Rating Rationale
June 06, 2022 | Mumbai
Lumax Mettalics Private Limited
Rating outlook revised to 'Positive'; Rating Reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.13 Crore
Long Term RatingCRISIL BBB/Positive (Outlook revised from 'Negative'; Rating Reaffirmed and Withdrawn)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL ratings has revised the outlook on the bank facilities of Lumax Mettalics Private Limited [LMPL; erstwhile Lumax Gill Austem Auto Technologies Private Limited, part of the Lumax group] to ‘Positive’ from ‘Negative’ and the rating were reaffirmed at ‘CRISIL BBB’. The rating are also simultaneously withdrawn at the company’s request and upon receipt of No Objection Certificate from banker. This is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.

 

The outlook revision reflects the impending amalgamation of LMPL with its parent Lumax Auto Technologies Limited( LATL; rated CRISIL A+/Positive/A1+). The amalgamation is subject to receipt of final order from NCLT and is expected to take 4-6 months for completion.

 

LMPL’s revenues improved in fiscal 2022 driven by better offtake from OEMs and new order secured from Mahindra & Mahindra. Reduced scale and increase in raw material prices continue to negatively impact profitability, though EBITDA losses reduced in fiscal 2022 due to improvement in revenues and various cost cutting initiatives undertaken by the company.

 

Financial risk profile of LMPL remain weak on account losses since fiscal 2018. However, equity infusion by LATL of Rs.7 crores in fiscal 2021 has improved the networth despite losses. LMPL remains critical to LATL and hence ongoing and need based support will be forthcoming in case of exigencies till the amalgamation takes place.

 

The rating continues to reflect expectation of strong operational, financial, and management support from the parent, LATL. This is partially offset by company’s limited track record, customer concentration risks, modest financial risk profile and cyclicality in the automotive components industry.

Analytical Approach

For arriving at the rating, CRISIL Ratings has considered the standalone business and financial risk profiles of LMPL and factored in support expected from its parent, LATL. CRISIL Ratings believes that LMPL will, in case of exigencies, receive distress support from LATL for timely repayment of debt obligations, considering that it is a wholly owned subsidiary of LATL.

Key Rating Drivers & Detailed Description

Strengths

Strong managerial, operational, and financial support from parent: LMPL’s business profile is marked by the strength of its parent. The company derives technological and operational support from LATL in terms of line development, production and stabilization. Company also benefits from managerial and marketing support of LATL through its longstanding relationships with OEMs. The company mainly supplies to Lear Corp for models of Fiat Chrysler Automobiles (Jeep Renegade) and General Motors (Beat). Apart from this, seating structures are supplied to Tata Motors (Hexa) and Mahindra and Mahindra (XUV 500).

 

Weaknesses

Limited track record and customer concentration in revenue: Commercial operations commenced about seven years ago in October 2015. Though the company has intrinsic support from its parent, it is yet to achieve optimal scale of operations with its current capacities. Furthermore, the company is dependent on a single customer, Lear Corp, for its entire revenue, thus exposing it to customer concentration risks until customer diversification is achieved.

 

Modest financial profile and liquidity: Financial risk profile has weakened on account losses since fiscal 2018. The company has availed working capital demand loan of Rs.15 crores which along with losses in fiscal 2022 has weakened the financial profile further. Over the medium term, company has no major capex plans , hence no significant debt addition is expected. With improvement in profitability and accruals financial risk profile is expected to gradually improve over the medium term.

 

Liquidity is supported by unutilized bank lines. Additionally, given that LMPL is a wholly owned subsidiary of LATL, ongoing and need based support will be forthcoming in case of exigencies

 

Cyclicality in the automotive components industry: Revenue is largely dependent on demand from passenger vehicle (PV) industry, which in turn depends on a number of factors, such as disposable income levels, consumer preferences, credit availability and fuel prices. Dependence on the PV segment for the bulk of its business poses a risk to revenue and profitability, in case this segment witnesses any significant slowdown as seen in fiscal 2020.

