Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of Radiant Innovative Manufacturing Limited (RIML; Formerly known as Radiant Polymers Private Limited) to ‘Crisil BBB/Stable' from ‘Crisil BBB-/Stable’.

 

The rating action factors the continuous improvement in business risk supported by healthy offtake from automobile original equipment manufacturers (OEMs), improvement in operating efficiency which is expected to sustain over medium term and continuous improvement in the financial risk profile and liquidity. Further, the rating also benefits from established presence and extensive experience of promoters in the automotive component sector. These strengths are partially offset by the company’s modest scale of operations and modest geographic diversity in revenues, as well as susceptibility to volatile raw material prices and limited pricing flexibility.

 

RIML registered revenues of Rs. 215 crore in fiscal 2024, an on-year growth of 6% driven by revenue growth of 11.5% in automotive segment (~90% of overall revenues) to record a revenue of Rs.193 crore. Lighting segment (~3.8% of overall revenues) witnessed decline in revenues to Rs. 8.4 crore as the company is reducing its focus on low margin products. However, the Molds and Dies segment performing well with addition of new customers and clocked a growth of ~33% to reach a Rs 11 crore revenue in fiscal 2024. During first half of fiscal 2025, RIML has registered revenues of Rs.108 crore primarily supported by automotive segment which grew by 5.2% to record revenue of Rs 98.5 crore despite decline in volumes, compared to corresponding period last year, as the same is offset by improvement in realizations due to shifting focus towards higher margin products. Overall revenues are estimated to grow at ~4-5% in fiscal 2025 with steady demand from the existing automotive OEMs. Over the medium term, revenues are expected to grow 10-11% with onboarding of new customers and a gradual improvement in exports aided strategic partnership with Fuji Electronic India Company Ltd (FEICL).

 

The operating margins have improved to 11.5% in fiscal 2024, from 10.4% in previous fiscal, driven by continuous improvement in the product mix and ongoing cost optimization measures. Further, this has also resulted in operating margins improving to 13% during the first half of the current fiscal and is expected to sustain at 13-14% over the near to medium term.

 

The financial risk profile is improving and is expected to benefit from healthy cash generation over the near to medium term. The cash accruals are expected to be in the range of Rs. 25-30 crore, which is more than sufficient to meet the repayment obligations of ~Rs. 12.5 crore and capex of Rs 20 crore over the near to medium term. Moreover, the company has shifted its Sahibabad plant to Noida and has received around ~Rs 5 crore proceeds from ongoing sale of Sahibabad property in the current fiscal and expects to receive another ~Rs 3.5-4 crore by early next fiscal. The sale proceeds along with moderate Fund Based Bank Limit Utilization of ~46% in the past 12 months ending November 2024 will further provide additional cushion to liquidity.

 

The recent equity infusions and better cash accruals helped the company to reduce its overall debt from Rs 75 crore in fiscal 2022 to Rs 38 crore in fiscal 2024 and helped to boost net worth to Rs. 53 crore as on March 31, 2024 (from negative levels in fiscal 2022). The lowering of overall debt led to improved gearing at 0.71 times as on March 31, 2024, while interest cover improved to 3.95 times in fiscal 2024, from 1.32 times in fiscal 2022. The company’s interest cover and gearing levels are estimated to improve to over 8 times and under 0.3 times in fiscal 2025, and continue improving over the medium term, supported by steady operating performance and debt repayments.

 

During fiscal 2024, the DMI Finance Private Limited sold all its equity stake to 5 new investors, mainly to Rahul Gupta’s family and their associated businesses. Rahul Gupta is closely associated with current promoters and will be part of the board of directors and will be involved in all major strategic decisions of the company.

 

Crisil Ratings also notes that the company has filed Draft Red Herring Prospectus (DRHP) with SEBI on 26th Sept 2024 to raise ~Rs. 117 crore through Initial Public Offering (IPO), of which ~Rs 14 crore was already raised during second half of current fiscal, as part of pre-IPO process which was largely subscribed by its employees. Of the total IPO size, ~Rs. 111 crore will be primary infusion and balance will be Offer for Sale (OFS) by promoters to an extent of Rs. 6 crore.

