Rating Rationale
August 30, 2022 | Mumbai
Ralson Tyres Limited
Rating reaffirmed at 'CRISIL A/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.395 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable’ rating on the long-term bank facility of Ralson Tyres Limited (RTL; part of the Ralson group).  

 

The rating reflects strong support from the parent, Ralson India Ltd (Ralson; rated 'CRISIL A+/Stable/CRISL A1+), extensive experience of the promoter and the leadership position of the group in the bicycle tyres and tubes industry. These strengths are partially offset by exposure to project implementation and offtake-related risk, cyclicality in the tyre industry and vulnerability to fluctuations in raw material prices.

Analytical approach

To arriving at the rating, CRISIL Ratings has applied its parent notch-up framework to factor in the support RTL receives from Ralson.

 

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

Key rating drivers & detailed description

Strengths:

  • Strong financial and operational support from parent: The parent, Ralson (which holds 89.6% stake in RTL) is one of the leading manufacturers of cycle tyres and tubes in India. The company reported turnover of Rs 1,110 crore and cash accrual of Rs 88.5 crore in fiscal 2022. RTL benefits from the established position of Ralson and its financial support to fund capital expenditure (capex) towards expansion in the truck and bus (T&B) radial tyres segment. Ralson has provided corporate guarantees to the bank for the debt raised by RTL to cover the capex.

 

RTL also benefits from the experienced management and execution team of Ralson. The strong marketing and distribution channel of the parent, spread across India and tie-ups with overseas customers are likely to help RTL ramp up operations once commercial operations begin.

 

  • Extensive experience of the promoters and leadership position of parent in the tyres and tubes industry: The four-decade-long experience of the promoters in the bicycle tyres and tubes industry,  has helped the group maintain healthy relationships with customers and suppliers, across the supply chain. Ralson is the largest player in the domestic bicycle tyres & tubes industry with turnover of Rs 1,110 crore in fiscal 2022.

 

Ralson has a robust position in the tyre and tube replacement segment, which has accounted for 59% of sales over the four fiscals through March 2022. The balance revenue came from sales to original equipment manufacturer sales (27%) and exports (14%) in fiscal 2022.

 

Weaknesses:

  • Susceptibility to project risk with respect to development of new manufacturing unit for T&B radial tyres: RTL is currently setting up a large manufacturing unit for T&B radial tyres in Madhya Pradesh. The project is nearing completion and the plant is slated to become operational by October 2022, against the earlier deadline set at March 2023. However, any time and cost overrun in the project and its likely impact on key credit metrics of the group, are key monitorables over the medium term.

 

  • Exposure to cyclicality in the tyre industry and fluctuations in raw material prices: The business remains vulnerable to cyclicality in the tyre industry, driven by fluctuating demand from end-user commercial vehicle players, especially in the T&B segment. Demand in the tyre industry also depends on level of economic growth and infrastructure development. Furthermore, raw material cost accounts for more than 60% of the operating cost. While the price of natural rubber depends on global demand, area under cultivation and yield factor, prices of carbon black and other raw materials are based on crude oil prices.

Liquidity: Adequate

Liquidity is adequate, aided by low funding risk and funding support from the promoter. As on June 30, 2022, Ralson had infused around Rs 209 crore as equity and Rs 172 crore via unsecured loans to fund the project. The entire debt of Rs 395 crore has also been disbursed by the bank, ensuring low funding risk.

 

The group maintains cash and bank balance of Rs 10 crore as on March 31, 2022. In addition, it has liquid investments of around Rs 13.3 crore in shares, bonds, debentures and mutual funds.

Outlook: Stable

RTL will continue to benefit from the operational and financial support provided by the promoter, Ralson and its established position in the tyre and tube industry.

Rating sensitivity factors

Upward factors:

  • Significant increase in turnover and sustenance of operating margin at 9-10%, leading to increase in cash accrual by 35%.
  • Improvement in the working capital cycle leading improvement in liquidity and financial risk profile
  • Sustained increase in revenue from auto tyres and tubes segment, strengthening the market position.
  • Upgrade in credit rating of the parent company by one notch or more

 

Downward factors:

  • Significant decline in revenue and operating margin (by more than 250 bps) leading to cash accrual below Rs 70 crore
  • Higher-than-expected capex over the medium term, weakening the financial risk profile
  • Delay in commencement and stabilisation of operations in RTL, leading to adversely impacting the credit profile of the group.
  • Downgrade in the credit rating of the parent company by one notch or more

 

About the company

RTL was incorporated in October 2019, as a subsidiary of Ralson, which holds 89.6% stake. The company is setting up a large manufacturing unit for T&B radial tyres, with an installed capacity of 8,52,000 tyres per annum in Madhya Pradesh.  The unit is expected to commence operations from January 2023.

About the Group

Ralson was  incorporated at Ludhiana, Punjab in 1974. The company is the largest player in the domestic bicycle tyres and tubes manufacturing segment. Mr Sanjeev Pahwa is the managing director. In 2000, the company commenced manufacturing automobile tyres through a group company, which was merged with Ralson effective from January 2005. The motorcycle tyre manufacturing facility at Ludhiana started operations in March 2015.

Key financial indicators

As on/for the period ended March 31*

 Unit

2022

2021

Operating income

Rs.Crore

0.00

0.00

Reported profit after tax (PAT)

Rs.Crore

0.00

0.00

PAT margin

%

NA

NA

Adjusted debt/adjusted networth

Times

1.46

0.04

Interest coverage

Times

NA

NA

 *operations in the company has not started in FY22

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

Complexity

level

Rating assigned

with outlook

NA

Long Term Loan

NA

NA

Mar-33

395

NA

CRISIL A/Stable

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Ralson (India) Ltd

Full

High business and financial linkages along with common management

Ralson Tyres Ltd

Full

High business and financial linkages along with common management
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 395.0 CRISIL A/Stable   -- 24-09-21 CRISIL A/Stable   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Long Term Loan 395 Union Bank of India CRISIL A/Stable

This Annexure has been updated on 30-Aug-2022 in line with the lender-wise facility details as on 24-Sep-2021 received from the rated entity.

Criteria Details
Links to related criteria
The Rating Process
CRISILs Bank Loan Ratings
CRISILs Approach to Financial Ratios
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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