Rating Rationale
August 06, 2020 | Mumbai
Caparo Engineering India Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.315 Crore (Enhanced from Rs.218 Crore)
Long Term Rating CRISIL BB+/Stable (Reaffirmed)
Short Term Rating CRISIL A4+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BB+/Stable/CRISIL A4+' ratings on the bank facilities of Caparo Engineering India Limited (CEIL).
 
CRISIL had assigned 'CRISIL BB+/Stable/CRISIL A4+' ratings on the bank loan facilities of CEIL on July 02, 2020.
 
The ratings reflects CEIL's established market position, moderate working capital cycle and comfortable financial profile. These strength are partially offset by its susceptibility to cyclicality in automotive industry and government regulation and capital intensive nature of business.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position: CEIL is part of the Caparo Group, a diversified global association of businesses founded in 1968 by Rt. Hon. Mr. Swaraj Paul (Lord Paul of Marylebone). Hence CEIL benefits from the group's established presence, promoters' experience of over the decades, their strong understanding of market dynamics, and healthy relations with major Original Equipment manufacturers (OEMs) and suppliers. CEIL supplies to majorly all the OEMs and this has resulted into high scale of operations with estimated revenue of Rs 850 crore for fiscal 2020. Despite current COVID scenario coupled with downturn in Automobile industry, CEIL has been able to back new orders from new as well as existing clients and this should help the company clock a healthy topline in near to medium term.  
 
* Moderate working capital cycle: Gross current assets were at 93 - 111 days over the three fiscals ended March 31, 2019. Its moderate working capital management is reflected in its gross current assets (GCA) of 93 days as on March 31, 2019 and estimated at around 114 days for fiscal 2020 as against over 170 days GCAs of some of its peers.
 
* Comfortable financial profile: CEIL's capital structure have been at moderate healthy level due to limited reliance on external funds yielding moderate total outside liabilities to tangible networth (TOL/TNW) for last three year ending on 31st March 2019 with estimated TOL/TNW of 0.5 time as on March 31, 2020. CEIL's debt protection measures have been moderate due to moderate profitability with interest coverage and net cash accrual to total debt (NCATD) ratios at 1.19 times and 0.03 time estimated for fiscal 2020. With improved profitability, CEIL debt protection measures are expected to improve over medium term.
 
Weaknesses:
* Susceptibility to cyclicality in automotive industry and government regulation: The business risk profile is susceptible to inherent cyclicality in automotive industry, linked to performance of the economy, demand pattern and performance of OEMs. Also, it is susceptible to change in government policies regarding auto mobiles like pollution norms, electric vehicles etc.   
 
* Capital intensive nature of business: CEIL's business is highly capital intensive. Since company is involved in the manufacturing of sheet metal components for OEMs, it requires to set up units in close proximity of the plants of various OEMs. CEIL currently has 22units spread across India and performance of each unit is directly attributable to the performance of the OEM to which it caters to. Hence, downturn in the performance of any OEM results into high overhead expenses because of the capital intensive nature of business which in-turn impacts the overall profitability of the company.  Low capacity utilisation at various units and sluggish demand has resulted into weak operating efficiencies in fiscal 2020 for CEIL, marked by low return on capital employed (RoCE) estimated at -5.8%.
Liquidity Stretched

Liquidity of the company is stretched. Fund based bank limit utilisation remains moderately high, averaged at 80% for the past 12 months ended March 31, 2020. Net cash accruals are estimated at Rs 5.8 crore for fiscal 2020, which had been insufficient against the debt obligation of Rs 12.18 crore for similar period. Moreover, accruals for fiscal 2021 are expected to be just sufficient against debt obligation. Current ratio is estimated at 1.08 times as on March 31, 2020. Company has availed moratorium on its term loan obligation and has got the sanction of 10% of additional COVID facilities through its banks, which should aid the liquidity along with the funding support available through promoters.

Outlook: Stable

CRISIL believe CEIL will continue to benefit from the established market position, and established relationships with clients.

Rating Sensitivity factors
Upward factor
* Improvement in operating profitability by 350 basis point against the performance of fiscal 2020.
* Improvement in working capital cycle.
 
Downward factor
* Decline in operating profitability by over 100 basis points.
* Large debt-funded capital expenditure weakens capital structure
* Net cash accruals to repayment obligation of less than 1 time.
About the Company

CEIL, part of Caparo group was incorporated in May, 2000. CEIL is engaged in manufacturing of auto components such as stampings, fasteners, tubes, aluminium foundry, forging and fabrication. The company's product range includes outer body panel, large inner panels, brackets, frame add-on parts, fasteners, electric resistance welded tubes and cold-drawn welded tubes for automobile OEMs. CEIL has 122manufacturing facilities located in various locations across India.

Key Financial Indicators
As on / for the period ended March 31   2020* 2019
Operating income Rs crore 852 1,125.17
Reported profit after tax Rs crore -42.0 13.03
PAT margins % -4.9 1.16
Adjusted Debt/Adjusted Net worth Times 0.24 0.32
Interest coverage Times 3.27 3.27
 *Provisional

Status of non cooperation with previous CRA:
CEIL has not cooperated with Credit Analysis & Research Ltd. which has marked it as non-cooperative via rationale dated May 08, 2020. The reason provided by Credit Analysis & Research Ltd. is non-furnishing of information by CEIL.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 150 NA CRISIL BB+/Stable
NA Long Term Loan NA NA Mar-2026 60.0 NA CRISIL BB+/Stable
NA Working Capital Demand Loan NA NA NA 7.0 NA CRISIL BB+/Stable
NA Inland/import Letter of Credit NA NA NA 7.0 NA CRISIL A4+
NA Non-fund Based Limit NA NA NA 91.0 NA CRISIL BB+/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  217.00  CRISIL BB+/Stable  02-07-20  CRISIL BB+/Stable    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  98.00  CRISIL BB+/Stable/ CRISIL A4+  02-07-20  CRISIL A4+    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 150 CRISIL BB+/Stable Bank Guarantee 14.5 CRISIL A4+
Inland/Import Letter of Credit 7 CRISIL A4+ Cash Credit 104 CRISIL BB+/Stable
Long Term Loan 60 CRISIL BB+/Stable Inland/Import Letter of Credit 82.5 CRISIL A4+
Non-Fund Based Limit 91 CRISIL BB+/Stable Long Term Loan 11 CRISIL BB+/Stable
Working Capital Demand Loan 7 CRISIL BB+/Stable Working Capital Demand Loan 6 CRISIL BB+/Stable
Total 315 -- Total 218 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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