Rating Rationale
October 26, 2021 | Mumbai
Austin Engineering Company Limited
Ratings Reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.22 Crore
Long Term RatingCRISIL BB/Stable (Rating Reaffirmed and Withdrawn)
Short Term RatingCRISIL A4+ (Rating Reaffirmed and Withdrawn)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Austin Engineering Company Ltd (AECL; part of the AECL group) and simultaneously withdrawn the ratings at the company's request and on receipt of no-objection certificate from its banker. The withdrawal is in-line with CRISIL Ratings' policy on withdrawal of bank loan ratings.

 

The ratings continue to reflect the AECL group’s moderate capital structure and its long market presence in the industrial bearings segment. These strengths are partially offset by limited bargaining power with customers, working capital-intensive operations, and exposure to volatility in profitability, raw material prices and foreign exchange (forex) rates.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of AECL and its subsidiary, Austin Engineering Company (AEC; formerly, Accurate Engineering Inc). This is primarily because the entities, together referred to as the AECL group, have operational synergies, wherein AEC acts as a marketing arm for AECL in the US.

 

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:

Moderate capital structure: Networth and gearing were estimated around Rs 50 crore and 0.12 time, respectively, as on March 31, 2021. Losses incurred during fiscal 2020 and fiscal 2021, led to a slightly lower networth over last couple of years, yet minimal reliance on external debt has kept gearing comfortable. While debt protection measures have been affected by losses, healthy capitalization levels have aided the financial risk profile and liquidity.

 

Long market presence in the industrial bearings segment: The group manufactures customised industrial bearings for numerous industries, but mainly caters to the non-automotive sector. The group has historically derived around 40% of its revenue from exports to the US and Europe. Benefits from track record of over two decades and healthy relationship with customers will continue.

 

Weaknesses

Exposure to volatility in profitability, raw material prices and forex rates, and limited bargaining power with customers: Intense competition limits the ability to pass on any hike in raw material prices to customers, thus constraining profitability. Over the five years ending March 31, 2021, the group’s operating margin has been below 5%. Furthermore, significant exports, in the absence of any hedging policy, exposes the group to fluctuations in forex rates.

 

Large working capital requirement: Gross current assets were high at 351 days as on March 31, 2021, because of large inventory and stretched receivables of around 7 months and 2 months respectively.

Liquidity: Adequate

Liquidity remains adequate, aided by moderate bank limit utilisation and absence of any term debt. Over the 9 months to October 2021, the company had rarely utilized its working capital limit, despite the large working capital requirement, supported by healthy capitalization level for company’s scale of operations. Current ratio was healthy over 2.5 times as on March 2021. Current freely available cash bank balance of around Rs 2 crore also aids liquidity.

Outlook: Stable

CRISIL Ratings believes the AECL group will continue to benefit from its healthy capital structure and moderate order pipeline.

Rating Sensitivity Factors

Upward factors

  • Improvement in scale and profitability, leading to cash accrual of Rs 3 crore on a sustained basis
  • Better working capital management

Downward factors

  • Increase in bank limit utilisation to over 90%
  • Large capital expenditure or sharply increased working capital or deterioration in the business profile

About the Group

Established in 1985, the AECL group manufactures anti-friction bearings that are used across the power, mining, steel, cement, defence and transportation industries. Manufacturing plants are in Junagadh, Gujarat.

Key Financial Indicators

As on/for the period ended March 31

Unit

2021

2020

Operating income

Rs.Crore

69.4

72.4

Reported profit after tax

Rs.Crore

(1)

(1.6)

PAT margin

%

(1.4)

(2.1)

Adjusted debt/adjusted networth

Times

0.12

0.12

Interest coverage

Times

1.2

1.2

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity Level

Rating assigned with outlook

NA

Bank Guarantee

NA

NA

NA

2.5

NA

CRISIL A4+ (Rating Reaffirmed and Withdrawn)

NA

Cash Credit

NA

NA

NA

13.9

NA

CRISIL BB/Stable (Rating Reaffirmed and Withdrawn)

NA

Credit Limit Under Gold Card

NA

NA

NA

1.6

NA

CRISIL BB/Stable (Rating Reaffirmed and Withdrawn)

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

4

NA

CRISIL BB/Stable (Rating Reaffirmed and Withdrawn)

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Austin Engineering Company Ltd

Full Consolidation

AEC is subsidiary of AECL and acts as its marketing arm

Austin Engineering Company

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 19.5 CRISIL BB/Stable (Rating Reaffirmed and Withdrawn)   -- 10-07-20 CRISIL BB/Stable 06-05-19 CRISIL BB/Stable 21-02-18 CRISIL BB/Negative CRISIL BB+/Negative
Non-Fund Based Facilities ST 2.5 CRISIL A4+ (Rating Reaffirmed and Withdrawn)   -- 10-07-20 CRISIL A4+ 06-05-19 CRISIL A4+ 21-02-18 CRISIL A4+ CRISIL A4+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee 2.5 CRISIL A4+ (Rating Reaffirmed and Withdrawn)
Cash Credit 13.9 CRISIL BB/Stable (Rating Reaffirmed and Withdrawn)
Credit Limit Under Gold Card 1.6 CRISIL BB/Stable (Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 4 CRISIL BB/Stable (Rating Reaffirmed and Withdrawn)
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
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

Media Relations
Analytical Contacts
Customer Service Helpdesk

Pankaj Rawat
Media Relations
CRISIL Limited
B: +91 22 3342 3000
pankaj.rawat@crisil.com

 


Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com


Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com


Nilesh Agarwal
Associate Director
CRISIL Ratings Limited
B:+91 79 4024 4500
Nilesh.Agarwal1@crisil.com


Gaurav Vinod Gupta
Manager
CRISIL Ratings Limited
D:+91 20 6626 1866
Gaurav.Gupta1@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ("CRISIL Ratings") is a wholly-owned subsidiary of CRISIL Limited ("CRISIL"). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 




About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide


For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale (each a "Report") that is provided by CRISIL Ratings Limited  (hereinafter referred to as "CRISIL Ratings") . For the avoidance of doubt, the term "Report" includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. Rating by CRISIL Ratings contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way. CRISIL Ratings or its associates may have other commercial transactions with the company/entity.

Neither CRISIL Ratings nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, "CRISIL Ratings Parties") guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Ratings Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL RATINGS' PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL Rating's public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL Ratings you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings Limited is a wholly owned subsidiary of CRISIL Limited.

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011 to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html