Detailed Rationale

CRISIL Ratings has downgraded its ratings on the bank facilities of CMR Green Technologies Limited (CMRG; a part of the CMR group) to 'CRISIL A+/Stable/CRISIL A1’ from 'CRISIL AA-/Negative/CRISIL A1+’.

 

The downgrade reflects continued moderation in the business risk profile of the CMR group. Operating (Ebitda; earnings before interest tax depreciation and amortisation) margin reduced to around 3.5% in fiscal 2024 and is expected at 5.0-5.5% in fiscal 2025, lower than previous expectations of 7.5-8.0%. Operating margin for fiscals 2019-2022 remained at 9-11%, which moderated to 3.5% in fiscal 2023 due to volatility in raw material prices and  is expected to recover to 7.5-8.0% in fiscal 2024. However, heightened competitive intensity in the aluminium recycling industry amid capacity additions by existing and new players led to moderation in operating profitability. Further, return on capital employed ratio is also expected to remain moderated at around 11-12% for fiscal 2025, as against historical levels of 21-26%.

 

Despite moderation in business risk profile, the financial risk profile is expected to remain comfortable. Slight moderation is expected in fiscal 2025 as a result of incremental long-term debt of about Rs 210-220 crore (net of repayments) planned to be availed to part finance the ongoing capital expenditure (capex) of Rs 550-560 crore for setting up new manufacturing units in Tirupati (in Andhra Pradesh; CMR Eco Aluminium) and Odisha (CMR Aluminium). Resultantly, debt to Ebitda is expected to increase to 2.4-2.5 times for fiscal 2025 (2.3 times for fiscal 2024), while total outside liabilities to tangible net worth (TOL/TNW is expected to increase to ~ 1.30 times as on March 31, 2025 (from 1.08 times a year ago). However, with benefits from the capex expected to flow in during the latter part of fiscal 2025, the leverage parameters are expected to improve for fiscal 2026, with debt/Ebitda projected at 1.7-1.9 times and TOL/TNW ratio expected at 1.1-1.15 times. Post completion of the ongoing capex in October/November 2024, the group does not plan to incur any significant capex in the near term. However, any large capex, inorganic expansion or acquisition will remain a key monitorable.

 

Revenue remained flattish at around Rs 5,960 crore in fiscal 2024, despite a 6-7% increase in volumes as price realisations declined due to higher competition in the industry. With the new capex coming on stream during the second half of fiscal 2025, revenue s are expected to witness an uptick in fiscal 2026 and grow to Rs 7,200-7,400 crore. The CMR group has, over the last five fiscals, strengthened its competitive edge in supplying molten aluminium and ingots to automotive (auto) companies through tech ties-up with Japanese companies, Nikkei MC Aluminium and Toyota Tsusho Corporation. Furthermore, longstanding relationships with customers and favourable location of plants should sustain growth over the medium term. In addition to aluminium, few other growth drivers include recycling of stainless steel and copper.

 

The ratings continue to reflect the established position in the aluminium recycling industry with strong technical capabilities, support from joint venture (JV) partners and comfortable financial risk profile. These strengths are partially offset by subdued operating efficiency, susceptibility to raw material prices, customer concentration risks and limited pricing power along with exposure to cyclicality in the auto industry.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of CMR Green Technologies and its subsidiaries, CMR Nikkei India Pvt. Ltd, CMR Toyotsu Aluminium India Pvt Ltd, CMR Eco Aluminium Pvt Ltd, CMR Aluminium Pvt Ltd, CMR Kataria Recycling Pvt Ltd, collectively referred to as the CMR group, owing to significant operational, managerial and financial linkages.

 

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:

Market leadership in the recycled aluminium industry with strong technical capabilities

The CMR group is one of the two major players in the aluminium and zinc casting alloys segment in India. With capacity of over 450,000 tonne per annum (expected to increase to ~500,000 tonne per annum by end of fiscal 2025) spread across 12 plants, the group has above 60% market share in liquid aluminium and 30-35% market share in recycled aluminium industry. Though the share of aluminium in total revenue is close to 80-85%, product diversity is improving with steel, copper and other materials accounting for about 15-20% now, against 10-15% earlier.

 

The group follows the hub-and-spoke model for over the road molten aluminium technology in areas where its plants are near the units of major auto original equipment manufacturers (OEMs), resulting in cost savings. This enabled it to develop healthy relationships with customers. Through this shared infrastructure, customers also depend on the group for regular supply of molten aluminium.

