Rating Rationale
August 24, 2022 | Mumbai
Marathwada Auto Compo Private Limited
Rating reaffirmed at 'CRISIL BBB/Negative'
 
Rating Action
Total Bank Loan Facilities RatedRs.23.5 Crore
Long Term RatingCRISIL BBB/Negative (Reaffirmed)
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 reaffirmed its ‘CRISIL BBB/Negative’ rating on the long-term bank facilities of Marathwada Auto Compo Private Limited (MACPL).

 

The rating continues to reflect the company’s established market position and track record in the automotive (auto) components industry, reputed client base, efficient working capital management, and comfortable financial risk profile. These strengths are partially offset by moderated operating performance, customer and sectoral concentration in revenues and susceptibility of operating margin to volatile input prices.

 

MSCPL’s revenue improved to around Rs.242 crore in fiscal 2022 from Rs.159 crore in previous year 2021. Revival in demand from key customers and higher realizations have aided company’s revenue growth during the year. The company is expected to maintain steady revenue growth of around 15% in current fiscal as well driven by steadily increasing demand. Company’s operating margin remained modest at about 4.3% in fiscal 2022 and has been lower compared to operating margin of around 8% historically. Higher input prices and time lag in pass through of price escalations impacted the operating profitability. Sharp increase in operating margin remains critical and will be monitored. MACPL has embarked on a large capex of Rs. 50 Crores to foray into manufacturing of rollers for road rollers. The capex is expected to be funded by debt to the tune of around 75%. The debt funded capex and increasing working capital requirements meant the gearing should moderate in near to medium term. Further timely ramp-up in sales from new capacity remains to be seen.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position and track record with reputed clientele: The promoters have experience of over four decades and long-standing relationships with suppliers and customers in the industry. Strong relationships with reputed auto manufacturers and auto component companies such as Bajaj Auto Ltd. (CRISIL AAA/Stable/CRISIL A1+), TVS Motor Co, Piaggio Vehicles Pvt. Ltd. (CRISIL A+/Negative/CRISIL A1), JCB India and Endurance Technologies (CRISIL AA/Positive/CRISIL A1+) should support the business risk profile. Further the company has diversified into heavy fabrication business for JCB India and others and has also recently forayed into manufacturing components for electric vehicles. The company’s ongoing foray into manufacturing of rollers also aims at diversifying the revenue streams.

 

  • Efficient working capital management: Working capital requirements are controlled as indicated by estimated gross current assets of 110 days as on March 31, 2022, with estimated receivables and inventory of 70 and 21 days, respectively. Also, credit received on procurement of raw materials, of 50-60 days, supports working capital management.

 

  • Comfortable financial risk profile: Financial risk profile is supported by comfortable networth of Rs 41.95 Crores and gearing of 0.85 time estimated as on March 31, 2022. Debt protection metrics remain adequate, reflected in estimated interest coverage ratio of 4.77 times and net cash accrual to total debt ratio of 0.22 time estimated as on March 31, 2022. The financial risk profile improved in fiscal 2022 compared to 2021 when company’s operating performance was severely impacted by pandemic induced business disturbances and demand slowdown. Further with debt funded capex and incremental working capital requirements, company’s debt level is expected increase sharply in fiscal 2023.  Gearing is expected to remain moderate at around 1.5 times in near to medium term. Debt protection metrics are also expected to moderate in near term due to increasing deb; these should remain adequate supported by improving cash accrual.

 

Weaknesses:

  • Customer and segment concentration in revenues: The top five customers account for more than 70% of the revenue with the three-wheeler segment contributing close to 60% of total revenue. Any decline in the business of these clients could impact the company’s business and financial risk profiles. This is also seen in the sharp slowdown in orders from the three-wheeler segment in the fiscal 2021 which impacted company’s operating performance.

 

Revenue is majorly dependent on the performance of the automobile industry, which is directly linked to economic cycles. The company is foraying into manufacturing of rollers for its existing as well as new customers from construction equipment segment. Ramp-up in this business remains critical as it shall add revenue diversity.

 

  • Susceptibility of operating margin to volatility in input prices: Raw material cost remains over 60% of the total sales. Raw material prices have been volatile over the past three years. Agreements with customers include price escalation clauses to periodically adjust selling prices based on movements in raw material prices. However, there is a lag in implementing price changes. Further the escalations largely pertain to basic raw materials while company has to sustain the other inflationary overheads. Company’s operating profitability margin impacted severely in fiscal 2021 and 2022 due to adverse raw material price fluctuations and higher overheads.

Liquidity: Adequate

Average bank limit utilisation remained moderate at around 72 percent for the past 12 months ended 31st March 2022.  Cash accrual are expected to be over Rs 8-10 Crores will be sufficient against term debt obligation of around Rs 3-6 Crores for fiscal 2023 and 2024. Invoice financing and bill discounting facilities will aid cash flows. Current ratio was adequate at 1.2 times as on March 31, 2022.

Outlook: Negative

CRISIL Ratings believes MACPL’s financial risk profile will be moderated in the near term on account of large debt funded capex and incremental working capital requirements along with moderation in operating profitability margin.

Rating Sensitivity factors

Upward factors

  • Sustained revenue growth and sharp improvement in operating profitability leading to cash accrual of over Rs.12 Crores
  • Maintenance of comfortable financial risk profile and adequate liquidity

 

Downward factors

  • Continued pressure on operating profitability leading to lower-than-expected cash accrual
  • Larger than expected caper or stretch in working capital cycle leading to weakening in financial risk profile and liquidity (Debt to equity ratio of over 1.5 times on consistent basis)

About the Company

Incorporated in 1988, MACPL commenced operations in 1997. It is part of the Applied Innovation and Technology group. The company manufactures auto components, mainly steering columns for three-wheelers, under-bracket assembly for two-wheelers and parts for heavy commercial vehicles.

Key Financial Indicators

As on / for the period ended March 31

 

2022*

2021

Operating income

Rs crore

241.81

159.46

Reported profit after tax

Rs crore

1.80

-2.43

PAT margins

%

0.74

-1.53

Adjusted Debt/Adjusted Net worth

Times

0.85

0.54

Interest coverage

Times

4.51

2.79

*Provisional

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 6 NA CRISIL BBB/Negative
NA Long Term Loan NA NA Jul-23 17.5 NA CRISIL BBB/Negative
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 23.5 CRISIL BBB/Negative   -- 27-05-21 CRISIL BBB/Negative 26-08-20 CRISIL BBB/Negative 04-09-19 CRISIL BBB/Stable CRISIL BBB/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 6 Maharashtra Gramin Bank CRISIL BBB/Negative
Long Term Loan 17.5 Maharashtra Gramin Bank CRISIL BBB/Negative

This Annexure has been updated on 13-Mar-23 in line with the lender-wise facility details as on 20-Feb-23 received from the rated entity.

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
Rating Criteria for Auto Component Suppliers
Understanding CRISILs Ratings and Rating Scales

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com

Shirish A Mujumdar
Associate Director
CRISIL Ratings Limited
D:+91 20 4018 1934
shirish.mujumdar@crisil.com

Prateek Khare
Manager
CRISIL Ratings Limited
B:+91 20 4018 1900
Prateek.Khare@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html