Rating Rationale
February 23, 2023 | Mumbai
Pavna Industries Limited
Rating reaffirmed at 'CRISIL BBB-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.40 Crore
Long Term RatingCRISIL BBB-/Stable (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-/Stable’ rating on the long-term bank facilities of Pavna Industries Ltd (PIL).

 

The rating reflects the improvement in the business risk profile of the company supported by revenue growth of 93% to Rs 333.35 crore in fiscal 2022. Revenue was Rs 235.71 crore as of September 2022 and is expected at Rs 420-450 crore in fiscal 2023. Operating margin declined in the first half of fiscal 2023 to around 5.1% owing to lag in passing on increase in raw material prices and higher sales in the casting segment, where margin is lower. The operating margin is expected at 6-6.5% over the medium term driven by softening of raw material prices. The rating also factors in the moderate financial risk profile, with networth and gearing of Rs 66.85 crore and 1.8 times, respectively, as on March 31, 2022, which are expected at Rs 70 crore and below 2 times, respectively, as on March 31, 2023, driven by steady accretion to reserve.

 

The rating continues to reflect 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 exposure to customer concentration risk and susceptibility to volatility in economic cycles and industry downturns.

Analytical approach

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, Pavna Auto Engineers Pvt Ltd and Pavna Goyam Auto 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 23.25 crore as on March 31, 2022, from the promoter and directors has been treated as debt because the company has yet to demonstrate a sustainable track record of maintenance of such loans.

 

Please refer Annexure - List of a 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 promoters experience of 48 years in the auto components industry, strong understanding of market dynamics and healthy relationships with principal suppliers, such as Bajaj Auto Ltd (relationship since 1971) and Honda Motorcycles and Scooters India, will continue to support the business. This enabled revenue of Rs 333.35 crore in fiscal 2022, as against Rs 219.48 crore in fiscal 2021. In the first half of fiscal 2023 (Apr-Sep 2022), the company had achieved sales of Rs 235.71 crore. 

 

  • Healthy financial risk profile: Adjusted networth rose to Rs 66.85 crore as on March 31, 2022, from Rs 56.64 crore a year earlier driven by steady accretion to reserve. Networth is expected around Rs 70 crore as on March 31, 2023. Gearing was 1.8 times as on March 31, 2022, and is expected at less than 2 times in fiscal 2023 despite debt-funded capital expenditure (capex) plans.

 

Weaknesses:

  • High customer concentration risk: The top three customers contribute to more than 50% revenue, leading to customer concentration risk. This risk is mitigated through strong and longstanding relationships with the 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 utilization averaged 95% for the 10 months through January 2023. Cash accrual, expected at Rs 12-20 crore per annum, will comfortably cover yearly debt obligation of Rs 4-10 crore over the medium term and the surplus will cushion the liquidity. Current ratio was 1.18 times as on March 31, 2022.

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

PIL was set up in 1971 by Mr Pawan Jain. The company manufactures locks and ignition switches for two-wheelers. It got listed on the NSE Emerge platform in March 2021.

Key financial indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

333.35

219.48

Reported profit after tax (PAT)

Rs crore

10.39

8.07

PAT margin

%

3.12

3.68

Adjusted debt / adjusted networth

Times

1.8

1.03

Interest coverage

Times

3.39

3.72

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 level

Rating assigned with outlook

NA

Cash credit

NA

NA

NA

35

NA

CRISIL BBB-/Stable

NA

Term loan

NA

NA

June-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

Pavna Goyam Auto 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   -- 18-01-22 CRISIL BBB-/Stable 30-11-21 CRISIL BB+ /Stable(Issuer Not Cooperating)* 31-08-20 CRISIL BB+/Stable CRISIL BB+/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

This Annexure has been updated on 23-Feb-2023 in line with the lender-wise facility details as on 18-Jan-2022 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
Assessing Information Adequacy Risk
CRISILs Approach to Recognising Default
CRISILs Criteria for Consolidation

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