Rating Rationale
December 14, 2017 | Mumbai
Atul Auto Limited
Rating Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.15 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
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 bank facility of Atul Auto Limited (AAL).
CRISIL's rating on the long-term facility of AAL continues to reflect the company's robust business risk profile, because of moderate market share, established distribution network, and efficient working capital management. The rating also factors in the strong financial risk profile and networth. These strengths are partially offset by the susceptibility of its operating margin to volatility in raw material prices, and exposure to intense competition from the below-one-tonne mini truck and large three-wheeler manufacturers. Furthermore, the company is vulnerable to cyclicality in the commercial vehicle segment.
Crisil has also factored in Corporate Guarantee given by AAL to one of its group companies Khushboo Auto Finance Limited (KAFL) to the extent of Rs. 75.00 Cr against its bank loan facilities. Crisil believes that in medium term KAFL will play a significant role in overall business risk profile of AAL as it will operate as Non-Banking Financial Company (NBFC) arm for its 3- wheeler segment. Also increase in any kind of Corporate Guarantee towards KAFL or further infusion in equity of KAFL continue to be a key rating sensitivity factor in medium term.

Analytical Approach

AAL rating is derived on standalone basis as AAL is only having 30% stake in overall equity of KAFL and both are operating in different sectors.

Key Rating Drivers & Detailed Description
* Strong financial risk profile
Financial risk profile is expected to remain healthy, backed by sizeable internal accruals sufficient to fund capital expenditure (capex) and low reliance on external debt. Gearing has been low over the five years ended March 31, 2017, due to funding of capex through internal accruals and efficient working capital management. Networth was Rs 180 crore as on March 31, 2017 and there are no debt-funded capex plans for the medium term. 
* Established business risk profile
The market position of AAL in the domestic three-wheeler industry has improved with market share increasing to 8% in fiscal 2017 (fourth largest player in industry) from 2.8% in fiscal 2010. The distribution network is spread across the country with 190 dealers and 120 sub-dealers. Further, the company has successfully launched various three-wheeler models to cater to different segments. Though revenue has decline in fiscal 2017 because of various economic factors and AAL registered revenue of Rs. 472.00 Cr against Rs. 528.00 Cr in fiscal 2016. Further company has shown strong revenue profile in H1 2018 registering revenue of Rs.277.42 Cr.
* Exposure to intense competition and geographical concentration and cyclicality in the commercial vehicle segment
Despite registering healthy growth over the past few years, market share remains modest at around 9% in the overall three-wheeler market. The company faces intense competition from large players such as Bajaj Auto Ltd (rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'), Piaggio Vehicles Pvt Ltd (rated 'CRISIL A/Stable/CRISIL A1'), and Mahindra and Mahindra Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+). It has an established presence in the domestic goods segment and a small market share in the domestic passenger segment and export market.

* Exposure to volatility in raw material prices
Profitability in the CV industry is driven by product mix, sales mix, change in commercial vehicle prices, and raw material costs. In-line with most end-users in the three-wheeler industry, AAL has an average financial risk profile and limited ability to pass on the increase in raw material prices to its customers. In fiscal 2017 operating margins got impacted as it registered margin fo 12.6% against margin of 14.4% in fiscal 2016. Margins are expected to remain at similar levels in medium term also.
Outlook: Stable

CRISIL believes AAL will continue to benefit from its strong brand in the domestic market and steady presence overseas, supported by robust distribution network. The outlook may be revised to 'Positive' if scale of operation improves with significant impacting operating revenue and profitability while financial risk profile continues to remain healthy. The outlook may be revised to 'Negative' if decline in operating margin or larger-than-expected, debt-funded capex weakens financial risk profile or further diversion of investment in associate companies to support their funding requirements.

About the Company

AAL, incorporated in 1986, is listed on the Bombay Stock Exchange, and is based in Rajkot, Gujarat. 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
Particulars Unit 2017 2016
Revenue Rs Cr. 472 528
Profit after tax Rs Cr. 37 47
PAT Margins % 12.6 14.4
Adjusted debt/adjusted networth Times NA NA
Interest coverage Times 188.72 244.18

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 15.00 CRISIL A/Stable
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  15  CRISIL A/Stable    No Rating Change    No Rating Change  09-07-15  CRISIL A/Stable    No Rating Change  CRISIL A-/Stable 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
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
Total 15 -- Total 15 --
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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