Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of ASK Automotive Ltd (AAL; a part of the ASK group) to ‘Crisil AA/Stable’ from ‘Crisil AA-/Positive’. The Short-term rating has been reaffirmed at ‘Crisil A1+’.

 

The rating upgrade factors in the group’s improved business performance, driven by steady and sustained growth in revenue along with sound operating efficiency. Amidst improved demand from existing customers, new product introduction and customer acquisition etc. revenue witnessed a compound annual growth rate of ~25% for the three fiscals through 2024. Revenue is likely to grow further by 20-22% during fiscal 2025 (on-year basis), backed by improved demand, commercialisation of new plants aiding increased capacities and additionally supported by revenue booking of ~Rs 1,800 crore done during April 2024 to September 2024. Operating profitability, too, has improved consistently over the past few fiscals and is at ~12% during April-September in fiscal 2025 (10% during fiscal 2024), which is likely to sustain over the medium term as well. This along with efficient working capital management resulted in healthy return on capital employed, expected at ~28-30% in fiscal 2025, improved from ~25% in fiscal 2024.

 

The rating upgrade also factors in the ASK group’s robust financial risk profile, supported by sizeable tangible networth of Rs 860-880 crore projected as on March 31, 2025 (~Rs 660 crore as of Mar 31, 2024), backed with steady accretion to reserve. Despite the sizeable capital expenditure (capex) of Rs 300-350 crore planned for fiscal 2025, the capital structure is expected to remain supported by healthy accretion to reserve and pre-payment of debt undertaken by the management, thus, leading to gearing below 0.50 time as on March 31, 2025. Liquidity stands robust too, evident by healthy net cash accrual vis-a-vis maturing debt, cushion in bank lines and positive cash flow from operations.

 

The ratings continue to reflect the strong market position of the ASK group in the two-wheeler components industry and robust financial risk profile. These strengths are partially offset by customer and segmental concentration in the revenue and moderate operating profitability.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of AAL and its wholly owned subsidiary, ASK Automobiles Pvt Ltd (AAPL). This is because both the companies, together referred to herein as the ASK group, have operational linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position in the two-wheeler components industry: The ASK group is a prominent player in the two-wheeler friction materials segment, holding a leading share in the domestic market for original equipment manufacturers (OEMs), including key players such as Hero MotoCorp Ltd, Honda Motorcycle and Scooter India Pvt Ltd, TVS Motors Co Ltd and Suzuki Motorcycle India Pvt Ltd. The group boasts of a diverse product mix including brake shoes, aluminium die castings, panel assemblies and continuously expands its offerings through in-house research and development and initiatives such as technical collaborations, including those for high-pressure die casting alloy wheels. All these bolsters its market position not only in the domestic OEM market but also enhance its footprint in the international market and the aftermarket segment. The management has proactively prepared capacities for the electric vehicle (EV) landscape, currently serving 70-80% of two-wheeler EV manufacturers. Revenue growth is anticipated to be supported by the lightweighting trend in EVs, attributed to the increased use of aluminum.

 

For the first half of fiscal 2025, the group reported revenue of ~Rs 1,800 crore, with an operating profit margin of ~12%. A quick ramp up of operations at its Rajasthan plant, along with favorable industry performance, has contributed to revenue growth of the group. Looking ahead, both revenue and profitability are expected to rise, driven by commercialisation of the Bengaluru plant, enhanced economies of scale, and the group's strong market position. Ramp up of operations in the new unit, leading to sustained improvement in the business risk profile, remains monitorable.

 

• Robust financial risk profile: The financial risk profile has improved consistently due to the management's conservative approach regarding external debt. This is reflected in the prepayment of term debt, supported by improved operating profitability and adequate reserves. Additionally, prudent management of the working capital has reduced dependence on short-term debt. The group has a sizeable capex of Rs 300-350 crore planned for fiscal 2025, with a majority of these already completed in the planned manner, including establishment of the Bengaluru plant, solar facility and the capacity expansion at the Rajasthan plant. Despite the stated capex, the capital structure should remain strong supported by an expected tangible networth of more than Rs 860-880 crore projected as on March 31, 2025. Gearing and total outside liabilities to adjusted networth ratio were 0.52 time and 1.19 times respectively as on March 31, 2024, and are expected to remain robust in range of 0.45-0.50 time and 0.9-1.0 times respectively as on March 31, 2025. Steady growth in revenue and profitability shall help to generate annual net cash accrual of more than Rs 300-310 crore and thereby maintain robust debt protection metrics; interest coverage and net cash accrual to total debt ratios are projected at 13-14 times and 0.7-0.8 time, respectively, for fiscal 2025.

