| CMR Chiho Industries India Private Limited | ||||||
| Rating outlook revised to 'Positive'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised the outlook on the long term bank facilities of CMR Chiho Industries India Private Limited (CMR Chiho; part of the CMR group) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at 'CRISIL A’. The rating on the short term bank facilities have been reaffirmed at 'CRISIL A1'.
The outlook revision follows similar action on parent CMR Green Technologies Ltd on account of significant improvement in the business and financial risk profiles. It is further strengthened by the improving standalone business profile of the company and established position of the parent, CMR Green (CMRG) in the aluminium recycling industry with strong technical capabilities, and financial and business support from the joint venture (JV) partners. These strengths are partially offset a modest scale of operations, and exposure to cyclicality in the automobile (auto) industry and to volatility in metal prices.
Revenue of the company was Rs 108 crore in in fiscal 2021, the first full fiscal operations. It has a capacity of 60,000 tonne of scrap processing, which was utilised at 23% in the fiscal. It sold various metals derived from processing of electric motor scrap such as iron, copper and aluminium. With improvement in capacity utilisation, revenue is expected at Rs 200-250 crore per fiscal over the medium term.
Operating profitability stood at 2.6% in fiscal 2021, with most of the cost attributed to materials used. With improvement in scale and better utilisation of fixed-cost, the margin is expected to improve to 4-5% over the medium term.
The financial risk profile is constrained by a modest scale of operations with the adjusted networth at Rs 9 core, but no long-term repayment obligation, as on March 31, 2021. Cash accrual of Rs 5-10 crore should be sufficient for moderate capital expenditure (capex) of Rs 3-5 crore, per fiscal over the medium term. The financial risk profile should improve, with reducing debt and no major capex plans over this period. However, any large, debt-funded acquisition and its impact on debt metrics will remain a monitorable.
The ratings are also supported by strong managerial experience of, and managerial and financial synergies with, the parent. CMR and partner, Chiho Environmental Group Ltd (CEG), which have provided corporate guarantees for 100% of the credit facilities of CMRC. |
Analytical Approach CRISIL Ratings has applied the parent notch-up framework to factor in the strong business, managerial and financial linkages with the parent, CMR. |
Key Rating Drivers & Detailed Description Strengths
Apart from aluminium recycling, CMR is also involved in processing and sale of metal scrap. CMRC benefits from the technologies and efficiency at the group level. The group has partnered with various local scrap dealers, and with clients to sell copper, iron, aluminium and other metals derived from electric motor scrap. The management has an experience of over three decades in the industry and has invested in several technologies and formed JVs with many global players to advance aluminium and metal scrap processing, benefits of which are enjoyed by all group entities. Both JV partners have given corporate guarantees for 100% of the credit facilities. CMR has extended need-based support in the past and should continue to extend timely financial support in case of exigency.
The company has a capacity for processing 60,000 tonne per annum (TPA) of electric motor scrap. Capacity utilisation was 23% in fiscal 2021 (around 14,000 tonne of scrap) and is expected to improve to around 50% over the medium term. Consequently, revenue should improve to Rs 200-250 crore per fiscal from Rs 108 crore in fiscal 2021. Revenue will largely be derived from selling processed scrap material in the form of iron, copper, aluminium and other metals.
Cash accrual of Rs 5-10 crore, is expected to be sufficient for capex of around Rs 5 crore, per fiscal over the medium term. However, any large capex/acquisition may require external debt of Rs 2-5 crore over the medium term. The networth and gearing are estimated at over Rs 9 crore and 2-3 times, respectively, as on March 31, 2021. The financial risk profile is constrained by weak debt protection metrics, with interest coverage and net cash accrual to adjusted debt ratios of 1.03 times and 0.01 time, respectively, for fiscal 2021.
Weaknesses:
Operational track record is yet to be seen as fiscal 2021 was the first fiscal of operations for the company with revenue at Rs 108 crore. Moreover, it is expected to be dependent on only a few suppliers given the concentrated sourcing of electric motor scrap, resulting in high supplier risk. Any increase in the number of suppliers is expected to benefit the company.
The auto industry is inherently cyclical with performance linked to the economy. High dependence on original equipment manufacturers (OEMs) partially limits pricing power. Also, operating profitability is exposed to volatility in raw material prices. Consequently, the operating margin may remain range bound at 4-6%. |
Liquidity: Adequate Net cash accrual is modest, and short term debt was Rs 27 crore as on March 31, 2021. The fund-based limit of Rs 35 crore was utilised at an average of around 50% during the six months through April 2021. Net cash accrual is expected at Rs 3-5 crore, against debt repayment of Rs 5-10 crore, per fiscal in the medium term. Debt-funded capex is likely to remain minimal. |
Outlook: Positive CMRC is expected to improve its position in the metal recycling industry and benefit from robust growth prospects over the medium term. Steady cash-generating ability and moderate capex should help sustain a healthy financial risk profile over this period |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company The CMR group has entered into an equal JV with CEG and incorporated a JV, CMR Chiho, in December, 2019. CEG is China’s largest and one of the largest publically listed global scrap metal recycling companies with extensive operations in the recycling of ferrous and non-ferrous metal scrap, end-of-life vehicles, and electronic scrap, and the production of secondary aluminium ingots from aluminium scrap. It has a presence across Asia, Europe and North America, with more than 200 processing plants and yard operations.
The business of the JV is to collect, segregate, process, recycle and treat all types of secondary metal raw material. |
About the Group CMR is India’s largest producer of aluminium and zinc die-casting alloys with a combined annual capacity of over 300,000 tonne. The CMR group is also engaged in the segregation and sale of metal scrap as part of the manufacturing process (with specific focus on stainless steel, brass, copper and zinc).
For the six months through September 2021, the standalone revenue stood at Rs 72 crore and profit after tax (PAT) of Rs 18 crore |
Key Financial Indicators
*First full year of operation |
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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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This Annexure has been updated on 07-Dec-2021 in line with the lender-wise facility details as on 02-Aug-2021 received from the rated entity.
Criteria Details
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