74:26 joint venture between Knorr-Bremse Asia Pacific (Holding) Ltd and Tata AutoComp Systems Ltd (TACO, rated ‘AA/Stable/P1+’ by CRISIL) to manufacture braking systems for commercial vehicles. Knorr-Bremse Asia Pacific (Holding) Ltd is a 100 per cent subsidiary of Knorr-Bremse AG, which is one of the leading manufacturers of braking systems for rail and commercial vehicles globally. It had more than 45 locations worldwide and registered global sales of EUR3.25 billion in 2007.

KBSCV began commercial production in July 2005 and is currently engaged in air braking systems, anti-lock braking systems, auto slack adjuster, air dryer, compressors, and valves for lift axles for medium-sized to large commercial vehicles. KBSCV generates its entire revenues from Tata Motors. It is expected to supply anti-lock braking systems to Ashok Leyland Ltd (rated ‘AA/Negative/P1+’ by CRISIL) from October 2008.

For the year ended December 31, 2007, KBSCV reported a net loss of Rs.7.28 million (net loss of Rs.83.65 million in the previous year) on net revenues of Rs.777.82 million (Rs.396.04 million). For the five months ended May 31, 2008, KBSCV reported a pre-tax profit of Rs.5.55 million on net revenues of Rs.547.68 million.