Key Rating Drivers & Detailed Description

Strengths:

Established market position

Avis is one of the largest car rental players in the world. With strong support from the parent, MCRPL has a robust market position. The company operates its car rental and lease businesses under the Avis brand, thereby connecting with reputed multinational and domestic players. This is backed by efficient fleet management and diversified operations. The company has a fleet of 605 cars in the car rental segment, with a network of 47 locations across 20 cities: and 3,994 cars in the lease segment with a network across 70 cities as on December 31, 2021.

Operational and financial support from the parents

The entire car rental business is operated under the Avis brand. The company also caters to the hotel chain under EIH. Furthermore, a part of the credit exposure is backed by corporate guarantee and letter of comfort extended by the Avis group.

Reputed and diversified customer base

The company has a fairly diversified clientele, with no customer accounting for over 5% of revenue in fiscal 2020. Apart from gaining incremental business from existing customers, it has managed to add new customers in fiscals 2020 and 2021. MCRPL also benefits from the long tenure of contracts with most of its customers in the leasing segment, which the company expects to have a higher proportion in sales over the medium term.

Weakness:

Moderate financial risk profile

Despite strong networth of around Rs 98 crore as on March 31, 2021, high debt levels have led to a moderate gearing of 2.96 times.  However, there has been continuous effort by the management in reducing leverage as is reflected in constant improvement in gearing from 3.96 times as on March 31, 2019 to 2.96 times as on March 31, 2021 despite the impact on networth which dropped to Rs 98 crore in fiscal 2021 due to net loss after tax of Rs. 22.45 crores generated in FY21.  Better profitability in the operating lease business and proceeds from sale of cars allowed MCRPL to prepay some of its fixed long-term liabilities.

Debt protection metrics has been comfortable, with interest coverage and net cash accrual to adjusted debt ratios at 2.96 times and 0.26 time, respectively, for fiscal 2021. The moderation in debt protection metrics in fiscal 2021 is largely on account of significant decline in business performance owing to the impact of Covid-19 induced disruptions on tourism and travel industry at large.

Exposure to intense competition

MCRPL competes with LeasePlan, Orix, and ALD Automotive in the lease segment; and Carzonrent, Orix-RAC, and Eco-RAC in the car rental segment. Competition has intensified in recent times, with the entry of newer aggregators such as Uber and Ola. This, along with competition from several private equity-funded players, has constrained growth in revenue and profitability. However, MCRPL has built an established customer base over the past decade, and invested in technology.

Rating Sensitivity factors

Upward factors

• Upward revision in the parent's credit rating by S&P Global
• Sustained improvement in the business and financial risk profiles, especially liquidity
• Reduction in debt levels by more than 50%

Downward factors

• Downward revision in the parent's credit rating by S&P Global
• Change in shareholding (falling below 50%) or support philosophy of the Avist group for MCRPL
• Substantial weakening in liquidity, arising out of delay in receipt of payments from customers or revision in long-term contracts
• Any unanticipated, debt-funded capital expenditure, constraining the financial risk profile

Key Financial Indicators

Annexure - Details of Instrument(s)

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