Rating Rationale
June 07, 2023 | Mumbai
ASK Automotive Limited
Ratings migrated to 'CRISIL AA-/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.364 Crore
Long Term Rating&CRISIL AA-/Stable (Migrated from 'CRISIL A+/Stable ISSUER NOT COOPERATING*')
Short Term Rating^CRISIL A1+ (Migrated from 'CRISIL A1 ISSUER NOT COOPERATING*')
& *Issuer did not cooperate; based on best-available information
^ *Issuer did not cooperate; based on best-available information
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Due to inadequate information, CRISIL Ratings, in line with guidelines of the Securities Exchange Board of India, had migrated its ratings on the bank facilities of ASK Automotive Limited (ASK) to ‘CRISIL A+/Stable/CRISIL A1 Issuer Not Cooperating'. However, the management has subsequently started sharing the information, necessary for carrying out a comprehensive review of the ratings. Consequently, the ratings are being migrated to ‘CRISIL AA-/Stable/CRISIL A1+’.

 

The rating continues to reflect strong market position in the two-wheeler components industry and robust financial risk profile. These strengths are partly offset by declining operating profitability and its susceptibility to volatility in input prices and high dependence on two-wheeler OEMs, although improving export and aftermarket sales.

Analytical Approach:

CRISIL Ratings has combined the business and financial risk profiles of ASK Automotives Limited (AAL) and its wholly owned subsidiary ASK Automobiles Private Limited (AAPL), to arrive at the rating of AAL. This is because both the entities enjoy parent-subsidiary relationship and are operationally related.

 

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:

ASK is a prominent player in the two-wheeler friction materials segment and caters to most of the renowned original equipment manufacturers (OEMs) in India, including Hero MotoCorp Ltd (‘CRISIL AAA/FAAA/Stable/CRISIL A1+’), Honda Motorcycle and Scooter India Pvt Ltd (HMSI), TVS Motors Co Ltd, Suzuki Motorcycle India Pvt Ltd, and Bajaj Auto Ltd (‘CRISIL AAA/ Stable/CRISIL A1+’). Presence in the export market, aftermarket segment and diversified product mix including brake shoe, aluminium die casting, panel assembly, etc. further supports the market position. Consequently, the company has been able to achieve healthy revenue performance in the ongoing fiscal despite the subdued industry performance. The group’s revenue grows around 25-30% to over Rs. 2500 crore in fiscal 2023. Going forward, revenue is further expected to improve with addition of new unit in Bhiwadi and Bangalore and management increased focus towards diversifying into passenger vehicle segment, increase in export sales and penetration into electric two-wheeler space. CRISIL believes ramp up of operations in new units leading to sustained improvement in business risk profile remains key monitorable.

 

Robust financial risk profile

The financial risk profile has improved consistently because of steady retirement of debt backed by sufficient reserves and reduced reliance on bank lines driven by prudent working capital management. ASK group is undertaking a large capex (around Rs. 300 crores) to setup new unit through its wholly owned subsidiary ASK Automobiles Private Limited which will act as an extended arm for AAL. The stated capex will be funded by an external debt of approx. Rs. 214 crores, the capital structure should remain robust supported by sizeable networth; the total outside liabilities to adjusted networth ratio is 0.93 times as on March 31, 2023 and is estimated at 0.7-0.75 times over the medium term. Debt protection metrics have remained robust and will continue to remain so over the medium term as well backed by steady operating profitability; interest coverage and net cash accrual to debt ratios are at 22-23 times and 0.60-0.80 times, respectively, for fiscal 2023.

 

Weaknesses:

Declining operating profitability and its susceptibility to volatility in input prices

Material cost accounts for around 65% of the total cost, and majorly comprises of aluminium and related alloys, the prices of which are highly volatile and are governed by the market forces. Moreover, limited bargaining power of ASK with its prominent OEM’s further constrains the operating profitability in the wake of high aluminium price increase, as the same is either not fully passed on or passed on with a time lag. This had impacted the operating profitability during fy22, which moderated to 8.7% (12.3% during fy21). Though operating profitability recovered fy23, at around 10%, it stood lower than historical range of 12.5-13%. Going forward, sustenance of operating profitability at 10-11% amidst sustained volumetric growth will remain a key monitorable.

