Key Rating Drivers & Detailed Description

Strengths:

Strong managerial, operational, and financial support from DT: The company’s initial truck project was funded entirely by the parent (erstwhile Daimler AG) through external commercial borrowings and equity. As on March 31, 2023, the parent had infused ~Rs 10,734.6 crore as equity and provided external commercial borrowings, whenever required. Both DT and DTH have also guaranteed external short-term debt contracted by DICV for its working capital requirement. The company also receives strong managerial and operational support from DT, which is expected to continue.

High operating capability, including substantial indigenization: DT entered India after adequately studying the market to ensure that its CVs are suited to Indian conditions. It has also ensured over 92% localization of inputs for manufacturing the CVs; this, along with strong technology available for truck manufacturing, is expected to benefit DICV by offering competitive pricing in the Indian market. While challenging demand conditions and high competitive pressure in the domestic CV market resulted in lower-than-expected sale volume ramp-up for DICV over the last decade showcasing significant improvement in volumes. Though sales remained sluggish in fiscals 2020 and 2021 due to weak demand and impact of the pandemic, the company declared robust growth in fiscal 2022 with revenue growing by 55% over fiscal 2021. In fiscal 2023, the company is expected to post ~28-30% growth in revenues, supported by healthy volume growth, and higher realisations.

DICV is well-placed to capitalize on new product ranges (buses and powertrains) and opportunities in the global market over the near to medium term. Its parent, DT is also one of the early movers in the clean fuel technology segment in the heavy vehicle industry and been making considerable investments towards EV and hydrogen fuel cell technology. These early investments in clean fuel technologies will give DICV significant advantage over their competitors in the future, when introduced in India.

Strong financial position: Gearing is estimated to be nil in fiscal 2023, and debt protection metrics remain robust; ratio of TOL/TNW was also comfortable at 1.13 times at March 31, 2022, and is expected to remain at 1.15-1.25 times over the medium term. The company is also expected to undertake only routine modernisation of its plant over the medium term, which will result in only modest capex spend . The company is expected to generate healthy cash flows which will suffice to meet capex needs and incremental working capital requirements. However, no major long-term debt is expected to be raised unless sizeable investments are planned in new technologies; here support from parents is expected to be forthcoming, if required.

Weaknesses:

Exposure to intense competition and cyclicality in the Indian CV market; presence only in MHCV segment: The domestic MHCV segment is dominated by Tata Motors Ltd (‘CRISIL AA/Stable/CRISIL A1+’), Ashok Leyland Ltd, and Mahindra & Mahindra Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), who account for more than ~75% of the market.

DICV products participate in majority of the segments of MHCV space and provide superior Total Cost of Ownership (TCO) to customers owing to better technology and safety than its peers. Through superior technology-driven operating capability, the company has been able to gradually increase its market presence in select MHCV categories, albeit at a slower pace than expected.

That said, due to presence in only MHCV segment, DICV’s presence in the CV space is prone to more cyclical pressures. Other players have presence in the light CV (LCV) segment, which is less volatile.

Key Financial Indicators DICV

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