Rating Rationale

Key rating drivers and detailed description

Strengths:

Technical support from the parent: DIPL is promoted by Dellorto Spa, which has been manufacturing auto components for over 90 years and has presence across Italy, India and China. Dellorto Spa began operations in 1933 by manufacturing carburetors for motorcycles and has expanded its production over the years to include injection systems, throttle bodies and electronic control units. It recently started electrification projects. The company receives regular technological support from its parent, Dellorto Spa, which aids in new product development and validations.
Established market position and reputed clientele: DIPL has established strong market position and healthy relationships with large two-wheeler original equipment manufacturers (OEMs) such as Bajaj Auto Ltd (‘Crisil AAA/Stable/Crisil A1+’), TVS Motor Company Ltd and Mahindra and Mahindra Ltd (‘Crisil AAA/Stable/Crisil A1+’). Regular orders from customers have helped scale up operations in the past three fiscals to estimated Rs 548 crore in fiscal 2025 from Rs 364 crore in fiscal 2022.
Healthy RoCE: RoCE remained at 20% for fiscal 2024, aided by healthy revenue and profitability and is estimated to remain at similar levels in fiscal 2025. Strong revenue growth is expected over the medium term and moderate capital investment should help keep the ratio above 20%.
Strong financial risk profile: Despite the capital-intensive business, DIPL has a comfortable capital structure, as reflected in comfortable networth estimated at around Rs 179 crore and healthy gearing estimated at 0.05 time as on March 31, 2025 (Rs 155 crore and 0.11 time, respectively, as on March 31, 2024). The capital structure is expected to remain strong driven by steady accretion and limited reliance on debt. Debt protection metrics were robust, with interest coverage and net cash accrual to adjusted debt ratio estimated at over 180 times and 7 times, respectively, for fiscal 2025. DIPL has regular capital expenditure (capex) of Rs 15-20 crore per year, which is likely to be funded through internal cash accrual. Any large, debt-funded capex remains a key rating sensitivity factor.

Weaknesses:

Customer and product concentration in revenue: DIPL derives 85-90% of revenue from the sale of throttle bodies, which are a part of fuel injection systems. The top three customers account for 75-80% of the revenue. Any adverse decline in demand for the products of top customers or a change in vendor policy could adversely affect the business profile of DIPL, which will be monitorable over the medium term.
Susceptibility to cyclicality in the auto industry: The auto components segment is susceptible to cyclicality in the auto industry, competition from imports and lower growth in the target market. Furthermore, the industry is prone to regulatory changes. The business risk profile of DIPL will remain susceptible to cyclicality in the auto industry over the medium term.
Volatility in operating margin: The operating margin has remained volatile and ranged between 7.8% and 13.3% in the three fiscals through 2024 primarily due to extraordinary warranty expenditure arising from malfunctioning of sensors in fiscals 2023 and 2024. However, the operating margin is estimated to improve to around 11% in fiscal 2025 after provisioning for warranty expenses. Sustenance of the margin at estimated level will remain a key monitorable factor over the medium term.