 

The IPO is expected to be completed by March 2025 and with the IPO proceeds of Rs. 97 crore (excluding pre IPO of Rs. 14 crore and OFS of Rs. 6 crore), the company has plans to undertake capex ~Rs 35-40 crore largely towards building new manufacturing facility at Vani, Gujarat, shifting Sahibabad facility to Noida and for purchase of new machinery across all the locations, prepayment of term debt of ~Rs 20 crore, merchant banking fees of Rs. 7-10 crore and the balance ~Rs 25-30 crore will be towards organic and inorganic expansions. With this IPO, the company will become debt free and net worth will substantially improve to ~Rs 180 crore and strengthen the liquidity position of the company.

Analytical Approach

Crisil Ratings has factored in the standalone business and financial risk profile of RIML for arriving at the ratings. The outstanding unsecured promotor loan of Rs. 5.4 crore has been treated as debt.

Key Rating Drivers & Detailed Description

Strengths:

Established presence in the automotive component sector: RIML has a fairly diversified presence in the automotive component segment (~90% of revenue), and a modest presence in the lighting & mold (~ 8-10% of revenues) segments. In the automotive component segment, the company has presence in engineered molded plastic automotive components, engine cooling products, gear shifting assemblies, pedals and engine transmission products. Its key customers include Maruti Suzuki India Ltd (rated ‘Crisil AAA/Stable/Crisil A1+’), Honda Motorcycle & Scooter India Pvt. Ltd, Borg Warner, Hanon, Valeo and Bosch India.

 

RIML is expected to obtain technical know-how from FEICL in areas of automotive electronics, mechatronics and precision insert molding technologies which will enable it to further diversify into electric mobility domain and add new clients. This will also aid RIML in improving their overall productivity by carrying out insert molding activities with greater precision and speed. While domestic revenues account for a sizeable chunk of current revenues, RIML expects share of export revenue to steadily increase with increased traction from export markets especially US and Europe as customers are planning to de-risk their base from China. Besides, the tie-up with FEICL is also expected to facilitate better export opportunities.

 

Improving operating capabilities: RIML’s operating margins improved significantly to over ~13% in first half of fiscal 2025, from 5.7% in fiscal 2021, driven by various cost initiatives including closure of loss making Bhiwadi unit in Rajasthan, realignment of organizational structure with rationalization of expenses, continuous reduction in revenue share of low margin products, and steady increase in capacity utilization levels backed by increase in scale of operations, thereby translating to better operating leverage. Operating margins are expected to sustain at ~13-14% in the near to medium term, also supporting return on capital employed (RoCE).

 

Improving financial risk profile: The financial risk profile is improving, supported by equity infusion of Rs.46 crore by DFPL, Rs.15.5 crore from FECIL along with better cash generation over past few years. The Net-worth turned positive during fiscal 2023 and increased to Rs 53 crore in fiscal 2024. RIML has utilized the proceeds along with unsecured loan from promoters and bank term loan for repayment of high cost NCDs. This has resulted in reduction of debt levels from Rs.75 crore at March 31, 2022 to Rs. 38 crore at March 31, 2024 and subsequent improvement in gearing to 0.71 times in fiscal 2024. Gearing is expected to improve further to less than 0.3 times by end of fiscal 2025, following steady repayment of debt and healthy cash generation. The company has also monetised land (already received Rs 4.8 crore in fiscal 2025 and rest Rs 4 crore in next fiscal) at its Sahibabad unit, post shifting of the plant and machinery to a leased facility at Noida. This along with reduced interest on term loans will further support cash generation.