 

Investment in various technologies has improved scrap yield. Moreover, JVs with Japanese companies, Nikkei MC Aluminium and Toyota Tsusho Corporation, have enabled the group to build up capability in liquid/molten alloy transportation.

 

Comfortable financial risk profile

Financial risk profile is characterised by low short-term debt and comfortable debt protection metrics and liquidity. Post completion of ongoing capex, absence of any significant, debt-funded capex and adequate cash accrual of Rs 180-220 crore per annum are expected to result in low dependence on long-term debt and overall debt reduction over the medium term.

 

Interest coverage ratio is expected at 5.4 times and net cash accrual to debt ratio at 0.28 time for fiscal 2024 and at 5.6 times and 0.4 time, respectively, in fiscal 2025. The total outside liabilities to adjusted networth ratio marginally improved to around 1.08 times as on March 31, 2024, from 1.11 times  a year ago, and should improve further over the medium term, despite expected moderation to around 1.3 times in fiscal 2025.  CMR group’s leverage levels will continue to be characterised by controlled debt. Any growth plans, resulting in sizeable long term debt, will remain a key rating sensitivity factor.

 

Weaknesses:

Volatility in margins due to industry dynamics and raw material price movement

The operating margin moderated to 5-6% (from 9-11% historically) due to higher competition in the industry and the same is expected to continue in the short to medium term. Further, the CMR group's ability to pass on higher raw material prices to customers is limited considering the relatively longer lead time of around 4-5 months from purchase of scrap metal to sales. Any adverse movement in raw material prices will continue to impact operating profitability.

 

Customer and industry concentration, limited pricing power

The CMR group derives around 15-20% of its revenue from Top 2 customers in the recycled stainless steel segment. Customer concentration exposes the operating performance to demand moderation in the recycled stainless steel segment.

 

Revenue, though diversified, remains closely aligned with performance and demand in the auto  industry. Due to dependence on auto OEMs, business prospects are exposed to cyclical demand patterns inherent in the auto industry and ability of auto OEMs to sustain their operating performance.

Liquidity: Strong

Liquidity will remain adequate, driven by healthy cash accrual of around Rs 160-220 crore per annum over the medium term. The fund-based limit of Rs 1,149 crore was utilised at 46% for the six months through March 2024. Internal accrual, cash and cash equivalent and unutilised bank lines will be sufficient to meet debt obligation and working capital requirement. However, the company may depend on debt to fund increased capex or additional working capital requirement.

Outlook: Stable

The CMR group is expected to benefit from its leadership position in the aluminium recycling industry and good growth prospects in aluminium recycling business. Steady cash-generating ability and moderate capex may help sustain healthy financial risk profile over the medium term.

Rating Sensitivity Factors

Upward Factors

• Improvement in scale of operations along with stabilisation in operating profitability, leading to sustenance of cash accrual above Rs 300 crore
• Improvement in financial risk profile, driven by efficient working capital management or equity infusion

 

Downward Factors

• Decline in operating profitability, leading to cash accrual below Rs 150 crore for sustained period
• Large, debt-funded acquisition, or capex or elongation of working capital cycle, resulting in weakening of financial risk profile, with gearing deteriorating to above 1.00-1.25 times

About the CMR Group

CMRG is India’s largest producer of aluminium and zinc die-casting alloys with a combined annual capacity of approximately 4,50,000 MT. The group manufactures and sells aluminium-based die cast alloys and zinc alloys in India. The group is also engaged in the business of segregation and sale of metal scrap as a part of manufacturing process (with a specific focus on stainless steel, brass, copper and zinc).

 

CMRG commenced its business in 2006, when it put up a technology plant at Tatarpur, near New Delhi. The plant deployed sophisticated technologies such as twin-shaft shredder, eddy current separator, high-capacity melting furnaces with metal circulation pump, de-coater. The group is operating through 12 manufacturing plants, including four plants under two JVs with renowned Japanese companies, Toyota Tsusho Corporation and Nikkei MC Aluminium.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
NA	Cash Credit*	NA	NA	NA	432	NA	CRISIL A+/Stable
NA	Working Capital Facility*	NA	NA	NA	50	NA	CRISIL A+/Stable
NA	Non-Fund Based Limit#	NA	NA	NA	115	NA	CRISIL A1
NA	Term Loan	NA	NA	May-2025	9.72	NA	CRISIL A+/Stable

*Interchangeable with CC/WCDL/FCNRB/WC loan

#Interchangeable with LC/SBLC/buyer’s credit/bank guarantee