| Proto D Engineering | ||||
| Rating migrated to 'CRISIL BB / Stable' | ||||
| Rating Action | ||||
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| & * Issuer did not cooperate; based on best-available information | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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 long-term bank facilities of Proto D Engineering (PDE) to 'CRISIL BB/Stable; Issuer not cooperating'. However, the firm’s management has started sharing the information necessary for a comprehensive review of the rating. Consequently, CRISIL Ratings is migrating the rating from 'CRISIL BB/Stable; Issuer not cooperating' to 'CRISIL BB/Stable'.
The rating continues to reflect the extensive experience of the promoters in the automotive components industry, and the firm’s growing and diversified revenue profile with a reputed clientele. These strengths are partially offset by susceptibility to cyclicality in the end-user industries and to changes in government regulations, working capital-intensive operations, and a leveraged capital structure. |
Key rating drivers & detailed description Strengths * Extensive experience of the promoters: Industry presence of over two decades has given the promoters an understanding of the market dynamics and helped establish healthy relationships with suppliers and customers. Also, the promoters have gradually diversified from prototyping into batch production for key components, leading to growth in the topline.
* Diversified revenue profile and reputed clientele: The firm operates across four locations dedicated to client requirements. Furthermore, it derives revenue from both prototyping/design and manufacturing. Over the years, PDE has established a strong and diversified clientele in the automotive, infrastructure, rail and metro, defence, and agricultural equipment industries (clients include Tata Motors, Mahindra & Mahindra, Alstom Engineering and Renault). The firm has consistently obtained new business and diversified its revenue streams and clientele.
Covid-19 affected the firm’s business in the first few months of fiscal 2021 as the pandemic-induced lockdown curtailed production. However, recovery has been steady and the firm is likely to register a modest revenue growth for the fiscal.
Weaknesses * Susceptibility to cyclicality in the end-user industries and to changes in government regulations: The business risk profile remains susceptible to the inherent cyclicality in the automotive and infrastructure sectors, which are linked to economic performance. Operations are also vulnerable to changes in government policies regarding pollution norms, electric vehicles and infrastructure development.
* Working capital-intensive operations: Gross current assets were at 211-262 days over the three fiscals ended March 31, 2020, because of stretched receivables and sizeable inventory. The large working capital requirement is funded by stretching payables and fully utilized bank lines.
* Leveraged capital structure: Total outside liabilities to tangible networth ratio was over 3 times during the three fiscals through 2020 due to sizeable capital expenditure (capex) and large working capital requirement. Steady improvement in the capital structure is critical. Debt protection metrics, however remain adequate because of healthy operating profitability. |
Liquidity: Stretched Bank limit was utilised extensively at 96% on average over the 12 months through November 2020 with a few instances of overdrawn limits and availment of ad hoc limits. Cash accrual was Rs 13.7 crore for fiscal 2020 and is expected at Rs 15-16 crore per fiscal over the medium term against annual debt obligation of Rs 6-7 crore. Current ratio was average at 1.01 times as on March 31, 2020. The firm does not have any major cash/bank balance or fixed deposits. Timely enhancement in cash credit limit remains critical for cushioning liquidity. |
Outlook: Stable PDE will continue to benefit from the extensive experience of its promoters and its established client relationships. |
Rating sensitivity factors: Upward factors: * Steady growth in revenue along with prudent working capital management * Improvement in liquidity reflected in average bank limit utilisation of 85% or less
Downward factors: * Weaker operating performance resulting in cash accrual of less than Rs 8 crore * Stretch in the working capital cycle and larger-than-expected capex weakening the capital structure and liquidity |
About the Company PDE was established as a partnership firm in 2008 in Pune by Mr Dipak R Shinde, Mr Pradeep Lokhande and Mr Sumit Bagrecha. It designs/prototypes critical parts and manufactures sheet metal components, precision fabricated assemblies, casting components, rubber and plastic components, and forging parts for commercial and heavy-duty vehicles, passenger vehicles, two-wheelers, and for the agriculture and infrastructure sectors. Its facilities are in Pune, Jamshedpur and Chennai. |
Key financial indicators
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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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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