| Classic Stripes Private Ltd | ||||
| Rating Reaffirmed and Withdrawn | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term bank facilities of Classic Stripes Private Ltd (CSPL) and subsequently withdrawn the rating at the company's request and on receipt of a no-objection certificate from the bankers. The withdrawal is in-line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.
The rating reflects CSPL’s established market leadership position in the decals segment, healthy profitability and adequate financial risk profile. These strengths are partially offset by the dependence on the cyclical two-wheeler segment, exposure to client concentration risks and sizeable investments in group companies. |
Analytical Approach
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Key Rating Drivers & Detailed Description Strengths Established market leadership position in decals segment CSPL has a robust market share of over 50% in the two-wheeler decal market in India and supplies to many leading two-wheeler original equipment manufacturers (OEMs). The company is the sole supplier of decals to the market leader in the motorcycles segment in India, Hero Motocorp Ltd (Hero; ‘CRISIL AAA/FAAA/Stable/CRISIL A1+’). It also supplies to other major two-wheeler OEMs such as Bajaj Auto Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), and Yamaha Motor Company Ltd. CSPL has also successfully registered with TVS for which the first batch of goods will be delivered shortly.
Healthy profitability due to strong operating efficiencies Given CSPL’s strong product quality and low rejection rates (of below 2% consistently over the last three decades), the company has maintained a healthy operating margin of over 20% during the five fiscals through 2021. Business was affected in fiscal 2021 owing to the economic slowdown that resulted from the nation-wide lockdown imposed by the government to curb the spread of Covid-19 which led to fall in revenues by 11% to Rs 302 crores from Rs 337 crores the corresponding period previous fiscal. However, the company had taken various cost-rationalisation measures to mitigate its impact on margins following which the company was able to maintain healthy margins and over the near to medium term as well, margins are expected to sustain at 21-23% levels.
Adequate financial risk profile Financial risk profile should remain comfortable. Debt protection metrics were healthy, with adjusted interest coverage and net cash accrual to total debt ratios of 6.14 times and 0.86 time, respectively, in fiscal 2021. The leverage, however, is constrained by adjusted networth of just Rs 98 crore as on March 31, 2021 (after adjusting for goodwill and investments in group companies). Gearing however improved to 0.85 times as on March 31, 2021 from 3.08 times the corresponding period last fiscal with steady repayment of debt. However, capital structure is expected to strengthen going forward, supported by steady accretion to reserve, negligible support extended to group entities and a moderate capital expenditure (capex) of Rs 10-15 crore per annum.
Weaknesses Significant dependence on the cyclical two-wheeler segment CSPL derives over 90% of its revenue from the two-wheeler segment, which is linked to the economy. Any significant downturn in the segment will hit the company's performance. CSPL’s performance in fiscal 2021 has been impacted by the cyclical slowdown in the industry, which has been further exacerbated by the ongoing pandemic. However, the product portfolio diversification efforts provide some comfort. Currently, around 5% of the revenue is derived from other segments [including aftermarket (1-2%), exports (1-2%) and non-auto products (2-3%)], which is expected to further increase over the medium term with the management’s focus on reducing concentration to the two-wheeler industry.
Exposure to client concentration risks The top-three customers contributed to about 85% of the total revenue for fiscal 2021, exposing CSPL to client concentration risks. However, the risk is mitigated by the long-term association with the reputed clientele.
Sizeable investments in group companies CSPL had extended substantial support to other group companies of the promoters over fiscals 2019, 2020 and 2021. Total investments and loans extended to group companies was Rs 211 crore as on March 31, 2021. Any incremental support to group companies will constrain the financial flexibility of the company. |
Liquidity: Adequate Liquidity is likely to remain healthy. Cash accrual is projected at Rs 50-60 crore per annum over the medium term, sufficient to meet the yearly debt obligation of Rs 30 crore for fiscals 2022 and 2023. There is ample headroom in the working capital limit of Rs 25 crore, which has so far been completely unutilised. Cash and bank balances were Rs 7 crore as on September 30, 2021. However, the company has sizeable investments in group companies. Any further support extended to group companies will constrain financial flexibility and hence remains closely monitored. |
Outlook: Stable CSPL should continue to benefit from its longstanding relationship with the two-wheeler OEMs and an established market presence. Financial risk profile will also remain healthy, backed by comfortable gearing and strong debt protection metrics. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Incorporated in 1987, CSPL is the flagship company of the Astarc group, which is diversified with business focus on printing and imaging solutions, infrastructure, automobile, agricultural, and early-stage investments. The founder, Mr Kishore Musale, is a first-generation entrepreneur and the current Chairman of the company. Operations are spearheaded by his son, Mr Salil Musale, who is also CSPL’s Managing Director.
CSPL is one of the largest producers of automotive graphics in the world. The company has its state-of-art facilities in Pelhar (Maharashtra), Sanand (Gujarat) and Haridwar (Uttarakhand). During a year, the company supplies decals to meet the requirement of about 20 million vehicles including two-wheelers, four-wheelers, tractors, trucks, buses, recreational vehicles, lawn movers and power sport vehicles. CSPL holds a robust 50% share of the automotive OEM market in India |
Key Financial Indicators
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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 26-Feb-2022 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity.
Criteria Details
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