| Aditya Auto Products and Engineering India Private Limited | ||||||
| Rating outlook revised to 'Stable'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 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 CRISIL Ratings has revised its outlook on the long-term bank facilities of Aditya Auto Products and Engineering India Private Limited (AAPE) to 'Stable' from 'Negative' and reaffirmed the rating at 'CRISIL BBB+', the short term rating has been reaffirmed at 'CRISIL A2'.
The rating action reflects the sustained improvement in AAPE's business risk profile marked by revenue growth of 55% year-on-year in fiscal 2022, while sustaining the margin at around 7%. The revenue grew by about to Rs 475.99 crore in fiscal 2022 from Rs. 307.68 crore achieved in the previous fiscal. Revenue in H1FY23 is estimated to be Rs. 305 crore, reflecting the sustenance of revenue growth.
The company's financial risk profile has also improved, backed by the long-term private equity (PE) investment of about Rs.70 crore, which has been utilised for debt reduction and capex funding. The capital structure is supported by healthy networth and moderate leverage ratios. Debt protection metrics also remained moderate in fiscal 2022. Increasing cash accruals are expected to support the incremental working capital requirements, thereby reducing the company's dependence on external debt, going forward.
The ratings continue to reflect the established market position of AAPE in the automotive component industry with established relationship with its key customers and moderate financial risk profile. These strengths are partially offset by working capital intensive operations, and susceptibility to any slowdown in the automotive industry. |
Key Rating Drivers & Detailed Description Strengths: Established market position in automotive component industry: Benefits from over two decades of established presence in this industry, with a strong relationship with several customers, both in domestic and export markets. The company has been able to constantly deploy new products to suit the requirements of the OEMs, thereby ensuring a business increase in the past few years. The company remains as a single source supplier of door and access systems to Mahindra and Mahindra Ltd (M&M). It has further reduced its dependence on its flagship product by increasing focus on other offerings, including wire harness, seat tracks, and brake fluid reserve body.
Moderate financial risk profile: The company has a moderate financial risk profile reflected by a moderate capital structure and debt protection metrics. Its capital structure is marked by gearing of 0.74 time and TOLTNW of 1.63 times estimated as on September 30, 2022, against 1.46 times and 2.44 times respectively as on March 31, 2022. This improvement is on the back PE infusion of about Rs.70 crore. Debt protection metrics remained average, reflected by interest coverage estimated at 2.2 times as on September 30, 2022.
Weaknesses: Working capital intensive operations: Operations remained working capital intensive as reflected in gross current assets at 140 days as on March 31, 2022. High working capital requirements are primarily due to high inventory holding of 71 days as and debtor's outstanding of 78 days on March 31, 2022. Working capital cycle is likely to remain at similar levels over the medium term. Susceptibility to a slowdown in the automotive industry: Revenue is mostly derived from the domestic automobile market. Further, raw material costs account for a substantial portion of revenue, while about two-thirds of revenue is derived from auto OEMs. Therefore, any adverse movement in the automobile industry could significantly constrain business and financial risk profiles. In case there is an increase in the price of key raw material, the company has the flexibility to pass on the hike to customers, albeit with a lag and after negotiation with original equipment manufacturers. |
Liquidity: Adequate Liquidity is likely to be adequate marked by adequate accruals against repayment obligations. Net cash accrual - expected at Rs 25-31 crore should be sufficient to cover yearly debt obligation of Rs 8 - 16 crore. Working capital management has improved, as marked by the utilisation of working capital limit averaged at 68% in the 7 months through October 2022. Further, liquidity is supported by free cash balances of Rs 2-3 crore as of September 30, 2022. |
Outlook: Stable CRISIL Ratings believes AAPE business and financial risk profile would remain supported by its established market position in automotive component industry and strong client base. |
Rating Sensitivity factors Upward factors: * Sustained increase in revenue by around 10-15% with operating margin sustained above 9%, leading to cash accrual above Rs 25 crore * Strengthening of financial risk profile, with improvement in TOLTNW below 1.5 times and interest coverage ratio to over 3 times on a consistent basis
Downward factors: * Sustained decline in operating margin to less than 6% and subdued revenue growth, impacting the net cash accruals * A substantial increase in working capital requirement, or large, debt-funded capital expenditure, weakening the financial risk profile and liquidity |
About the Company AAPE, incorporated in 1996, manufactures doors and access systems for automotive original equipment manufacturers. It also manufactures wiring harness assemblies, stamped and plastic subassemblies for doors and access systems, precision moulding parts, and other components for Tier-1 automotive component manufacturers. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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