Rating Rationale
June 23, 2020 | Mumbai
IAC International Automotive India Private Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.74 Crore (Enhanced from Rs.71 Crore)
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of IAC International Automotive India Pvt Ltd (IAC).
 
IAC's revenue in fiscal 2020 is estimated to have declined 15% from the previous fiscal on account of slowdown in the automotive (auto) industry. The company's performance in the first half of 2021 will also be impacted because of the lockdown imposed after the outbreak of the Covid-19 pandemic. However, the company is likely to ramp-up its operations once normalcy is restored. The ratings continue to reflect the company's healthy financial risk profile and liquidity, which has helped it to cope with the current difficult business environment. Furthermore, IAC plans to take over financially distressed units, which will be primarily funded by available surplus liquidity and need-based support from its parent. Hence, overall credit profile of IAC will remain intact.
 
The ratings also reflect the continued technological support from its parent - International Automotive Components Group North America LLC, USA (IAC USA)'leading to its established market position in the Indian auto interior components industry and comfortable financial risk profile. These strengths are partially offset by risk of customer concentration in revenue and exposure to cyclicality in the auto industry. 

Analytical Approach

CRISIL has treated the preference share capital extended to IAC from the holding company, as equity. This is because these shares are compulsorily convertible to equity in the long term and are non-cumulative in nature.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position: IAC has been designing, developing and manufacturing auto interior components since 2008, mainly for Mahindra and Mahindra Ltd (M&M; rated 'CRISIL AAA/Stable/CRISIL A1+'). It also caters to other auto original equipment manufacturers (OEMs) such as Maruti Suzuki India Ltd (MSIL; rated 'CRISIL AAA/Stable/CRISIL A1+'), Volkswagen India Pvt Ltd and Volvo Eicher Commercial Vehicles Pvt Ltd (VECV). The company has, over the years, added new customers and tapped various growth opportunities.
 
* Healthy technological support from the parent: IAC USA is a leading auto interiors supplier, with presence in 20 countries, and a diversified clientele of over 80 OEMs globally. The technological support from IAC USA has helped the Indian subsidiary in establishing a market presence in the country.
 
* Comfortable financial risk profile: The networth is healthy, estimated at Rs 160 crore as on March 31, 2020, aided by significant infusion of capital by the parent in the past, and sizeable accretion to reserves. The gearing is estimated at 0.2 time in fiscal 2020. The debt protection metrics are robust with interest coverage and net cash accrual to adjusted debt ratios estimated at 11 times and 0.78 time, respectively, as on March 31, 2020. A large unencumbered bank balance (Rs 70 crore as on March 31, 2020) further supports the liquidity.
 
The company is contemplating acquisition of financially distressed, although operational, units in the near to medium term with expected cash outlay of up to Rs 100 crore. The acquisition will be funded partly by surplus liquidity and partly by fresh term loans. Any larger acquisition will be supported by fund infusion by the parent.
 
Weaknesses:
* Customer concentration risk: A sizable share of revenue comes from key clients, especially M&M. Though the dependence on M&M has reduced over the years, it still accounted for 60% of revenue during fiscal 2020, thus, exposing IAC to the risk of customer concentration in revenue.
 
* Susceptibility to cyclicality and regulatory changes in the auto sector: The auto industry remains vulnerable to economic cycles. Any uncertainty in the economy or monetary tightening measures, such as an increase in interest rate, could have a significant impact on demand for vehicles. Performance of auto ancillary companies was impacted in fiscal 2020 because of slowdown in demand. With demand expected to remain under pressure in current fiscal as well, the operating performance of players will be adversely impacted.
Liquidity Adequate

Liquidity is adequate. Cash accrual, estimated at Rs 27 crore in fiscal 2020 and expected to be around Rs 18 crore in fiscal 2021, should comfortably cover term debt obligation of Rs 6 crore over the medium term. Bank limit utilisation was minimal at 1.5% over the 12 months through January 2020. Furthermore, the company has healthy unencumbered cash and bank balance of Rs 70 crore, which provides a liquidity cushion to withstand business cycles. Also, need-based funding support from the parent is expected to continue.

Outlook: Stable

CRISIL believes IAC will continue to benefit from its established market position and a healthy financial risk profile, over the medium term.

Rating Sensitivity factors
Upward factors
* Sustained revenue growth and improved operating margin, leading to annual net cash accrual above Rs 35 crore
* Sustenance of financial risk profile and liquidity
* Improvement in working capital management
 
Downward factors
* Steep decline in revenue or operating profitability, resulting in cash accrual of less than Rs 15 crore
* Weakening of the financial risk profile, especially liquidity, because of larger-than-anticipated capital expenditure or stretched working capital cycle
About the Company

IAC was incorporated in 2008 and is based in Pune, Maharashtra. It is a wholly owned, step-down subsidiary of IAC USA. IAC's holding company, IACNA Mauritius Ltd, is an ultimate subsidiary and investment arm of IAC USA. IAC manufactures auto interior components for leading domestic OEMs. It has four manufacturing units: two at Chakan in Pune, and two in Manesar, Haryana.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 370.68 314.05
Reported profit after tax (PAT) Rs crore 12.24 14.61
PAT margin % 3.3 4.7
Adjusted debt/adjusted networth Times 0.35 0.26
Interest coverage Times 10.63 14.44

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 crore)		 Rating assigned
with outlook
NA Cash Credit NA NA NA 20 CRISIL BBB+/Stable
NA Letter of credit & Bank Guarantee NA NA NA 40 CRISIL A2
NA Term Loan NA NA Sept-2023 14 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  34.00  CRISIL BBB+/Stable  09-06-20  CRISIL BBB+/Stable  31-05-19  CRISIL BBB+/Stable  05-02-18  CRISIL BBB+/Stable  22-11-17  CRISIL BBB+/Stable  CRISIL BBB+/Stable 
Non Fund-based Bank Facilities  LT/ST  40.00  CRISIL A2  09-06-20  CRISIL A2  31-05-19  CRISIL A2  05-02-18  CRISIL A2  22-11-17  CRISIL A2  CRISIL A2 
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 20 CRISIL BBB+/Stable Cash Credit 20 CRISIL BBB+/Stable
Letter of credit & Bank Guarantee 40 CRISIL A2 Letter of credit & Bank Guarantee 40 CRISIL A2
Term Loan 14 CRISIL BBB+/Stable Term Loan 11 CRISIL BBB+/Stable
Total 74 -- Total 71 --
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
CRISILs Criteria for rating short term debt

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