CRISIL has revised its outlook on the long term bank facilities of Lumax Auto Technologies Limited (LATL; part of the Lumax group) to 'Stable' from 'Positive' while reaffirming the rating at 'CRISIL A+'. Rating on the short term bank loan facilities and commercial paper programme has been reaffirmed at 'CRISIL A1+'
 
The outlook revision reflects CRISIL's belief that improvement in LATL's revenue growth and operating profitability over the near to medium term is likely to remain lower than earlier expectations given the uncertainty in demand revival in the automotive sector.
 
The slowdown in the automotive sector, which has impacted sale volumes for key original equipment manufacturer (OEM) customers of LATL in the past 18 months, is expected to be accentuated in the next few months due to the spread of Novel Coronavirus (Covid-19) across India and overseas markets. LATL's key customers including Bajaj Auto Ltd (BAL; CRISIL AAA/FAA/Stable/CRISIL A1+), Maruti Suzuki India Ltd (MSIL; 'CRISIL AAA/Stable/CRISIL A1+') and Lumax Industries Ltd (LIL) have already announced temporary shut-down of manufacturing plants because of the Covid-19 outbreak. Besides, a possible temporary disruption in demand is also expected, as its key customer's transit to the costlier BS-VI vehicles, effective April 1, 2020, from BS-IV at present.

While the plant shutdown at customers end is expected to be temporary, revocation of the measures will be contingent upon directive from the Central government and extent of spread of COVID-19. A sustained long period of plant closures can result in significant deterioration in credit quality of automotive component players, including LATL. On the other hand, a faster reversal to normalcy may contain the extent of deterioration in credit quality. That said, the ability of LATL to revert back to operational stability will be a key monitorable, and CRISIL will continue monitoring the same.

Over the medium to long term LATL is well positioned to benefit from the expected volume recovery supported by its healthy segmental diversity and various strategic investments to cater to the emerging trends in the automotive industry. Additionally, variations in OEM demand is mitigated by steady after-market business. Revenue from continuing business is expected to grow at a healthy rate of 9-11% over the medium term supported by sustained revenue growth from existing products line such as lighting, automatic gear shifter and sheet metal business and incremental revenue from new products including Urea tank and oxygen sensors. Benefitting from healthy growth in the aftermarket business and change in product mix towards higher margin LED lighting, operating margin should gradually improve to around 9.8% over the medium term.
 
Further, the proposed acquisition of the auto component business of OK Play group by way of slump sale on a going-concern basis, will provide LATL access to latest roto moulding technologies and will enable LATL to exploit fast-emerging growth opportunities in the automotive roto moulded plastic fuel tanks market for commercial vehicles, tractors and offroad vehicles in view of changing regulatory environment further benefitting company's business risk profile.

Financial risk profile and liquidity should continue to remain healthy despite the debt funded nature of the acquisition. Albeit slight moderation in fiscal 2021, gearing and debt protection metrics will remain comfortable for the rating category and are expected to gradually improve over the medium term, supported by healthy cash generation, and moderate capital spending.
 
The ratings continue to reflect the Lumax group's established market position, strong relationships with key customers and healthy financial risk profile, because of strong capital structure and sound debt protection metrics. These strengths are partially offset by customer concentration risk in revenue and vulnerability to volatility in raw material prices.

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of LATL with its subsidiaries and joint ventures. These companies collectively referred to as the Lumax group, are in similar line of business, have common management and significant operations and financial synergies.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

The group enjoys strong liquidity driven by expected cash accruals of Rs. 90-100 crore in fiscal 2021 and 2022 and cash equivalents of Rs 75 crore as on March 31, 2019. LATL also has access to fund based limits of Rs 80 crore, utilized to the tune of 36% on an average over the 12 months ended September 2019. The company has long term repayment obligations around Rs 6 crore each in fiscal 2021 and 2022 with capex of around Rs 50 crore per annum. Cash accruals should be sufficient to fund repayment obligations and capex requirements. Further, with a gearing of 0.13 times as on March 31, 2019, the group has sufficient gearing headroom, to raise additional debt if required. Its bank lines are expected to meet its incremental working capital requirements, which are assessed to be minimal.

CRISIL believes that the LATL group's revenue will grow at a steady pace over the medium term along with steady margins, supported by its diversified product mix and established customer base. The group's financial risk profile is expected to remain healthy supported by healthy growth in cash accruals, modest capex and working capital requirements.

The Lumax group is part of the DK Jain group of companies.

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.

Lumax DK Auto Industries Limited (LDK), incorporated in 1997, is a wholly owned subsidiary of LATL and was merged with the latter in December 2018. The company manufactures auto components, including gear shifter assemblies, head and tail lamp assemblies, moulded parts, and parking brakes. The bulk of revenue comes from supply of lighting products and moulded parts to BAL, and the remaining from gear shifter assemblies and parking brakes for MSIL. Manufacturing plants are in Pantnagar and Manesar. The gear shifter business was demerged, effective April 2014, into Lumax Mannoh Allied Technologies Limited (LMAT), which is a 55:45 JV between LATL and Mannoh Industrial Co Ltd, Japan.

Lumax Integrated Ventures Pvt Ltd (LIVL), incorporated in fiscal 2016, is an investment company and a wholly owned subsidiary of LATL. It is the engine for LATL's non-auto business. The company has a wholly owned subsidiary, too-Lumax Energy Solutions Pvt Ltd-which deals in LED lighting products. It has also entered into a JV with SIPAL SpA (Lumax SIPAL Engineering Pvt Ltd), which deals in defence services. LIVL holds 51% equity with management control over the JV, while SIPAL SpA holds the remaining 49% equity.

Lumax Cornaglia Auto Technologies Pvt Ltd (LCAT) is a JV between LATL and Officine Metallurgiche G Cornaglia, SpA, Italy, through the Italian company's subsidiary, Cornaglia Metallurgical Products India Pvt Ltd. The JV commenced operations in fiscal 2008 and manufactures and supplies air-intake systems and exhaust systems to automotive manufacturers. The manufacturing facilities are in Pune.

Lumax Gill - Austem Auto Technologies Pvt Ltd (LGAT) is a JV between LATL and Gill-Austem LLC, which, in turn, is a JV between Gill Group, USA, and Austem, Korea. It manufactures seating mechanisms, seating assemblies, and head restraints for the auto industry.
Lumax Management Services Pvt. Ltd (LMSPL) is engaged in providing corporate support services to the DK Jain group companies. LMSPL provides services like Research and Development, SAP-ERP support, IT/ITES support, skill development and human resource support services to Lumax Auto technologies Limited (LATL) and Lumax Industries Limited(LIL)..

Lumax FAE Technologies Private Limited was established in July 2017 by LATL and FAE to manufacture oxygen sensors for the Indian automotive industry, with LATL owning 51% and FAE 49%. The facility being set up at Manesar, Haryana, will have the capacity to manufacture 2.5 million oxygen sensors.
 
Lumax Ituran Telematics Pvt Ltd is a 50:50 JV between LATL and Ituran, Israel. It was formed in fiscal 2017 to produce telematics products.

Any other information: Not applicable