Key Rating Drivers & Detailed Description

Strengths:

• Strong support of CMR group and commonality in business: CMRN is a key entity of the CMR group, which has capacity of over 524,900 tonnes per annum (TPA) across 12 plants. The group holds about 60% market share in liquid aluminium and 30-35% market share in recycled aluminium industry (1.3 MT capacity). CMRN, with a production capacity of over 83,000 MT per annum, contributes to almost 25% of revenue and operating profit of the group.

CMRG specialises in molten aluminium technology which provides benefits such as over-the-road supply and cost savings on inventory. CMRN follows the hub-and-spoke model in areas where its plants are located close to units of major auto original equipment manufacturers (OEMs) and has maintained healthy relationships with customers.

The management has experience of over three decades in the aluminium recycling industry. The CMR group has invested in several technologies and formed joint ventures with many global players to use advanced aluminium recycling processes. It has pioneered liquid aluminium technology, and over the past five years, launched several technologies to generate better scrap yield and segregate minute aluminium. Steady investments in newer capabilities should benefit the group, including CMRN. Also, CMRG will extend timely financial support in case of exigency.

• Healthy position in the recycled aluminium industry: The company follows the hub-and-spoke model for over-the-road molten aluminium technology in areas where its plants are near units of major auto OEMs. This has enabled the group to develop healthy relationships with customers and save inventory cost.

The group has been able to achieve material cost efficiencies by investing in technologies such as hot and cold refining. Yield from scrap has improved to about 80% from 75% earlier. The group has pass-through clauses that mitigate the impact of price volatility on margin.

Moreover, a robust centralised IT (information technology) system supports the overall manufacturing process. As every consignment is different, the IT system plays a key role in determining its exact composite and managing inventory effectively. It tracks material buying, logistics, production and sorting of materials.

• Comfortable financial risk profile: Expected cash accrual of Rs 20-30 crore should suffice to cover the average capex of Rs 10-15 crore, per fiscal over the medium term. However, the group may have to raise external debt to fund any large capex/acquisition. Capital structure should be comfortable with gearing and total outside liabilities to adjusted networth ratios estimated around 0.11 time and 0.4 time, respectively, as on March 31, 2024, as compared to 0.04 time and 0.46 time, respectively, as on March 31, 2023. Debt protection metrics are strong, with interest coverage and net cash accrual to adjusted debt ratios expected to remain around 21 times and 0.7 time, respectively, in fiscal 2024.

Weaknesses:

• Exposure to customer concentration and inventory price risk with limited pricing power: The CMR group derives its entire revenue from a single customer in the recycled stainless steel segment. Thus, operating performance remains susceptible to moderation in demand and volatility in commodity prices. This also limits the group’s ability to pass on higher raw material prices to its customers, considering the relatively longer lead time of around 4-5 months from purchase of scrap metals to sale of recycled metals.

In fiscal 2024, the operating margin remained low around 1.5%, compared to the historical margin of 7-9%, due to risks posed by customer concentration and sharp volatility in metal prices, especially for stainless steel and nickel, as CMR was unable to pass on the impact to its customer. 

However, CMR is diversifying its customer profile in the stainless steel segment, which should moderate customer concentration risk going forward.  

• Susceptibility to cyclicality in the auto industry: CMRN’s revenues, though diversified, remain closely aligned with performance of the automobile industry and demand for automobiles. Business prospects of the company are exposed to cyclicality in demand inherent to the automobile industry and ability of auto OEMs to sustain their operating performance. The group is however diversifying into non-auto sectors by setting up new plants in Odisha, to cater to a primary aluminium manufacturer and in Tirupati for supplying aluminium sheets and billets.

Key Financial Indicators

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 and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

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 ratings for 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 leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It 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 is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid 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 to 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. The rating 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 entity to which the report pertains.

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. Public ratings and analysis by CRISIL Ratings, 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 website, www.crisilratings.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 on 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 managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings 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 prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings 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 Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html