Key Rating Drivers & Detailed Description

Strengths

Established market position and benefit of global tie ups: NAEL is engaged in manufacturing of electrical and electronic components for the automotive industry since more than 2 decades and has established its position as one of the market leaders providing electronic components to 2 wheeler industry. NAEL has operational and technical tie up with Shindengen Electric Mfg Co Ltd-Japan. Synergies with the joint venture entities ensures NAEL enjoys benefits such as technical knowhow, easy procurement, recruitment, training of employees and already established corporate tie-ups. Strong presence of holding entities in the segment along with its increasing presence should continue to drive revenue growth over the medium term.

Further, NAEL has from time to time entered into tie ups with global entities to strengthen its technical know-how and established a marketing network in the overseas market.  For instance, the company currently has a technical tie up with Continental Automotive Holding Netherland, Domino SRL and. Further, NAEL has acquired strategic stake in VVDN Technologies for cloud managed Internet of Things (IoT) solutions, to provide revolutionary IoT enabled products like smart wearables, camera and automotive products for global companies. With technical tie-ups and further strategic investments expected in the medium term, revenues for the company are expected to improve going forward.

Moderate working capital cycle: Operations of the Group are moderately working capital intensive with GCA estimated at around 150 days as on March 31, 2021.Company has moderate debtor days at 70 days and inventory at 70 days as on March 31, 2021. Company generates around 90% of the revenue from Hero Moto Corp and is required to extend credit period of around 60 days to Hero Moto Corp.

Healthy financial risk profile: Group has a healthy financial profile marked with healthy networth estimated at Rs 620 Cr as on March 31, 2021. Capital structure have been at healthy level due to lower reliance on external funds yielding low gearing and low Total Outside Liability to Total Net Worth (TOLTNW) the same are estimated at 0.13 and 0.65 times as on March 31, 2021. Debt protection matrices of the group is healthy with interest coverage of over 13 times and NCATD of 1.25 times. Despite moderate debt based capex plans, the gearing for the company is expected to remain below 1 time over the medium term.

Weaknesses:

Susceptibility to cyclicality in automotive industry and government regulation: The business risk profile is susceptible to inherent cyclicality in automotive industry, linked to performance of the economy. Also, it is susceptible to change in government policies regarding auto mobiles like pollution norms, electric vehicles etc.

Customer Concentration Risk: Group generates around 85-90% of its revenue from the Hero Moto Corp, exposing the group to major customer concentration risk. The same is set off to a certain extent by the long standing relation with the Hero Group. While the company has very stable source of business from Hero, it is diversifying into acquiring new customers for existing products and is also diversifying into new product portfolio. Steady ramp up in scale through new customers and products, moderating the client concentration risk, shall remain critical.

Annexure - Details of Instrument(s)

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