| Maxop Engineering Company Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB / Stable / CRISIL A3+ '; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has reaffirmed its 'CRISIL BBB/Stable/CRISIL A3+' ratings on the bank facilities of Maxop Engineering Company Private Limited (MECPL; a part of the Maxop group).
On November 05, 2020, CRISIL migrated the ratings to 'CRISIL BBB/Stable/CRISIL A3+'. Operating performance remains healthy in fiscal 2021, with revenue of Rs 136.75 crore reported till September 2020; the group is likely to book revenue of around Rs 330 crore for the entire fiscal (against Rs 310 crore in fiscal 2020), backed by continuous orders from existing customers both in domestic and overseas markets. EBITDA margin should be in the range of 20-21% in fiscal 2021. Planned capital expenditure towards capacity expansion and quality enhancement would be partially funded through external debt; however, gearing is expected to remain below 1.50 times over the medium term. Timely stabilisation and likely ramp up of operations are key monitorables.
The ratings reflect the extensive experience of the promoters in the industrial machinery industry, their healthy relationships with customers and suppliers, and the group’s comfortable financial risk profile. These strengths are partially offset by the large working capital requirement and susceptibility to volatility in raw material prices and cyclicality in end-user industries. |
Analytical Approach For arriving at its ratings, CRISIL has combined the business and financial risk profiles of MECPL and Maxop Synergies Pvt Ltd (MSPL). Both the companies, together referred to as the Maxop group, have significant operational and financial linkages, and are under a common management.
Unsecured loan of Rs 3.35 crore as on March 31, 2020, extended by the promoters, has been treated as debt as the loan may be withdrawn in the medium term.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The decade-and-half-long experience of the promoters, their healthy relationships with customers and suppliers, and the group’s backward integration of operations and diversified revenue profile should continue to support the business risk profile. Clientele comprises well-known Tier 1 auto-component manufacturers (which supply to reputed original equipment manufacturers [OEMs]) and manufacturers of consumer durables. Furthermore, the Jaipur plant has become operational, thus enhancing business growth.
Capital structure remains comfortable, aided by moderate reliance on external debt and healthy accretion to reserves, also reflected in low total outside liabilities to tangible networth (TOL/TNW) ratio during the four fiscals ended March 31, 2020. Gearing and TOLTNW ratios were at 1.35 times and 1.90 times, respectively, as on March 31, 2020. Debt protection metrics were above-average, as reflected in interest coverage and net cash accrual to total debt ratios of 4.51 times and 0.25 time, respectively, in fiscal 2020, aided by moderate debt and healthy operating profitability.
Planned capex of Rs 100 crore will be funded via debt (around 75%) and internal accrual (25%). Any large, debt-funded capex that weakens the capital structure and has significant repayment, will remain a key rating sensitivity factor.
Weaknesses:
Gross current assets (GCAs) stood at 179 days as on March 31, 2020, and ranged between 140 and 180 days over the past three fiscals. The group needs to extent long credit to its customers in line with industry standards. It also needs to hold large work-in-progress inventory to meet its business requirement. While receivables and inventory were high at 84 days each as on March 31, 2020, payables of 72 days partly aided working capital management.
As the automobile industry contributes around 65% of revenue, the Maxop group remains susceptible to cyclicality in the auto industry. Furthermore, intense competition may continue to constrain scalability, pricing power, and profitability. Also, as raw material accounts for bulk of the production cost, even a slight variation in price can drastically impact profitability. However, operating margin should remain healthy over the medium term, supported by backward integration and initiatives taken by the management to curtail raw material cost. Conversion cost however continues to be high. Sustenance of operating profitability remains a key monitorable. |
Liquidity Adequate Liquidity remains adequate, marked by sufficient cash accrual and moderate bank limit utilisation. Cash accrual, projected at Rs 45-55.0 crore per annum over the medium term, should comfortably meet yearly debt of Rs.20-32.0 crore, and the surplus can be used as working capital. Bank limit utilisation averaged 88.8% during the 12 months through September 2020. The promoters may continue to extend timely support as and when required. Cash and bank balance was Rs 2.28 crore as on September 30, 2020. |
Outlook Stable CRISIL believes the Maxop group will continue to benefit from the extensive experience of its promoters and their established relationships with customers. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group MECPL, incorporated in 2003, has a die casting unit in Manesar, Haryana. The company manufactures aluminum-based die cast, and machined and assembled products used in automobiles and consumer durables. Majority of the products are exported to the US and France. MECPL is an ISO TS: 16949-2002-certified company.
MSPL earns rental income from a building that it has constructed and rented to MECPL. |
Key Financial Indicators - Consolidated
*Provisional |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
*Interchangeable with Cash credit, Pre-shipment credit and Post-shipment credit |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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