Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Stable/Crisil A1+’ ratings on bank facilities of CIE Aluminium Casting India Ltd (CACIL).

 

Crisil Ratings has also withdrawn its rating on the bank facilities of Rs.33 crore basis no dues from the lender and request from the company.  The withdrawal is in-line with Crisil Ratings' policy on withdrawal of instruments and bank facilities.

 

The ratings continue to factor in the company’s healthy business risk profile, driven by its established market position in the aluminum die casting segment, longstanding relationships with various original equipment manufacturers (OEMs), higher share of exports and the growing base in the four-wheeler (4W) and electric vehicle segments. The ratings also factor in the strong credit risk profile of the parent i.e., CIE Automotive India Ltd (CIE India), from which the company receives technological, managerial and need based financial support. These strengths are partially offset by limited diversification in end-user industries and client base, and susceptibility to demand volatility in the two-wheeler and passenger car segments.

 

During calendar year 2023 (CY23), revenue grew marginally by around 2% to Rs 1,056 crore, owing to sluggish demand across the auto segment. For 9MCY24, revenues were reported at Rs. 898 crore (including government grant of Rs 59 crore) compared to Rs. 762 crore (including government grants of Rs 27 crore) in the corresponding period of the previous year. For the full CY24, revenues (excluding grants) are estimated to remain fattish, and grow at ~5-6% annually thereafter, with contributions from new customers/segments, mainly in the four-wheeler segment.

 

Operating margin (excluding government grants) improved to 12.4% for CY23 (CY22: 10.7%) and moderated to ~11.5% during 9MCY24. The moderation in operating margins largely due to dip in gross margins as the prices of key raw material ‘aluminium’ rose by ~7%. Company is normally shielded from variations in raw material prices as prices of Aluminium (major RM forming ~65% of RM costs) are pass through in nature. Margins (excluding grants) is expected to gradually improve and will be rangebound at 11-12% over the medium term, with higher share coming from higher margin 4W business and increasing share of exports.

 

Financial risk profile continues to remain healthy, with adequate networth and a healthy capital structure. Gearing stood healthy at 0.15 times (0.16 times in CY22) with total debt at Rs. 43 crore as against networth of Rs. 293 crores. Further, debt protection metrics stood healthy with interest coverage of 29 times in CY2023. Going forward, gearing is expected to increase as company has availed inter-corporate deposits (ICDs) from its parent in CY24 which thereby shall lead to increase in total debt. The total debt stood at Rs.158 crore for the 9M period ending Sep’24 out of which Rs.139 crore are in the form of ICDs from the parent. Owing to increase in overall debt levels the gearing shall increase however will remain comfortable in the range of 0.3-0.5 times while interest coverage being maintained at over 20 times.

The rating of CACIL also factors in support from parent CIE Automotive India Ltd (CIE India). CIE India has strong and improving business risk profile supported by significant scale up in revenues and expected improvement in operating profitability post divestment of lower margin German business during CY22. Financial risk profile of CACIL is also expected to sustain at healthy levels with continued deleveraging and increased cash accruals.

Analytical Approach

The ratings factor in the need based support expected from the parent CIE Automotive India Ltd (CIE India). CACIL will receive support from the parent for timely debt servicing during exigencies, besides operational, financial, and managerial support, considering both companies are in similar lines of business.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy business risk profile driven by gradual diversification into four wheeler segment: The company has been continuously focusing on increasing its revenue diversification with higher share coming from the higher margin 4W segment. Revenue contribution from 4W segment has been steadily rising and formed 33% of total revenues in 9MCY24 from 8% in 2019. It continues to have a sizeable presence in the 2W segment, but dependance on the same has been gradually decreasing with revenue share from 2W decreasing to ~62% during 9MCY24 from ~85% in 2019.

 

Revenue diversification is expected to further improve over the medium term with new orders from export market and ramp up in electric 4W segment. Company received new orders / business awards from John Deere, Ford, Renault Nissan and Tata AutoComp Systems Ltd.

 

• Comfortable financial risk profile of CACIL: The financial risk profile of CACIL has improved, and is marked by minimal external debt. The company availed ICDs from the parent to cover the working capital requirement. Credit metrics were comfortable with adjusted gearing at 0.15 time as on December 31, 2023, as against 0.16 time, a year earlier, with reduction in debt to Rs 43 crore, from Rs 47 crore, due to prudent working capital management and repayment of long-term debt. Further, for the nine-month period ended September 30, 2024, total debt rose to Rs 158 crore, of which Rs 139 crore is from CIE India. Resultantly, gearing has risen to 0.54 time as on the same date, and is estimated to remain at a similar level for the period ended December 31, 2024.

 

• Strong credit risk profile of parent from which company receives technological, operational and financial support : CIE Automotive India Ltd (CIE India) has strong and improving business risk profile supported by significant revenue scale (9MCY24: Rs. 6854 crore; CY23: Rs. 9305 crore) with presence across different product segment and healthy geographic diversification with 1/3rd of revenues coming from overseas market. It has an established market position and strong relationships with global and domestic OEMs such as Mahindra & Mahindra Ltd (‘Crisil AAA/Stable/Crisil A1+’), Tata Motors Ltd (‘Crisil AA+/Stable/Crisil A1+’), Ford Motor Company and Nissan Motor Company Ltd.