Liquidity: Adequate

LMPL has adequate liquidity available to it, driven by expectation of support from LATL to provide ongoing and need based support, in case of exigencies. On a standalone basis, LMPL has stretched liquidity marked by negative cash accruals. LMPL has access to fund based limits of Rs 9 crore, utilized intermittently over the 12 months ended March 2022.

Outlook: Positive

CRISIL Ratings believes LMPL will benefit from the amalgamation with parent, LATL despite moderate business and financial risk profile on a standalone basis. LMPL will benefit from the strong operational and financial support of LATL.

 

Rating Sensitivity Factors

Upward Factors

* Sustained revenue growth of 15-20% while improving operating margin of ~9-10%, supported largely by diversification of customer base.

* Successful completion of amalgamation with the parent, LATL

Downward Factors

* Sharp decline in revenue and deterioration of operating margin leading to higher than expected losses

* Weakening in financial risk profile, particularly liquidity, on account of higher than expected capex or stretch in WC requirements

* Amalgamation with LATL is not completed.

The ratings would also be sensitive to changes in the credit risk profile of the LATL.

About the Company

LMPL manufactures, assembles and sell various types of seating mechanisms, seating frame structure and seat assemblies to automobile manufacturers.

 

LMPL was formed as a 50:50 JV between Lumax Auto Technologies Ltd (LATL) and Gill-Austem group in 2013. Gill-Austem group was also an equal JV between Gill Industries Inc. (USA) and Austem Co. Ltd (Korea) that is engaged in the manufacture and sale of components such as seating mechanisms, seating assemblies and head restraints for the automotive industry.

 

The JV Agreement was terminated in October 2020 post Gill Austem LLC filing for bankruptcy. LATL has acquired its shares in the JV. Consequent upon the acquisition, LMPL has become wholly owned subsidiary of LATL

About LATL

LATL was incorporated in 1981 as Lumax Auto Electricals Pvt Ltd, and renamed Dhanesh Auto Electricals Pvt Ltd in 1988 and Dhanesh Auto Electricals Ltd in 1998. The company got its current name in 2006. LATL has two main divisions: lighting systems and sheet metal components, gear shifters, and moulded parts. Lighting products (head lamps, tail lamps, and blinkers) are manufactured in Pune, sheet metal components (mainly chassis for BAL's two-wheelers) in Aurangabad, and moulded parts (for HMSI) in Bengaluru. The company's aftermarket division (domestic and export) trades in auto components such as lightings, accessories, and audio and navigation systems.

Key Financial Indicators

As on/for the period ended March 31

Unit

2021

2020

Revenue

Rs crore

13.1

25.5

Profit After Tax (PAT)

Rs crore

-4.5

-7.4

PAT Margin

%

-34.5

-28.9

Adjusted Debt/Adjusted Networth

Times

0.29

0.16

Interest coverage

Times

-5.64

-7.74

   *CRISIL Ratings adjusted numbers

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity Level

Rating assigned with outlook

NA

Cash Credit*

NA

NA

NA

9.0

NA

CRISIL BBB/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

4.0

NA

CRISIL BBB/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)

*Interchangeable with working capital demand loan, Sales bill discounting of Rs 5 crore, Bank guarantee of Rs 2 crore

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 13.0 CRISIL BBB/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)   -- 31-03-21 CRISIL BBB/Negative 11-11-20 CRISIL BBB/Negative 24-12-19 CRISIL BBB/Negative CRISIL BBB/Stable
      --   --   --   --   -- CRISIL A3+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit* 9 CRISIL BBB/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 4 CRISIL BBB/Positive (Outlook Revised, Rating Reaffirmed and Withdrawn)
*Interchangeable with working capital demand loan, Sales bill discounting of Rs 5 crore, Bank guarantee of Rs 2 crore
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Understanding CRISILs Ratings and Rating Scales

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