Rating Rationale
August 23, 2023 | Mumbai
 
Pavna Industries Limited
Rating migrated to 'CRISIL BBB-/Stable'
 
Rating Action
Total Bank Loan Facilities Rated Rs.40 Crore
Long Term Rating CRISIL BBB-/Stable (Migrated from 'CRISIL BB+/Stable ISSUER NOT COOPERATING*)
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
*Issuer did not cooperate; based on best-available information

 

Detailed rationale

Due to inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL Ratings had migrated its rating on the bank facilities of Pavna Industries Ltd (PIL) to ‘CRISIL BB+/Stable Issuer Not Cooperating'. However, the company’s management has subsequently started sharing the information required for a comprehensive review. Consequently, CRISIL Ratings is migrating the rating on the bank facilities to ‘CRISIL BBB-/Stable’ from 'CRISIL BB+/Stable Issuer Not Cooperating'

 

The rating reflects the improvement in the business risk profile supported by revenue growth of 8% to Rs 362.43 crore in fiscal 2023 (Rs 333.35 crore in fiscal 2022). Revenue was Rs 79.4 crore as of June 2023 and is expected at Rs 380-390 crore in fiscal 2024 driven by healthy order flow from original equipment manufacturers (OEMs). Operating margin remained 9-9.5% in the two fiscals through 2023 and is expected at 9-10% over the medium term aided by softening of raw material prices. The rating also factors in moderate financial risk profile, with networth and gearing at Rs 73.07 crore and 1.8 times, respectively, as on March 31, 2023, which are expected at Rs 80 crore and below 1.75 times, respectively, as on March 31, 2024, driven by steady accretion to reserve.

 

The rating also reflects the extensive experience of the promoter in the auto components industry and the company's healthy financial risk profile. These strengths are partially offset by customer concentration in revenue and susceptibility to volatility in economic cycles and industry downturns.

Analytical approach

CRISIL Ratings has revised its analytical approach and de-consolidated the business and financial risk profiles of Pavna Goyam Auto Pvt Ltd. This is because of the disclosure by PIL regarding the disinvestment of its 51% equity share capital in Pavna Goyam Auto Pvt Ltd. Consequently, Pavna Goyam Auto Pvt Ltd will cease to be a subsidiary.

 

However, CRISIL Ratings has combined the business and financial risk profiles of PIL and its subsidiaries, Pavna Marketing Pvt Ltd, Pavna Sunworld Autotech Pvt Ltd, Swapnil Switches Pvt Ltd and Pavna Auto Engineers Pvt Ltd. This is because all these entities, collectively referred to as the Pavna group, are in the same business and have strong business and financial linkages.

 

Unsecured loan of Rs 21.06 crore as on March 31, 2023, from the promoter and directors has been treated as debt as the company is yet to demonstrate sustainable track record of maintenance of such loans.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Strengths:

  • Extensive experience of the promoter: The promoter has experience of 48 years in the auto components industry. This has enabled him to develop strong understanding of market dynamics and healthy relationships with principal suppliers, such as Bajaj Auto Ltd (since 1971) and Honda Motorcycles and Scooters India, which will continue to support the business. This enabled increase in revenue to Rs 362.43 crore in fiscal 2023 from Rs 333.35 crore in fiscal 2022. In the first quarter of fiscal 2024, the company achieved sales of Rs 79.4 crore with operating margin of 10.5%. 

 

  • Healthy financial risk profile: Adjusted networth rose to Rs 73.07 crore as on March 31, 2023, from Rs 66.85 crore a year earlier driven by steady accretion to reserve. Networth is expected around Rs 80 crore as on March 31, 2024. Gearing was 1.8 times as on March 31, 2023 and is expected at less than 1.75 times in fiscal 2024 despite debt-funded capital expenditure (capex) plans. Debt protection metrics were healthy, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 3 times and 0.14 time, respectively, in fiscal 2023. The financial risk profile will remain healthy over the medium term.

 

Weaknesses:

  • High customer concentration risk: The top three customers contribute to more than 50% of revenue, leading to customer concentration risk. This risk is mitigated by strong and longstanding relationships with customers. 

 

  • Exposure to volatility in economic cycles and industry downturns: Automobile sales are exposed to risks related to economic cycles. Downturn in economic activity in the region in which the company operates will impact operating performance.

Liquidity: Adequate

Bank limit utilisation was 95.85% on average during the 12 months through July 2023. Cash accrual, expected at Rs 19-25 crore per annum, will comfortably cover yearly debt obligation of Rs 7-10 crore over the medium term and the surplus will cushion liquidity. Current ratio was 1.16 times as on March 31, 2023.

Outlook: Stable

CRISIL Ratings believes PIL will continue to benefit from the extensive experience of its promoter.

Rating sensitivity factors

Upward factors:

         Increase in revenue by 20% and sustenance of operating margin at 9%

         Improvement in the financial risk profile, with gearing less than 1.5 times

 

Downward factors:

         Decline in operating margin by over 300 basis points on sustainable basis

         Large, debt-funded capex weakening the capital structure

About the company

Set up in 1971 by Mr Pawan Jain, PIL manufactures locks and ignition switches for two-wheelers. It got listed on the NSE Emerge platform in March 2021 and got listed on BSE in March 2023 and have achieved operating income of Rs 81.85 crores with Profit after tax of Rs 4.09 crores in first quarter of fiscal 2024.

Key financial indicators

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

362.43

333.35

Reported profit after tax (PAT)

Rs crore

8.64

10.39

PAT margin

%

2.38

3.12

Adjusted debt / adjusted networth

Times

1.8

1.8

Interest coverage

Times

3

3.39

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 the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit NA NA NA 35 NA CRISIL BBB-/Stable
NA Term loan NA NA Jun-24 5 NA CRISIL BBB-/Stable

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Pavna Marketing Pvt Ltd

Fully consolidated

Subsidiary

Pavna Sunworld Autotech Pvt Ltd

Fully consolidated

Subsidiary

Swapnil Switches Pvt Ltd

Fully consolidated

Subsidiary

Pavna Auto Engineers Pvt Ltd

Fully consolidated

Subsidiary
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 40.0 CRISIL BBB-/Stable 20-07-23 CRISIL BB+ /Stable(Issuer Not Cooperating)* 18-01-22 CRISIL BBB-/Stable 30-11-21 CRISIL BB+ /Stable(Issuer Not Cooperating)* 31-08-20 CRISIL BB+/Stable CRISIL BB+/Stable
      -- 23-02-23 CRISIL BBB-/Stable   --   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 6 HDFC Bank Limited CRISIL BBB-/Stable
Cash Credit 29 HDFC Bank Limited CRISIL BBB-/Stable
Term Loan 5 HDFC Bank Limited CRISIL BBB-/Stable
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
CRISILs Criteria for Consolidation

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