 

Operating profitability has improved to 15.6% during CY23 from 13.4% in CY22. Financial risk remains strong supported by healthy gearing of 0.26 times and strong debt protection metrics. Adjusted interest coverage for CY23 stood at 14 times while Net Cash Accruals to total debt (NCATD) stood at 1.63 times. Going forward financial risk profile expected to sustain at healthy levels

 

CACIL receives technological and need based financial support from CIE India which supports its overall credit risk profile. Further, CACIL remains strategically important to CIE India as it is the only company in the group having capabilities in aluminum die casting segment.

 

Weaknesses:

• Susceptibility to customer concentration in revenue: The company's business prospects are largely linked to the performance of the two-wheeler industry and specifically to Bajaj Auto Ltd (BAL; Crisil AAA/Stable/Crisil A1+; contributed ~63% of revenues in 9MCY2024). The risk is mitigated by BAL's position as the second-largest player in the motorcycle industry. Further, CACIL has been associated with BAL for more than two decades, and supplies castings and brake drums for BAL's two and three-wheelers manufactured for both the domestic and global markets. It is one of the primary suppliers to BAL. However, limited segmental diversification, negligible presence in the aftermarket, and large dependence on one client and segment limits bargaining power and constrains the business risk profile.

 

Addition of new customers esp. in the four-wheeler segment has resulted in steady decrease in revenue concentration from BAL from over 85% 4 years earlier to ~63% currently. Benefits of increased business with new customers will further aid revenue diversification over the medium term. Crisil expects customer and geographical diversification to improve gradually over medium term.

 

• Susceptibility to demand volatility in the two-wheeler and passenger car segments: High focus on research and development, large product portfolio and faster adoption of new technologies should result in increased business over the medium term. While the revenue profile benefits from improving geographic diversity, it remains susceptible to cyclicality in the auto industry and the ability of OEMs to sustain their market share in the domestic and overseas markets.

Liquidity: Strong

Liquidity is likely to remain adequate over the medium term. The company has fund based working capital limits of Rs. 70 crore which was moderately utilized over the past 12 months ending Dec 2024 and cash accruals (post dividend) of over Rs. 50 crore which would be sufficient to meet capex requirements of ~Rs. 50-60 crore per annum.

Outlook: Stable

Crisil Ratings believes CACIL’s business risk profile will remain healthy over the medium term, driven by continued focus on product and geographic diversification. The business risk profile also benefits from continued steady offtake by BAL and synergies with parent. The financial risk profile will continue to be supported by increase in cash accruals and prudent working capital management. Further, support from parent will continue to benefit the credit risk profile of CACIL.

Rating sensitivity factors

Upward factors

• Significant and sustained growth in revenue base while maintaining margins at over 14% levels benefiting cash generation.
• Improvement in credit risk profile of parent i.e., CIE Automotive India Ltd
• Sustenance of healthy financial risk profile

 

Downward factors

• Sharp de-growth in revenues with margins falling below 10% impacting cash generation.
• Steep increase in working capital requirement
• Deterioration in credit risk profile of parent

About the Company

CACIL (erstwhile Aurangabad Electricals Ltd) was incorporated in 1986 as a part of the Bagla group to supply magnetos to the Bajaj group. The company manufactures aluminum die-castings and has five units, at Aurangabad and Chakan in Maharashtra and at Pantnagar in Uttarakhand. In April 2019, CACIL was acquired by CIE India and wholly owned subsidiary of CIE India. In CY23, the company name was changed from Aurangabad Electricals Ltd to CIE Aluminium Casting Ltd

 

About CIE Automotive India Ltd (CIE India)

CIE Automotive India Ltd (erstwhile Mahindra CIE Automotive Ltd) was formed as a result of a partnership between the Mahindra group of India and CIE Automotive SA (CIE) of Spain. As part of this partnership, CIE acquired a majority stake in the auto component companies of the Mahindra group. All these companies were brought under CIE India (some were merged while others became subsidiaries), along with the three forgings plants of CIE in Europe. However, on 24th May 2023. Mahindra & Mahindra sold its entire stake in Mahindra CIE Automotive and the company name was changed from Mahindra CIE Automotive Ltd to CIE Automotive India Ltd.

 

CIE India provides a wide product mix, including components for engines and powertrains, chassis, gears and shafts, automotive magnets and lamps, and around 33% of its revenue is from outside India.

Key Financial Indicators

As on / for the period ended Dec 31		2023	2022
Operating income	Rs crore	1056	1035
Adjusted profit after tax	Rs crore	82	77
PAT margin	%	7.75	7.4
Adjusted debt/adjusted networth	Times	0.15	0.16
Adjusted Interest coverage	Times	29.2	108.8

Please note: Above financials are Crisil Ratings adjusted numbers.

Any other information: Not Applicable