 

High Dependence on two-wheeler OEMs, although improving export and aftermarket sales

The two-wheeler segment contributes 90-95% to the company’s revenue, with OEMs accounting for 70-80% over the past few years. Although the company is steadily diversifying into other segments such as exports, aftermarket, their revenue contribution remains low currently, estimated at around 30% in FY24. Though the stated risk is partly mitigated by the company’s strong market position and longstanding relationships with various OEMs, resilience in domestic OEM’s demand leading to overall business growth for ASK will be closely monitored.

Liquidity: Strong

Bank limit utilisation is low at around 43 percent for the past twelve months ended March’2023.  Cash accruals are expected to be over Rs 190-200 crores which will be sufficient against term debt obligation of Rs. 35-40 crores over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio is moderate at 1.1 times on March 31, 2022. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

The business risk profile of ASK Automotive will continue to be supported by its established market position.

Rating Sensitivity factors

Upward factors

* Sustained and significant improvement in volumetric sales while stable operating profitability at 10-11%

Timely completion of capex with no cost overrun leading to healthy financial risk profile


Downward factors

* Steep decline in revenue or profitability resulting in annual net cash accrual of less than Rs 100 crore

* Stretch in the working capital cycle or sizeable debt-funded capex adversely impacting the capital structure and hence financial risk profile.

About the Group

Incorporated in 1988 and based in Manesar, Haryana (Corporate office), ASK 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 (PDC) 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.

 

ASK Automobiles Private Limited (ASK Automobiles) is a wholly owned subsidiary of ASK and was incorporated in June 2021. It is currently in phase of setting up manufacturing plants at Bhiwadi, Rajasthan and Bangalore, Karnataka for manufacturing of auto components and parts. The new facilities are expected to become operational from 2023-24.

Key Financial Indicators

As on / for the period ended March 31   2023 (P) 2022
Operating income Rs crore 2555.44 2013.1
Reported profit after tax Rs crore 135.99 88.73
PAT margins % 5.28 4.4
Adjusted Debt/Adjusted Net worth Times 0.47 0.14
Interest coverage Times 22 21.82

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of
allotment
Coupon
rate (%)
Maturity
date
Issue size
(Rs crore)
Complexity 
levels
Rating assigned
with outlook
NA Letter of credit & Bank Guarantee NA NA NA 0.5 NA CRISIL A1+
NA Proposed Fund-Based Bank Limits NA NA NA 181 NA CRISIL AA-/Stable
NA Term Loan NA NA Jun-27 77 NA CRISIL AA-/Stable
NA Working Capital Facility NA NA NA 105.5 NA CRISIL AA-/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated Extent of Consolidation  Rationale for Consolidation 
ASK Automotive Limited Full Parent Subsidiary relationship
ASK Automobiles Private Limited Full Parent Subsidiary relationship
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 363.5 CRISIL AA-/Stable 28-04-23 CRISIL A+ /Stable(Issuer Not Cooperating)* 02-02-22 CRISIL AA-/Stable 30-01-21 CRISIL AA-/Positive   -- CRISIL AA-/Stable
      --   --   --   --   -- CRISIL A1+ / CRISIL AA-/Stable
Non-Fund Based Facilities ST 0.5 CRISIL A1+ 28-04-23 CRISIL A1 (Issuer Not Cooperating)* 02-02-22 CRISIL A1+ 30-01-21 CRISIL A1+   -- CRISIL A1+
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Letter of credit & Bank Guarantee 0.5 HDFC Bank Limited CRISIL A1+
Proposed Fund-Based Bank Limits 181 Not Applicable CRISIL AA-/Stable
Term Loan 77 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Working Capital Facility 25 HDFC Bank Limited CRISIL AA-/Stable
Working Capital Facility 25.25 Citibank N. A. CRISIL AA-/Stable
Working Capital Facility 30.25 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Working Capital Facility 25 Axis Bank Limited CRISIL AA-/Stable

This Annexure has been updated on 07-June-2023 in line with the lender-wise facility details as on 11-Dec-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach for Rating SRs
CRISILs Bank Loan Ratings
The Rating Process
Assessing Information Adequacy Risk
CRISILs Criteria for Consolidation

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