| Ralson Tyres Limited | ||||
| 'CRISIL A/Stable' assigned to Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has assigned its ‘CRISIL A/Stable’ rating to the long-term bank facility of Ralson Tyres Ltd (RTL).
The rating reflects strong support from parent, Ralson India Ltd (Ralson) and extensive experience of the promoter & leadership position in the tyres and tubes industry. These strengths are partially offset by exposure to project implementation and offtake-related risk and exposure to cyclicality in the tyre industry and vulnerability to fluctuations in raw material prices. |
Analytical Approach For arriving at the rating, CRISIL Ratings has applied its parent notch-up framework to factor in the support RTL receives from Ralson. |
Key Rating Drivers & Detailed Description Strengths Strong financial and operational support from parent RTL is a subsidiary of Ralson (having 92% stake in RTL) and Ralson is one of the leading manufacturers of cycle tyres and tubes in India, with turnover of Rs 924.8 crore and cash accrual of Rs 96.6 crore in fiscal 2021. RTL benefits from the established position of Ralson in cycle tyres & tube manufacturing and financial support to carry out capital expenditure (capex) in RTL for expansion in the truck/bus (T&B) radial tyres segment. Ralson infused 86% of the equity commitment as on June 30, 2021 and has provided corporate guarantees to the bank for the debt raised by RTL for capex.
Further, RTL benefits from the experienced management and execution team of Ralson. RTL will also benefit from Ralson’s established marketing and distribution channel across India and tie ups with export customers that will help RTL ramp up operations once commercial operations commence.
Extensive experience of promoter & parent’s leadership position in the tyres and tubes industry The promoter has experience of more than four decades in bicycle tyres and tubes industry, which has helped maintain healthy relationships with customers and suppliers along the supply chain management. Ralson is the largest player in the cycle tyres & tubes industry with turnover of Rs 924.8 Crore in FY 2021.
Ralson has a robust position in the domestic replacement market for cycle tyres & tubes, which presently accounts for 62% of sales over the four fiscals through 2021. Remaining revenue is generated from original equipment manufacturer sales (25%) and exports (13%) in fiscal 2021. Experienced management and established market position of Ralson should continue to boost the business of RTL. Susceptibility to project risk with respect to development of new manufacturing unit for T&B radial tyres As the asset is in the early stage of development, it remains exposed to project risk. RTL is currently setting up a large-scale industrial manufacturing unit for T&B radial tyres in Madhya Pradesh. It is expected to commence operation from the fourth quarter of fiscal 2023. Although the project has received all major approvals and the company has tied up debt, it remains susceptible to time and cost overruns. Any delay in project construction, thereby delaying operations, can impact cash flow. Hence, timely completion and commencement of operations will remain key rating sensitivity factors over the medium term.
However, the company has hired an experienced project management firm, and has formed agreement with a Japanese company as its technology partner to provide expertise in elastomers and tyres to mitigate project risk.
Exposure to cyclicality in the tyre industry and to fluctuations in raw material prices Business remains vulnerable to the 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 economic growth and infrastructure development. The global pandemic also impacted demand during the first half of fiscal 2021. 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, the prices of carbon black and other raw materials are based on crude oil prices. While benign material prices led to healthy operating efficiency in fiscal 2021, it has since risen by 10-12% quarter-on-quarter in the first quarter of fiscal 2022. The players are able to pass on only part of the increase to customers due to intense competition. Exposure to risks related to cyclicality in the tyre industry and volatility in raw material prices are likely to persist over the medium term. |
Liquidity: Adequate Liquidity is adequate, driven by low funding risk and support extended by the promoter. As on June 30, 2021, the promoter infused around Rs 178 crore for the project and entire debt of Rs 395 crore has been sanctioned by the bank, leading to low funding risk. |
Outlook: Stable RTL will continue to benefit from the operational and financial support from its promoter and established position of Ralson in the tyre and tube industry. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company RTL was incorporated in October 2019. It is a part of the Ralson group and a subsidiary of Ralson, which holds 92% stake. RTL is currently setting up a large-scale industrial manufacturing unit for T&B radial tyres with installed capacity of 8,52,000 tyres per annum in Madhya Pradesh. It is expected to commence operations from January 2023. Ralson, incorporated in 1974 in Ludhiana, Punjab, is India's largest player in the bicycle tyres and tubes manufacturing segment. Mr Sanjeev Pahwa is its managing director. In 2000, the company commenced manufacturing automobile tyres through a group company, which was merged with Ralson with effect from January 2005. The motorcycle tyre manufacturing facility in Ludhiana started operations in March 2015. |
Key financials
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| 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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 24-Sep-2021 in line with the lender-wise facility details as on 24-Sep-2021 received from the rated entity
Criteria Details
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