 

Extensive experience of the promoters: The three-decade-long experience of the promoters in the auto component industry, their strong understanding of market dynamics and healthy relationships with marquee customers, supports RIML’s business risk profile.  Besides, promoters have been instrumental in raising equity from DFPL (Rs.46 crore) in fiscal 2023 and from FEICL (Rs.15.22 crore) in fiscal 2024 which has aided in overall improvement of RIML’s financial risk profile. Besides, the technical tie-up with FEICL will also help RIML diversify its product portfolio with the introduction of EV components for two-wheelers.

 

Weakness:

Modest scale of operations; moderate diversity in revenues: Scale of operations is modest as reflected with an estimated revenue of Rs.225 crore for fiscal 2025. Revenues have remained stagnant at ~Rs. 150-220 crore over the past 5 years. However, scale of operations is expected to improve to over Rs.250-300 crore over medium term with healthy demand from end user Industries, increasing focus on exports and addition of new customers. Dependence on the domestic market (95% of revenues) is high, though exports are expected to improve in the near to medium term, due to efforts by the company to diversify geographically. The company is also not present in the aftermarket segment, which therefore renders high revenue dependence on OEMs.

 

Susceptibility to volatility in raw material prices and limited pricing flexibility: Raw material accounts for ~60-70% of RIML’s cost of sales and any adverse variations in price can impact its profitability. Limited pricing power restricts the company from fully passing on price increases to OEMs, from whom it derives majority of revenues. Price adjustments are partial and happen with a significant time lag. Operating profitability will remain susceptible to adverse raw material price movements, given large exposure to OEMs.

Liquidity: Adequate

RIML’s liquidity is adequate with estimated cash accruals of Rs. 25-30 crore, against annual term debt repayment obligations of Rs. 12.5 crore and annual capex obligations of Rs. 20 crore in fiscal 2025 and 2026. Besides, there is sufficient cushion available in fund based working capital limits of Rs. 5 crore, which were utilized at 46% through 12 months ended November 2024.

 

The company also has liquid surplus of Rs. 17 crore as of March 2024, which acts as a liquidity buffer. Also, promoters are expected to continue supporting RIML in case of any financial exigencies as they have demonstrated a track record of supporting the company in the past. Besides, proceeds from planned IPO is also expected to strengthen the liquidity and successful completion of IPO continue to remain a monitorable

Outlook: Stable

Crisil Ratings believes RIML will continue to benefit from the extensive experience of its promoters in the auto component industry, healthy relationships with customers and improving operating efficiencies. The company’s financial risk profile is also expected to continue witnessing improvement, supported by better cash generation, prudent capex spend and working capital management.

Rating Sensitivity Factors

Upward factors:

• Better than expected revenue growth and sustenance of operating margin above ~13-14% leading to higher cash accruals.
• Sustained improvement in financial risk profile and liquidity, supported by better-than-expected cash generation, prudent working capital management and capex spend

 

Downward factors:

• Sustained decline in revenue and operating margin below 9-10%, impacting cash generation.
• Moderation in key debt protection metrics due to lower profitability, and higher than expected debt levels due to capex, acquisitions, elongation of working capital and pressure on liquidity.

About the Company

RIML was incorporated on August 05, 1988, by the promoters, Mr Nalin Bahl and Mr Kumud Jayee. Both the promoters have over three decades of experience in the engineered molded plastic components business. Though bulk of revenue comes from the automotive industry, the company also manufactures lighting components for LED lamps.

 

The product profile includes engine cooling products, automotive engineering products and gear shifting assemblies, pedals and engine transmission, which are supplied directly to OEMs. In addition, some sales are also made to tier I auto ancillaries that further supply to other OEMs. RIML has four manufacturing facilities: one each in Noida (Sector 80), Uttarakhand (Rudrapur), Gujarat (Vani) and Tamil Nadu (Chennai). The company also has a R&D facility at Noida for design and development of molds and dies.

 

Shareholding of promoters reduced from 100% (March 31, 2022) to 76% post infusion of Rs.46 crore of equity by DFPL in the third quarter of fiscal 2023. Further with equity infusion of Rs.15.22 crore during July 2023 from FEICL, promoter shareholding further reduced to 66.53%.

Any other information: Not Applicable