Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of Avis India Mobility Solutions Private Limited (AIMSPL; formerly known as Mercury Car Rentals Private Limited) to ‘Crisil A/Stable’ from ‘Crisil A-/Stable’.

 

The ratings factor in the strong support from the parent, Avis Budget Group Inc. (Avis). The upgrade is driven by the revision in the Crisil Ratings’ Framework for mapping global scale ratings on to the Crisil Ratings scale. Avis is a global player and AIMSPL is a critical entity for Avis since Avis controls the operations in India through AIMSPL. AMISPL is also Asia’s largest subsidiary for Avis. Avis has international tie ups with its clients and has to cater to their requirements in India as well. Due to international tie-ups of Avis with various multinational companies, 75% of AIMSPL’s clientele is Multinational Corporations.

 

The ratings reflect the company’s strong market position. The company’s operating income is expected to grow by 14-16% year-on-year to around Rs 470-480 crore in fiscal 2025 supported by steady demand from existing customers and addition of new customers. Operating income grew by ~12% to Rs.412 crore in fiscal 2024 from Rs.369 crore in fiscal 2023 with the growth being driven by improved revenue in both ‘Rent a Car’ (RAC) and leasing segments as well as improved pricing due to premium quality services and servicing marquee clients. The RAC segment has seen a good growth over the last two years due to opening of offices across locations and continuous addition of new clients by the company. The operating profit also improved to Rs. 201 crore in fiscal 2024 from Rs. 169 crore in fiscal 2023; operating margin improved to 48.7% in fiscal 2024 from 45.9% in fiscal 2023. The improvement in operating margin is aided by the various cost saving measures undertaken by the company such as reduction in manpower cost, rental cost of the premises etc. as well as by increase in the rentals and lease prices supported by favourable demand-supply dynamics. Operating margin is expected to sustain at around 48% over the medium term driven by management’s focus on business with higher margin. Sustenance of cash flows (also supported by proceeds from sale of old cars) has supported the liquidity profile, with the company having met its fixed debt obligations. Company had outstanding debt of Rs. 385 crore as on March 31, 2024, which had increased due to the purchase of new cars. The company is expected to generate enough cash flows from operations and sale of cars to meet its debt repayment obligations in a timely manner.

 

The rating reflects the strong operational and financial support from AIMSPL’s parents, Avis and EIH Ltd (EIH; listed on the National Stock Exchange and the Bombay Stock Exchange), and its established market position and reputed and diversified clientele. These strengths are partially offset by the company’s moderate financial risk profile and exposure to intense competition.

Analytical Approach

Crisil Ratings has factored in strong support from AIMSPL’s parent, Avis. Avis and AIMSPL operate in similar businesses, along with common ‘Avis’ branding for operations. Hence, AIMSPL will remain critical to the operations of Avis.

Key Rating Drivers & Detailed Description

Strengths:

• Operational and financial support from the parents: The entire car rental business is operated under the Avis brand. AIMSPL is a critical entity for Avis since Avis controls the operations in India through AIMSPL. Avis has international tie ups with its clients and has to cater to their requirements in India as well. Due to international tie-ups of Avis with various multinational companies, 75% of AIMSPL’s clientele is Multinational Corporations. The company also caters to the hotel chain under EIH. Furthermore, a part of the credit exposure is backed by corporate guarantee and letter of comfort extended by the Avis group.

 

• Established market position: Avis is one of the largest car rental players in the world. With strong support from the parent, Avis, AIMSPL has a robust market position. Avis owns 60% stake in AIMSPL. Further, Avis provides financial and operational support to company. The company operates its car rental and lease businesses under the Avis brand, thereby catering to reputed multinational companies and domestic players. This is backed by efficient fleet management and diversified operations. The company has a fleet of 922 cars in the car RAC segment, with a network of 47 locations across 20 cities, and 5166 cars in the lease segment with a network across 70 cities as of March 2024. AIMSPL continues to benefit from the established market position of Avis, continued synergies owing to criticality of AIMSPL for the parent company, Avis. AIMSPL is using the ‘Avis’ brand, technology platform from Avis and pays royalty of 2-3%.

