Rating Rationale
April 21, 2020 | Mumbai
Atul Auto Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.130 Crore (Enhanced from Rs.15 Crore)
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable' rating on the long-term bank facilities of Atul Auto Limited (AAL) while assigning 'CRISIL A1' rating on the short term bank facilities.
 
The rating continues to reflect AAL's robust business risk profile, because of moderate market share, established distribution network, and efficient working capital management. The rating also factors in a strong financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices, vulnerability to cyclicality in the commercial vehicle segment, and risks associated with large project execution.
 
CRISIL has factored in the corporate guarantee (of Rs 115 crore) AAL has extended to one of its group companies, Khushboo Auto Finance Ltd (KAFL). In the medium term, KAFL is expected to play a significant role in AAL's overall business risk profile. This is because KAFL will operate as a non-banking financial company (NBFC) arm for AAL's three-wheeler segment. Increase in any corporate guarantee towards, or further infusion of equity in, KAFL shall continue to be a key rating sensitivity factor over the medium term.

Analytical Approach

CRISIL has taken a standalone view of the business and financial risk profiles of AAL. This is because AAL only has 30% stake in the overall equity of KAFL, and both the companies operate in different sectors.

Key Rating Drivers & Detailed Description
Strengths:
* Strong financial risk profile
Financial risk profile is healthy and should remain so over the medium term, backed by sizeable accrual, and low reliance on external debt. Balance sheet has remained largely debt-free over the five years ended March 31, 2019, driven by efficient working capital management and funding of nominal capital expenditure (capex) through accrual. Networth was Rs 259 crore as on March 31, 2019.
 
* Established business risk profile
AAL is an established player in the three-wheeler industry, commanding around 5% of domestic market share. It caters to demand for passenger, cargo, petrol, diesel, liquid petroleum gas, and electric vehicles. The distribution network is spread across India.
 
Weaknesses
* Exposure to intense competition and risks related to geographic concentration and cyclicality in the commercial vehicle segment
Despite healthy growth in revenue over the past few years, market share remains modest in the overall three-wheeler segment due to intense competition from large players, such as Bajaj Auto Ltd ( rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'), Piaggio Vehicles Pvt Ltd (rated 'CRISIL A+/Negative/CRISIL A1'), and Mahindra and Mahindra Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+). Competitive pressure from below-one-tonne mini truck and large three-wheeler manufacturers persists, too. Further, the company faces high geographical concentration with majority of revenues coming from Gujarat.

* Risks associated with project implementation
AAL is undertaking Rs 180-200 crore greenfield capital expansion for doubling its capacity. The capex is being funded through term loan of Rs. 90 cr and balance through internal sources. The project exposes AAL to associated risks, such as time or cost overrun, technology obsolesce, tie-up of funding, and stabilisation and ramp up in operations post completion. Progress in project implementation and subsequent ramp up remains a rating sensitivity factor.
 
* Exposure to volatility in raw material prices
Profitability in the commercial vehicle industry is driven by product mix, sales mix, volatility in commercial vehicle prices, and raw material costs. In line with most end users in the three-wheeler industry, AAL has limited ability to pass on the increase in raw material prices to its customers.
Liquidity Strong

AAL has strong liquidity backed by healthy cash accruals, liquid investments and steady working capital cycle. The company is expected to generate annual cash accruals of Rs. 55-60 cr against which it currently does not have any term debt obligations. The working capital cycle has remained steady around 3 months over last 3 years with no reliance on bank borrowings (nil utilization of Rs.15 cr cash credit limit) supported by healthy accruals. While the company is undertaking large capex, same is well spread out in time, adequately funded through debt and its liquidity will remain supported by healthy accruals.

Outlook: Stable

CRISIL believes AAL will continue to benefit from its strong brand name in the domestic market and steady overseas presence, supported by a robust distribution network.

Rating Sensitivity Factors
Upward Factors
* Sustained compounded annual revenue growth of 20% with geographic diversification and steady profitability
* Sharp improvement in margin and working capital cycle with topline growth
 
Downward Factors
* Moderation in profitability by 300 bps along with sharp topline decline and stretched working capital cycle.
* Significant delay in ramp up of expanded capacity or large investment in group companies

About the Company

Incorporated in 1986, Rajkot-based AAL is listed on the Bombay Stock Exchange. The company is promoted by Mr Chandra and Mr Patel, and their families. It manufactures three-wheelers (goods as well as passenger segments) under the Atul brand, and spares, components, and allied products.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 667 557
Reported profit after tax Rs crore 53 46
PAT margins % 8.0 8.3
Adjusted Debt/Adjusted Net worth Times 0 0.00
Interest coverage Times 137 210

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. 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 Cr.) Rating assigned with outlook
NA Cash Credit NA NA NA 15 CRISIL A/Stable
NA Pre-Shipment Credit in Forex* NA NA NA 25 CRISIL A1
NA Long Term Loan NA NA Mar-27 90 CRISIL A/Stable
* Interchangle with Post shipment credit, Working capital term loan. Limit calculated at exchange rate of Rs. 71.43 per USD
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  130.00  CRISIL A/Stable/ CRISIL A1  30-03-20  CRISIL A/Stable      31-12-18  CRISIL A/Stable  14-12-17  CRISIL A/Stable  CRISIL A/Stable 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 15 CRISIL A/Stable Cash Credit 15 CRISIL A/Stable
Pre-Shipment Credit in Forex* 25 CRISIL A1 -- 0 --
Long Term Loan 90 CRISIL A/Stable -- 0 --
Total 130 -- Total 15 --
* Interchangle with Post shipment credit, Working capital term loan. Limit calculated at exchange rate of Rs. 71.43 per USD
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Commercial Vehicle Industry
CRISILs Bank Loan Ratings

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