Rating Rationale
August 30, 2023 | Mumbai
Karad Projects And Motors Limited
Ratings upgraded to 'CRISIL A/Positive/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.65 Crore
Long Term RatingCRISIL A/Positive (Upgraded from 'CRISIL A-/Positive')
Short Term RatingCRISIL A1 (Upgraded from 'CRISIL A2+')
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

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Karad Projects And Motors Limited (KPML) to ‘CRISIL A/Positive/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.

 

The upgrade factors in improvement in the credit risk profile of its parent, Kirloskar Brothers Ltd (KBL; ‘CRISIL AA/Stable/CRISIL A1+’) as well as improved business and financial risk profiles of KPML. Sustenance of the ‘Positive’ outlook drives comfort from continued improvement expected in KPML’s operations that could further strengthen its debt protection metrics.

 

In fiscal 2023, KPML sustained healthy growth in operating performance, wherein revenue grew 8% year-on-year to Rs 515 crore, on a high base of Rs 477 crore in fiscal 2022. The growth was driven by healthy offtake by the parent, KBL, as well as improved realisations. Operating margin continued at 10.4%, in line with the previous fiscal. Business risk continues to be heavily dependent on the parent, KBL, with sales to the latter contributing to over 75% of total sales.

 

In fiscal 2024 so far, the company has sustained increased scale of operations and is expected to comfortably grow 6-8% in terms of revenue; having already recorded Rs 132 crore up to June 2023. Improved operating leverage should lead to healthy operating profitability of 9-10%.

 

The ratings continue to reflect KPML’s healthy financial risk profile and expected operational and financial support from KBL. These strengths are partially offset by limited customer diversification and susceptibility to volatility in the prices of key raw materials.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in support from KBL, which holds 100% stake in KPML.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong operational and financial support from the parent: The company is strategically important to KBL because its motors business is a vertical extension of KBL’s pumps business. KPML currently supplies about 100% of KBL’s oil-filled pump and 55% of water-filled pump requirements. The parent contributed 76% to KPML’s revenue in fiscal 2023, which has increased from 64% in fiscal 2014. The company continues to receive operational, technical and sales support, as well as overall guidance from the parent. KBL is also expected to provide financial aid in case of any exigency.

 

  • Healthy financial risk profile: KPML has no debt on its books and is expected to remain debt free over the medium term, because of modest capital expenditure (capex) and steady accrual. Networth in fiscal 2023 was Rs 198 crore with healthy debt protection metrics, as reflected in nil gearing and strong interest coverage ratio of around 390 times. With moderate capex planned over the medium term, the financial profile of the company is expected to remain healthy.

 

Weaknesses:

  • Limited customer diversification: Customer concentration risks persist, with KBL and three other customers contributing to over 80% of the overall revenue in fiscal 2023. Any decline in revenue from these clients will considerably weaken the business risk profile.

 

  • Susceptibility to volatile raw material prices: Raw material cost forms 70-75% of total sales. Fluctuations in the prices of key raw materials such as steel, copper and aluminium may impact the operating margin, thereby impacting overall operating performance.

Liquidity: Adequate

Annual cash accrual of Rs 35-45 crore is expected to be sufficient to meet modest capex requirement of about Rs 15 crore, with no term debt obligation. Bank limit utilisation was low at 4% on average for the 12 months ended June 30, 2023. The company has sufficient liquid surplus of about Rs 60 crore as on March 31, 2023, despite a dividend payout of Rs 9 crore in fiscal 2023.

Outlook: Positive

The ‘Positive’ outlook drives comfort from continued improvement expected in KPML’s operations that could further strengthen its debt protection metrics.

Rating Sensitivity factors

Upward factors:

  • Sustained growth in revenue, with operating margin above 10%
  • Better product and customer diversification
  • Improvement in the parent's credit risk profile and higher business synergies

 

Downward factors:

  • Steep decline in revenue, with operating margin falling below 5.5%
  • Large, debt-funded capex or stretched working capital cycle
  • Material deterioration in the parent's credit risk profile or change in its support stance towards KPML

About the Company

KPML, a wholly owned subsidiary of KBL, manufactures electric motors, pumps, stators and rotors, and other components for industrial and general applications. In July 2013, Hematic Motors Pvt Ltd was merged with Kirloskar Constructions and Engineers Ltd to form KPML. Its manufacturing plants are in Karad, Maharashtra.

About KBL

KBL, part of the Kirloskar group, is India's largest manufacturer and exporter of pumps. It caters to the oil and gas, defence, marine, water resource management, irrigation, power, distribution, and building and construction sectors. For fiscal 2023, on a consolidated basis, KBL had a profit after tax (PAT) of Rs 260 crore on revenue of Rs 3,971 crore, against PAT of Rs 110 crore on revenue of Rs 3,285 crore for fiscal 2022.

Key Financial Indicators

 

2023

2022

Revenue

515

477

PAT

42

35

PAT margin

8.1

7.3

Adjusted debt/adjusted networth

0.0

0.0

Interest coverage

389.85

184.24

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 assigned with outlook

NA

Cash Credit#

NA

NA

NA

10

NA

CRISIL A/Positive

NA

Letter of Credit$

NA

NA

NA

25

NA

CRISIL A1

NA

Letter of Credit Bill Discounting

NA

NA

NA

5

NA

CRISIL A/Positive

NA

Sales Bill Discounting*

NA

NA

NA

25

NA

CRISIL A/Positive

#One-way interchangeable with letter of credit and buyer’s credit, and interchangeable with working capital demand loan, and pre- and post-shipment export credit

* For sales to Kirloskar Brothers Ltd & Emerson Climate Technologies Ltd

$ Fully interchangeable with buyer’s credit and interchangeable with bank guarantee to the extent of Rs 10 crore

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 40.0 CRISIL A/Positive   -- 30-09-22 CRISIL A-/Positive 29-10-21 CRISIL A-/Positive 29-10-20 CRISIL A-/Stable CRISIL BBB+/Stable
      --   --   --   -- 02-07-20 CRISIL A-/Stable --
      --   --   --   -- 31-01-20 CRISIL A-/Stable --
Non-Fund Based Facilities ST 25.0 CRISIL A1   -- 30-09-22 CRISIL A2+ 29-10-21 CRISIL A2+ 29-10-20 CRISIL A2+ CRISIL A2
      --   --   --   -- 02-07-20 CRISIL A2+ --
      --   --   --   -- 31-01-20 CRISIL A2+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit# 10 HDFC Bank Limited CRISIL A/Positive
Letter of Credit$ 25 HDFC Bank Limited CRISIL A1
Letter of Credit Bill Discounting 5 HDFC Bank Limited CRISIL A/Positive
Sales Bill Discounting* 25 HDFC Bank Limited CRISIL A/Positive
#One-way interchangeable with letter of credit and buyer’s credit, and interchangeable with working capital demand loan, and pre- and post-shipment export credit
* For sales to Kirloskar Brothers Ltd & Emerson Climate Technologies Ltd
$ Fully interchangeable with buyer’s credit and interchangeable with bank guarantee to the extent of Rs 10 crore
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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