 

• Reputed and diversified customer base: The company has a fairly diversified clientele, with no customer accounting for over 10% of revenue in fiscal 2024. Apart from gaining incremental business from existing customers, it has successfully added new customers in fiscal 2024. AIMPSL also benefits from a long tenure 1-5 years for leasing business and in rent a car the tenure remains for 1 year` which gets renewed as per the requirement of the client.

 

Weaknesses:

• Moderate financial risk profile: Despite strong networth expected at ~Rs 260 crore for the year ending March 31, 2025 (Rs.199.2 crore as on March 31, 2024), high debt levels have resulted in high gearing expected at ~1.8-2 times for the year ending March 31, 2025 (1.9 times as on March 31, 2024).  Debt protection metrics are expected to remain comfortable, with expected interest coverage and net cash accrual to adjusted debt ratio of around 5 times and 0.3 time, respectively, for fiscal 2025 (5.5 times and 0.43 time in fiscal 2024). As on March 31, 2024, company had outstanding debt of Rs. 385 crore which increased from Rs.354 crore as on March 31, 2023 due to addition of fleet to support the improved demand. Long term debt outstanding as on September 30, 2024 is around Rs. 269 crore. Better profitability in the operating lease business and proceeds from sale of cars are expected to continue to support the fixed long-term debt repayment obligations.  

 

• Exposure to intense competition: AIMPSL competes with Orix, and ALD Automotive in the lease segment; and Carzonrent, Orix-RAC, and Eco-RAC in the car rental segment. Competition has intensified with the presence of aggregators such as Uber and Ola. Competition from private-equity-funded players had also precluded growth in revenue and profitability in the self-driven car rental segment. Though competition has moderately impacted the car rental business, AIMPSL has built a healthy clientele over the past decade and has invested in technology and customer acquisition to competently deal with competition.

Liquidity: Adequate

Sustenance of cash flows has supported the liquidity profile however the liquidity also depends on the net realisable value (NRV) of old cars. Since net cash accrual is insufficient to repay term debt obligations, the gap is met through sale of old cars. Liquidity is backed by financial support from the parent companies – Avis and EIH. AIMSPL avails loans from both multinational and domestic banks, backed by corporate guarantee and letter of comfort issued by the Avis group. In fiscal 2024, net cash accruals along with proceeds from sale of old cars have remained at around Rs. 245 crores against repayment of ~Rs.138 crores; going forward also, the net cash accruals are excepted to remain around Rs. 170-230 crores annually and in addition proceeds from the sales of old cars are expected to remain adequate to repay the yearly term debt repayment obligations of Rs.125-130 crore in fiscal 2025 and around Rs 220-280 crore each in fiscal 2026 and fiscal 2027.

Outlook: Stable

Crisil Ratings believes AIMSPL’s credit risk profile will continue to be supported by Avis, while the company will maintain its established market position in the domestic car rental segment over the medium term.

Rating sensitivity factors

Upward factors:

• Upward revision in the parent's credit rating by S&P Global
• Sustained improvement in the business risk profile, resulting in net cash accruals over Rs 220 crore
• Reduction and/or stability in debt levels thereby resulting in improved capital structure

 

Downward factors:

• Downward revision in the parent's credit rating by S&P Global
• Change in shareholding (falling below 50%) or support philosophy of Avis for AIMSPL.
• Any unanticipated, debt-funded capital expenditure, constraining the financial risk profile

About the Company

AIMSPL was set up by EIH (flagship company of the Oberoi group) in 1995. In 1999, Avis, through its step-down subsidiary, Avis India Investments Pvt Ltd (AIIPL), entered India by forming a joint venture with EIH. Currently, AIIPL holds 60% and EIH 40% in AIMSPL. The company operates under two business verticals in India: car rental and lease. Avis is one of the largest car rental businesses in the world, operating through its Avis and Budget brands, which have more than 11,000 rental locations in 180 countries. Avis derives bulk of its revenue from airport locations. In addition to car rentals, Avis also provides consumer truck rentals.

Any other information: Not Applicable