Rating Rationale
February 06, 2025 | Mumbai
 
EM Pee Motors Limited
Rating migrated to 'Crisil BBB/Stable'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.65 Crore (Enhanced from Rs.43.5 Crore)
Long Term Rating Crisil BBB/Stable (Migrated from 'Crisil BB+/Stable ISSUER NOT COOPERATING*')
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
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 Ratings, in line with the Securities and Exchange Board of India guidelines, had migrated its rating on the long-term bank facilities of EM Pee Motors Ltd (EMPL) to ‘Crisil BB+/Stable Issuer Not Cooperating'. However, the management has subsequently started sharing the requisite information necessary for carrying out a comprehensive review of the rating. Consequently, Crisil Ratings is migrating its rating to ‘Crisil BBB/Stable’.

 

The rating reflects extensive experience of the promoters and healthy relationship with TKM (Toyota Kirloskar Motors), efficient working capital management and strong financial risk profile. These strengths are partially offset by exposure to intense competition and to principal concentration in revenue.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of EMPL.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters and healthy relationship with TKM: The promoters have been in the automotive dealership business for more than two decades, which has helped them to identify untapped markets and combat slowdown in the auto industry in the recent past. The company also benefits from the healthy position of its principal, TKM.

 

The stable business risk profile of the company is reflected in improvement in its operating income at a compound annual growth rate of 37% in the last three fiscals, to Rs 838.17 crore in fiscal 2024. However, subdued demand from customers in the passenger vehicle segment compelled auto dealers to offer attractive discounts, resulting in moderation in the company’s operating margin to 2.51% from 3.27% in fiscal 2023. Margin has been on a declining trend since the last four fiscals. Subdued demand led to a further decline in margin to 2% on operating income of Rs 457 crore till September 2024. Revenue is expected to be around Rs 900 crore while profitability will sustain at around 2% for fiscal 2025. EMPL will be setting up two new dealerships in the Patiala district through a minor capital expenditure (capex) of Rs 1-2 crore, funded through internal accrual. These dealerships will focus on catering to the rural demand and decrease load on the city-based dealerships. Hence, no major improvement in revenue is expected from these dealerships in the near term. Improvement in scale of operations and sustenance of margin will remain monitorable.  

 

  • Efficient working capital management: Gross current assets (GCAs) were 50 days as on March 31, 2024, due to receivables of 9 days and inventory of 26 days. Working capital requirement is expected to remain stable over the medium term. The GCAs are expected to be around 55 days as on March 31, 2025, driven by receivables of 9 days and increased inventory of 34 days due to subdued offtake of automobiles by customers. However, exposure to risk of inventory loss because of drop in value is negligible as any fall in vehicle prices is compensated by TKM. Receivables risk is low as vehicles are mostly registered and delivered to customers only on receipt of full payment or delivery order from the financial institution funding the purchase.

 

  • Strong financial risk profile: The financial risk profile has strengthened due to limited reliance on external financing over the years, and is expected to improve further over the medium term. Networth and gearing were Rs 52.59 crore and 1.33 times, respectively, as on March 31, 2024, on account of steady accretion to reserve. Debt protection metrics were healthy, as indicated by interest coverage ratio of 8.71 times in fiscal 2024. Networth is expected to improve to around Rs 60 crore as on March 31, 2025, because of accretion to reserve, and despite moderation in operating profitability. Since the company relies on external short-term debt only to finance its inventory, gearing is expected to remain stable at around 1.25 times this fiscal. Debt protection metrics are expected to moderate due to fall in profitability, with interest coverage ratio of 4.43 times in fiscal 2025.

 

Weakness:

  • Exposure to intense competition and principal concentration in revenue: The exclusive dealership for vehicles manufactured by TKM makes EMPL vulnerable to decline in revenue and profitability of the principal. Besides, original equipment manufacturers (OEMs) encourage more dealerships to improve their market penetration and sales, which further intensifies competition.

Liquidity: Adequate

Cash accrual is expected to be around Rs 12 crore annually against nil term debt obligation over the medium term, and will, therefore, cushion liquidity. Current ratio was moderate at 1.25 times as on March 31, 2024. The promoters are likely to extend equity and unsecured loans to meet working capital requirement and debt obligation. Cash and bank balance stood at around Rs 20.2 crore as on March 31, 2024.

Outlook: Stable

Crisil Ratings believes EMPL will continue to benefit over the medium term from its longstanding relationship with the principal and experience of the management.

Rating sensitivity factors

Upward factors

  • Increase in revenue by more than 20% over the medium term, with sustained operating margin of 3.5% leading to higher-than-expected cash accrual
  • Sustenance of financial risk profile and liquidity with no major debt

 

Downward factors

  • Decline in scale of operations by more than 20% or sharp drop in operating profitability leading to lower cash accrual
  • Any debt-funded capex weakening the financial risk profile

About the Company

Incorporated in November 1999 and promoted and managed by Mr Sampat Singh, Mr Perminder Singh, and Ms Bhopinder Kaur, EMPL is an authorised dealer of vehicles of TKM. It operates through showrooms and a service centre in Chandigarh.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2024

2023

Operating income

Rs.Crore

838.17

679.74

Reported profit after tax

Rs.Crore

10.25

12.21

PAT margins

%

1.24

1.81

Adjusted Debt/Adjusted Networth

Times

1.33

0.63

Interest coverage

Times

8.71

9.19

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Complexity Levels Rating Outstanding with Outlook
NA Inventory Funding Facility NA NA NA 65.00 NA Crisil BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 65.0 Crisil BBB/Stable   -- 29-05-24 Crisil BB+ /Stable(Issuer Not Cooperating)* 15-02-23 Crisil BBB/Stable   -- --
      --   -- 15-04-24 Crisil BBB /Stable(Issuer Not Cooperating)*   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Inventory Funding Facility 21.5 State Bank of India Crisil BBB/Stable
Inventory Funding Facility 43.5 State Bank of India Crisil BBB/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Financial Ratios
Assessing Information Adequacy Risk

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