Key rating drivers and detailed description

Strengths:

Established market position and strong relationship with MSIL

The presence of around three decades in the auto components industry has enabled the promoters to establish strong clientele. Being a major supplier of bumpers, instrument panels and other parts for various car models, MPL is strategically important to MSIL. Proximity to MSIL's plants in Gurugram and Manesar in Haryana reduces freight cost, enabling MPL to quote the lowest price and ensure timely availability of products.

Efficient working capital management

Gross current assets (GCAs) are estimated at 85 days as on March 31, 2023 (85 days as on March 31, 2022), driven by receivables and inventory of 53 days and 26 days, respectively (51 days and 29 days, respectively, a year earlier). Raw material is sourced from the domestic market against payables of 30-50 days. Timely realisation from MSIL supports the working capital cycle. GCAs are expected at 80-90 days over the medium term.

 
Weaknesses:

Modest scale of operations and high customer concentration in revenue

The company recorded average revenue of Rs 331 crore in fiscal 2023, against Rs 265 crore in fiscal 2022. Revenue is expected to grow 5-10% in fiscal 2024 on account of recovery in demand and addition of customers, such as Daikin and Exide. The product portfolio is restricted to a few plastic components. The company caters mainly to MSIL, which accounted for 85-90% of sales in fiscal 2023, through direct sales to the primary and replacement segments and does not have its own brand. MPL has started diversifying into plastic components for non-auto segments and manufacturing of die and casting. Revenue from these segments will be a key monitorable.

Vulnerability to fluctuations in raw material prices

As polypropylene compound, the key raw material, is a downstream petrochemical product, its price is volatile. Since the cost of procuring the raw material accounts for bulk of the operating revenue, even a slight variation in price may drastically impact profitability. Also, as the sale price to MSIL is based on average raw material prices in the quarter, MSIL factors in price escalation (only if incremental cost is beyond a certain threshold) with a lag of three months.

Key financial indicators

Annexure - Details of instrument(s)

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