Rating Rationale
October 06, 2017 | Mumbai
Gabriel India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.100 Crore
Long Term Rating CRISIL AA-/Positive (Reaffirmed)
 
Rs.5 Crore Fixed Deposits FAA/Positive (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities and fixed deposits of Gabriel India Limited (GIL) at 'CRISIL AA-/FAA/Positive'.
 
The ratings continue to reflect GIL's healthy market position in the suspension components segment supported by diverse customer and segment base, adequate operating efficiencies, robust technical capabilities, and strong financial risk profile. These strengths are partially offset by susceptibility to pricing pressure from peers and automotive original equipment manufacturers (OEMs).
 
In July 2017, the outlook was revised to 'Positive' reflecting CRISIL's belief that GIL's business risk profile will improve over the medium term, supported by healthy demand outlook from domestic two-wheeler and passenger car OEMs, strong presence in the aftermarket segment, and sustenance of operating profitability. Cash generation in fiscal 2017 was better than expected, led by robust sales, new orders, and improved operating efficiency. Furthermore, prudent capital expenditure (capex) and working capital management are expected to help maintain strong capital structure over the medium term; as on March 31, 2017, balance sheet was almost debt free.

Key Rating Drivers & Detailed Description
Strengths
* Healthy market position and diversified customer base
GIL is the largest player (by revenue) in the automobile suspension components segment in India, with presence across the OEM, aftermarket, and export segments through 6,500 retailers across 19 locations. Furthermore, clientele is diverse (top 5 customers account for 54% of revenue) and spread across automotive segments (contribution of 55%, 32% and 13%, respectively, of two-wheeler, passenger cars, and commercial vehicles, respectively, during fiscal 2017), which provides revenue stability. Additionally, strong presence in the aftermarket segment (13% and expected to increase) in exports enhances revenue diversity.
 
* Adequate operating efficiencies
Return on capital employed has been healthy at above 20% over the five fiscals through 2013 by astute cost control, efficient asset management, and an operating profitability (7-9.4% over the four fiscals through 2017) higher than industry average. Moreover, increased sales in the aftermarket segment has helped to maintain growth in realisation and partially offset the impact of increasing raw material costs. Also, working capital management is efficient, reflected in historically healthy receivables of around 46 days (expressed as number of days of gross revenue) and inventory of 34 days (expressed as number of days of cost of sales). Longstanding technical tie-ups with global players such as Yamaha Motor Hydraulic System Co Ltd, KYB Spain, and Kayaba Industry Co enhance product development capabilities.
 
* Healthy financial risk profile
Financial risk profile has continued to strengthen over the last two fiscals, with adjusted debt reducing to nil as on March 31, 2017 (Rs 11 crore as on March 31, 2016), from over Rs 100 crore as on March 31, 2013. Steady growth in revenue and moderate operating profitability will help generate annual net cash accrual of more than Rs 90 crore over the medium term. In the absence of any large capex, financial risk profile is expected to remain steady. Furthermore, exposure to group companies will remain minimal; as of March 2017, outstanding exposure was Rs 12.32 crore in the form of deposits to the Anand group, which is not expected to increase over the medium term.
 
Weakness
* Susceptibility of profitability to pricing pressure from OEMs and peers
Operating profitability remains susceptible to increasing competition in the auto components segment and pricing pressures from auto OEMs. The company has moderate flexibility to increase product prices through negotiation with end users in case of any increase in raw material prices. Operating margin improved steadily (particularly over the past three fiscals due to cost efficiencies and higher revenue contribution of the aftermarket segment.
Outlook: Positive

CRISIL believes GIL will continue to benefit over the medium term from strong market position and diversified clientele. Financial risk profile will remain steady, backed by robust growth in cash accrual, moderate capex, and prudent working capital management.
 
Upside Scenario
* Healthy growth in scale of operations leading to larger-than-expected cash accrual, while sustaining financial risk profile
 
Downside Scenario
* Substantially low cash accrual, sizeable debt-funded capex or acquisition, or large financial support to group companies.

About the Company

Established by Mr D C Anand in 1961, GIL manufactures ride-control products at its facilities in Dewas (Madhya Pradesh), Khandsa (Haryana), Hosur (Tamil Nadu), Parwanoo (Himachal Pradesh), Sanand (Gujarat), Nashik, and Pune.
 
Clientele includes leading auto OEMs such as Tata Motors Ltd (rated 'CRISIL AA/Positive/CRISIL A1+'), Ashok Leyland Ltd, Mahindra & Mahindra Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), TVS Motor Co Ltd, Hyundai Motor India Ltd (rated 'CRISIL A1+'), Maruti Suzuki India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), and Bajaj Auto Ltd (rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+').
 
For first three months of fiscal 2018, GIL reported profit after tax (PAT) of Rs 20.4 crore on net sales of Rs 419 crore, against Rs 20.1 crore and Rs 369 crore for the corresponding period of the previous fiscal.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs crore 1,529 1,441
Profit After Tax Rs crore 82 75
PAT margin % 5.3 5.2
Adjusted debt/adjusted networth Times 0.02 0.03
Interest coverage Times 89.82 51.86

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs cr) Rating assigned with outlook
NA Cash credit* NA NA NA 100.0 CRISIL AA-/Positive
NA Fixed deposit NA NA NA 5.0 FAA/Positive
*Fully interchangeable with non-fund based limits
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST    --  27-07-17  Withdrawal    No Rating Change  12-08-15  CRISIL A1+    No Rating Change  CRISIL A1 
Fixed Deposits  FD  FAA/Positive  27-07-17  FAA/Positive    No Rating Change  12-08-15  FAA/Stable  08-12-14  FAA-/Positive  -- 
                    03-06-14  FAA-/Stable   
Fund-based Bank Facilities  LT/ST  100  CRISIL AA-/Positive  27-07-17  CRISIL AA-/Positive    No Rating Change  12-08-15  CRISIL AA-/Stable  08-12-14  CRISIL A+/Positive  CRISIL A+/Stable 
Non Fund-based Bank Facilities  LT/ST    --  27-07-17  CRISIL AA-/Positive    No Rating Change  12-08-15  CRISIL AA-/Stable    No Rating Change  CRISIL A1 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 100 CRISIL AA-/Positive Cash Credit* 53 CRISIL AA-/Positive
-- 0 -- Letter of Credit# 47 CRISIL AA-/Positive
Total 100 -- Total 100 --
*Fully interchangeable with non-fund based limit
#Fully interchangeable with fund-based limit
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers
Criteria for rating Short-Term Debt (including Commercial Paper)

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