 

Weaknesses:

• Customer and segmental concentration in the revenue: The revenue growth prospects of the ASK group is influenced by cyclicality in the automotive (auto) industry. This is particularly relevant as over 90-95% of the group’s revenue is derived from the two-wheeler segment, with OEMs representing over 70-80% share over the past few years. Nevertheless, the group is actively working to expand its footprint in exports, aftermarket services and non-auto applications, although their revenue contribution remains low. Additionally, the group remains susceptible to customer concentration risk, as top three customers accounted for 60-65% of the total revenue. The limited segmental diversification, negligible presence in the aftermarket and exports and high customer concentration limits bargaining power and constrain the business risk profile. However, the management's proactive initiatives to introduce new products, foster strong relationships with various OEMs and add new customers in both domestic and export markets are expected to help mitigate the effects of cyclical demand fluctuations in the auto sector and reduce customer concentration risks. The group's ability to sustain revenue growth by generating new demand for the recently expanded capacity, while diversifying customer and segment concentration amid cyclical trends in the auto industry, will remain monitorable.

 

• Moderate operating profitability: Though operating profitability has consistently improved over the past few fiscals, it continues to remain moderate, estimated at 12% during fiscal 2025 (10% during fiscal 2024). Operating profitability remains constrained on account of the sizeable green field expansion undertaken by the group over the past 2-3 fiscals, hence constraining cost efficiency. While both new plants, at Rajasthan and Bengaluru, have turned commercial in the ongoing fiscal, the operations there are yet to scale up and stabilise. Operating profitability is also constrained by the regular development of new products, especially for the EV segment, and slow ramp up in its demand amidst subdued order flow from end customers. Going forward, stabilisation of operations in new plants along with increase in sale of high value-added products, leading to significant improvement in operating profitability will remain a key monitorable.

Liquidity: Strong

Because of efficient working capital management, the dependence on bank lines remain low, evident by an average bank limit utilisation of ~34% during the 12 months through November 2024. Capex requirement, over the medium term, will be met through a combination of internal cash accrual and external financing, thereby enhancing financial flexibility of the group. Net cash accrual is projected at Rs 300-310 crore per annum, against yearly debt obligation of Rs 70-75 crore over the medium term, thereby providing sufficient cushion for capex-related or business growth requirements, as applicable. As on March 31, 2024, the current ratio stood at a moderate 1.02 times. Low gearing and sizeable networth also provide financial flexibility.

Outlook: Stable

The ASK group will continue to benefit from its strong market position in the two-wheeler components industry and robust financial risk profile.

Rating sensitivity factors

Upward factors

• Reduced dependence on any segment or customer/group of customers
• Significant and steady growth in revenue, by over 40-50%, along with steady improvement in operating margin to over 15-16%
• Timely completion of planned capex with no cost overrun and efficient working capital management, leading to sustenance of healthy financial risk profile

 

Downward factors

• Decline in revenue and/or operating margin, resulting in annual cash accrual of less than Rs 250 crore for a prolonged time
• Stretch in the working capital cycle or any sizeable, debt-funded capex creating deterioration of financial risk profile

About the ASK Group

Incorporated in 1988 and based in Manesar, Haryana, AAL manufactures components used in advanced braking systems, aluminium lightweighting precision solutions and safety control cables, such as brake shoes, safety control cables and other aluminium pressure die casting and machined components, such as brake panels, crank cases and hubs. Mr K S Rathee and his wife, Ms Vijay Rathee, are the promoters. Their children -- Mr Prashant Rathee and Mr Aman Rathee -- have also joined the business and are part of the board.

 

AAPL is a wholly owned subsidiary of AAL and was incorporated in June 2021. It has set up manufacturing plants at Bhiwadi in Rajasthan and in Bengaluru for manufacturing auto components and parts. The new facilities commenced operations in July 2024

Any other information: Not Applicable