Rating Rationale
February 21, 2018 | Mumbai
Porwal Auto Components Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.18.4 Crore
Long Term Rating CRISIL BBB/Stable (Reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Porwal Auto Components Limited (PACL) at 'CRISIL BBB/Stable/CRISIL A3+'.

The ratings continue to reflect the extensive experience of the promoters in the automotive (auto) ancillaries industry, an established customer relationship, and a healthy financial risk profile. The ratings also factor in efficient working capital management. These strengths are partially offset by exposure to intense competition, susceptibility to cyclicality in end-user industries, and high customer concentration in revenue.

Key Rating Drivers & Detailed Description
Strengths
* Extensive industry experience of the promoters and an established relationship with large, reputed customers
The promoters have more than two decades of experience in the casting and machining business.  Major customers include Volvo Eicher Commercial Vehicles Ltd (VECVL) and Man Trucks India Pvt Ltd (Man Trucks). VECVL has a share of around 12% in the medium and heavy commercial vehicle (MHCV) segment and 4% in the large CV segment of the domestic market. PACL is the sole supplier of auto components to Man Trucks and fulfils around 40% of VECVL's requirement. In fiscal 2016, PACL received Research Design and Standards Organisation (RDSO) certification, thereby making it eligible to participate in railway tenders. Current orders of Rs 7-8 crore from railways and monthly orders of Rs 10-12 crore from original equipment manufacturers (OEMs) provide revenue visibility. Benefits from the  extensive experience of the promoters and an established relationship with reputed customers should continue.

* Sustained business risk profile: Over the years, the proportion of higher margin machined components has increased against castings in total revenue. This should lead to a healthier operating margin of about 11.7% in fiscal 2018, against 11.1% in fiscal 2017 when machined products accounted for 55% of turnover. The margin is expected to improve further to above 12% over the medium term due to savings in power cost with the newly set up 3-megawatt (MW) captive solar power plant in addition to current capacity of 1.8 MW.

* Healthy financial risk profile
The networth is moderate, the gearing healthy, and debt protection metrics above-average. The networth, at Rs 52.9 crore as on March 31, 2017, is expected to remain moderate over the medium term, driven by adequate accretion to reserves. The gearing was less than 0.55 time as on March 31, 2017. Moderate cash accrual and low debt resulted in above-average debt protection metrics, with interest coverage and net cash accrual to total debt ratios at 5.7 times and 0.18 time, respectively, for fiscal 2017. The metrics are likely to remain healthy, driven by moderate reliance on debt.

Weaknesses:
* Customer concentration in revenue and exposure to risks related to cyclical demand from end-user industries
Demand in the CV segment will continue to be cyclical as it is linked to the monsoons and economic conditions. The scale of operations is impacted by adverse demand, which is further aggravated by dependence on two key customers, which contributed about 75% of revenue in fiscal 2017.

The business risk profile should remain constrained over the medium term by exposure to customer concentration risk and cyclical demand in end-user industries.

* Vulnerability to intense competition
The Indian auto components industry is highly fragmented with the unorganised sector having a sizeable presence; hence the company faces competition from other small players. The scale of operations is modest, with net sales of about Rs 85 crore in fiscal 2017, despite being in operations for over two decades. The modest scale restricts expansion into newer markets, limits the ability to bargain with suppliers and customers, and restricts any benefits of economies of scale. A modest scale of operations in a competitive market will continue to constrain the business risk profile over the medium term.
Outlook: Stable

CRISIL believes the financial risk profile will remain healthy over the medium term because of conservative gearing and comfortable debt protection metrics. The outlook may be revised to 'Positive' if the company achieves the expected revenue growth and operating profitability along with efficient working capital management. The outlook may be revised to 'Negative' if revenue or profitability declines steeply, leading to weaker-than-expected cash accrual, or in case of more-than-expected working capital requirement, or large, debt-funded capital expenditure, weakening liquidity.

About the Company

PACL, incorporated in 1992, commenced commercial operations in 1995 at its manufacturing unit in Madhya Pradesh. Promoted by Mr Surendra Jain and Mr Devendra Jain, the company manufactures spheroidal graphite (ductile), grey iron casting products, and machine components. Its key customers are VECVL and Man Trucks.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs crore 86.57 77.74
Profit After Tax (PAT) Rs crore 2.08 2.25
PAT Margins % 2.4 2.9
Adjusted debt/adjusted networth Times 0.35 0.44
Interest coverage Times 5.57 4.01

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)
ISIN Name of instrument Date of allotment Coupon
rate (%)
Maturity date Issue
size
(Rs crore)
Rating assigned  with outlook
NA Bank Guarantee NA NA NA 0.2 CRISIL A3+
NA Cash Credit NA NA NA 7.5 CRISIL BBB/Stable
NA Letter of Credit NA NA NA 0.7 CRISIL A3+
NA Proposed Long Term Bank Loan Facility NA NA NA 2.24 CRISIL BBB/Stable
NA Term Loan NA NA May-2021 7.76 CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  17.5  CRISIL BBB/Stable    No Rating Change    No Rating Change  10-11-16  CRISIL BBB/Stable    No Rating Change  CRISIL BBB-/Stable 
Non Fund-based Bank Facilities  LT/ST  .9  CRISIL A3+    No Rating Change    No Rating Change  10-11-16  CRISIL A3+    No Rating Change  CRISIL A3 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee .2 CRISIL A3+ Bank Guarantee .2 CRISIL A3+
Cash Credit 7.5 CRISIL BBB/Stable Cash Credit 7.5 CRISIL BBB/Stable
Letter of Credit .7 CRISIL A3+ Letter of Credit .7 CRISIL A3+
Proposed Long Term Bank Loan Facility 2.24 CRISIL BBB/Stable Proposed Long Term Bank Loan Facility 2.24 CRISIL BBB/Stable
Term Loan 7.76 CRISIL BBB/Stable Term Loan 7.76 CRISIL BBB/Stable
Total 18.4 -- Total 18.4 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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