Rating Rationale
September 22, 2020 | Mumbai
Competent Automobiles Company Limited
Ratings migrated to 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities Rated Rs.166 Crore
Long Term Rating CRISIL BBB+/Stable (Migrated from 'CRISIL BB+/Stable ISSUER NOT COOPERATING'*)
Short Term Rating CRISIL A2 (Migrated from 'CRISIL A4+ ISSUER NOT COOPERATING'*)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Issuer did not cooperate; based on best-available information
Detailed Rationale

Due to inadequate information, CRISIL, in line with the Securities and Exchange Board of India guidelines, had migrated its ratings on the bank facilities of Competent Automobiles Company Ltd (CACL) to 'CRISIL BB+/Stable/CRISIL A4+ Issuer Not Cooperating'. However, CACL's management has subsequently started sharing requisite information for a comprehensive review of the ratings. Consequently, CRISIL is migrating its ratings on the bank facilities of CACL to 'CRISIL BBB+/Stable/CRISIL A2' from 'CRISIL BB+/Stable/CRISIL A4+ Issuer Not Cooperating'.
 
The migrated ratings factor in the overall slowdown witnessed in the automobile industry during fiscal 2020, when revenue declined by 6% Y-o-Y in fiscal 2020 and was significantly lower than CRISIL's previous expectations.
 
Revenue may further be impacted in fiscal 2021 although it will depend on the ability of the competitors located in the vicinity of CACL's showrooms at various locations to ramp up their operations. Revenue for the first quarter of fiscal 2021 was down by 56% on year basis that includes zero sales in April 2020.
 
Despite the looming uncertainty, CACL's financial risk profile is expected to remain comfortable. Total outside liabilities to tangible networth (TOL/TNW) was healthy at 0.5 time as on March 31, 2020, and should remain stable in the absence of any large, debt-funded capital expenditure (capex) planned for the medium term. Debt protection metrics were also adequate, with interest coverage and net cash accrual to adjusted debt (NCAAD) ratios of 3.5 times and 0.5 time, respectively, for fiscal 2020.
 
The ratings continue to reflect the company's established position in the automobile dealership market in Delhi, Haryana, and Himachal Pradesh; and above-average financial risk profile. These strengths are partially offset by exposure to risks associated with principal concentration, and intense competition.

Key Rating Drivers & Detailed Description
Strengths 
* Established market position in Delhi, Haryana and Himachal Pradesh
Strong market position'supported by over 30 years of association with Maruti Suzuki India Ltd (MSIL; 'CRISIL AAA/Stable/CRISIL A1+')'supports business risk profile. The company currently has 24 showrooms, 5 E-outlets, and 15 workshops; and has consistently received approvals from the principal for opening showrooms in New Delhi and Himachal Pradesh.
 
Awards from MSIL, including for highest sales and customer satisfaction, ensure quality of services offered. Revenue registered a compound annual growth rate of -1% over the three fiscals through 2020, to Rs 1,165.9 crore.
 
* Healthy financial risk profile
Financial risk profile is likely to remain supported by efficient working capital management and healthy cash accrual. Networth was Rs 251.72 crore as on March 31, 2020, with TOL/TNW ratio low at 0.5 time. Debt protection metrics were also healthy, with interest coverage and NCAAD ratios of 3.5 times and 0.5 time, respectively, for fiscal 2020.
 
Weaknesses
* Exposure to risks associated with principal concentration, and intense competition
Exclusive dealership for MSIL cars exposes the company to risks associated with decline in principal's revenue and profitability. Furthermore, the agreement with MSIL does not guarantee CACL exclusivity in Delhi, resulting in competition from around 12 other MSIL dealers; apart from dealers of other original equipment manufacturers (OEMs).
 
Amid increasing pricing pressure, automotive OEMs have cut costs, consequently reducing commission to dealers, as reflected in median operating margin of 2.8% over the four fiscals through 2020. The OEMs also encourage more dealerships (thereby increasing competition) to improve market penetration and sales.
Liquidity Adequate

Cash accrual is expected to moderate in fiscal 2021 but will still be healthy against nominal yearly debt obligation of around Rs 1 crore. Cash accrual should be sufficient to fund majority of incremental working capital requirement and debt obligation, leading to limited dependence on bank borrowing. Bank limit utilisation averaged 27% during the seven months through July 2019 and should remain stable, supported by efficient working capital management.
 
Liquidity is further supported by healthy cash and bank balance of Rs 8-10 crore maintained at every month end. Further, the promoter has continued to extend unsecured loans, which increased to Rs 23.3 crore as on March 31, 2020, from Rs 14.1 crore a year ago.
 
In future, liquidity is expected to be supported by sales proceeds of an existing land parcel whose sale has currently been delayed owing to the prevailing pandemic-led economic downturn.

Outlook: Stable

CACL should continue to benefit from its established market position and healthy relationship with MSIL.

Rating Sensitivity factors
Upward factors
* Earnings before interest, taxes, depreciation and amortization margin increasing by 30% per year leading to improvement in other key credit metrics
* Maintenance of working capital cycle and liquidity levels
 
Downward factors
* Large, debt-funded capex
* Interest coverage ratio lowering to less than 2 times
About the Company

CACL was incorporated in 1985 by Mr Raj Chopra and went public in 1996. The company is an authorised dealer for MSIL in Delhi, Haryana, and Himachal Pradesh. It is listed on the Bombay Stock Exchange.

Key Financial Indicators
As on / for the period ended March 31   2020 2019
Operating income Rs crore 1,165.87 1,240.83
Reported profit after tax (PAT) Rs crore 40.36 15.81
PAT margins % 3.46 1.27
Adjusted debt/adjusted networth Times 0.43 0.51
Interest coverage Times 3.48 3.93

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 Cr)		 Complexity Level Rating Assigned with Outlook
NA Bank Guarantee NA NA NA 2.5 NA CRISIL A2
NA Cash Credit NA NA NA 46.3 NA CRISIL BBB+/Stable
NA Inventory Funding Facility NA NA NA 117 NA CRISIL BBB+/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 0.2 NA CRISIL BBB+/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  163.50  CRISIL BBB+/Stable  30-07-20  CRISIL BB+/Stable (Issuer Not Cooperating)*  06-05-19  CRISIL BBB+/Positive  03-07-18  CRISIL BBB+/Positive  07-03-17  CRISIL BBB+/Stable  CRISIL BBB/Stable 
                29-06-18  CRISIL BBB+/Positive       
Non Fund-based Bank Facilities  LT/ST  2.50  CRISIL A2  30-07-20  CRISIL A4+ (Issuer Not Cooperating)*  06-05-19  CRISIL A2  03-07-18  CRISIL A2  07-03-17  CRISIL A2  CRISIL A3+ 
                29-06-18  CRISIL A2       
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 2.5 CRISIL A2 Bank Guarantee 2.5 CRISIL A4+/Issuer Not Cooperating
Cash Credit 46.3 CRISIL BBB+/Stable Cash Credit 46.3 CRISIL BB+/Stable/Issuer Not Cooperating
Inventory Funding Facility 117 CRISIL BBB+/Stable Inventory Funding Facility 117 CRISIL BB+/Stable/Issuer Not Cooperating
Proposed Fund-Based Bank Limits .2 CRISIL BBB+/Stable Proposed Fund-Based Bank Limits .2 CRISIL BB+/Stable/Issuer Not Cooperating
Total 166 -- Total 166 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
Rating Criteria for Retailing Industry
CRISILs Criteria for rating short term debt
The Rating Process

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