Rating Rationale
July 05, 2023 | Mumbai
Rico Auto Industries Limited
'CRISIL A/Stable/CRISIL A1' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.615 Crore
Long Term RatingCRISIL A/Stable (Assigned)
Short Term RatingCRISIL A1 (Assigned)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has assigned its ‘CRISIL A/Stable/CRISIL A1’ ratings to the bank facilities of Rico Auto Industries Ltd (RAIL; part of the Rico group).

 

The rating factors healthy business profile of the group marked by established track record and diverse customer profile. The operating income of the group has witnessed a compound annual growth rate of ~18% for last 3 years through FY23 with ~Rs 2300 crores of operating income in FY23. The group has been benefited from its ability to develop new critical auto components for diversified automobile segments and their long estabilished business relationships with diversified customer base. Operating margins have historically been in range of 9-10% in FY22 and FY23, however with stability in prices of metal along with focus of management to develop and market high value critical automobile components, the operating margins are expected to be in range of 10-11% over medium term.

 

The financial risk profile of the group has been comfortable, as reflected in gearing of ~1 time as on March 31, 2023. Going forward with stability in capital expenditure for increased capacity to cater to Toyota requirements and management’s view to keep annual capital expenditure under Rs 100 crores, the capital structure is expected to remain comfortable over medium term. Liquidity of the group has been strong as witnessed by expected net cash accruals of over Rs 190 crores which would be sufficient to meet up with annual repayment obligations of around Rs 100 crores along with sufficient cushion in bank lines to the tune of Rs 30-40 crores.

 

The ratings reflect the group's established market position, supported by a diversified clientele, and healthy financial risk profile backed by strong networth. These strengths are partially offset by susceptibility of operating margin to volatility in prices of metals and large working capital requirement.

Analytical approach:

To arrive at the ratings, CRISIL Ratings has combined the business and financial risk profiles of RAIL and its subsidiaries. This is because all the entities, collectively referred to as the Rico group, have common management.

 

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

Key rating drivers and detailed description

Strengths:

  • Established market position and diversified clientele: The group enjoys established market position on account of the extensive experience of management with their ability to develop and market critically important automotive (auto) components for two-wheelers, four-wheelers and commercial vehicles. The business volumes have majorly been driven by sale of auto components for passenger vehicles. The longstanding business relationships with renowned auto players such as BMW, Renault, Kia, GKN, and Hero Motor Corp has strengthened the market position of the group and has helped the group to achieve an operating income CAGR of ~18% for last 3 years through FY23, with operating income of group of ~Rs 2300 crores in FY23. Further the managements’ business acumen has helped the group to be the sole supplier for many auto components for BMW and several semi-electric vehicle (EV) components for Toyota. Going forward, the business will continue to benefit over the medium term from continuous research and development to develop critical auto components along with the extensive experience and business acumen of the board of directors.

 

  • Healthy financial risk profile: The financial risk profile of group has been healthy as witnessed in gearing and networth of 1.1 times and ~Rs 678 crores respectively as on March 31, 2023, which demonstrates sufficient headroom to absorb any business exigencies. Further with stability of major debt funded capital expenditure for capacity expansion at Chennai plant to meet up increased semi-electric components requirements of Toyota, in FY23 and annual expected capital expenditure under Rs 100.0 crores over medium term, the capital structure is expected to remain comfortable. Debt protection metric of group has also been comfortable with interest cover and NCAAD of 4.4 times and 0.2 times respectively in FY23. Further with sustenance of operating margins in range of 10-11% and moderate expected capital expenditure over medium term, the debt protection metric of company is expected to remain comfortable over medium term.

 

Weaknesses:

  • Susceptibility of operating margin to volatility in prices of metals: The operating margins of group have been susceptible to volatility in prices of metal, as witnessed in moderation in operating margins to a tune of 9-10% in FY20 to FY23 from 10-11% of operating margins historically,  when the prices of aluminium and ferrous metals were high. With stability in prices of metal, the operating margins are expected to improve. In order to hedge the volatility in operating margin to prices of metal, management has developed policies to pass through, any increase in prices of metal to its customers, but the benefits flow through to the company with a time difference. Improvement in operating margins would further be supported by efficiencies gained through stability of capital expenditure already incurred and focus of management to manufacture high value critical components., Sustenance of improved operating margins above 11% amid sustained increase in operating income leading to more than expected net cash accruals would therefore remain a key monitorable.

 

  • Working capital intensive operations: The operations of the group are working capital intensive as witnessed in high GCA [Gross Current Assets] days, which have historically been in range of 120-140 days for last 3 years through FY23 driven by debtor days in range of 75-90 days and inventory days of 60-75 days. High GCA days have led to stretch in working capital limit utilisation as noted in bank limit utilisation of ~88% for last 12 months through April 2023 and average return on capital employed [ROCE] in range of 8-10% for last 2 years through FY23, impacting the overall financial risk profile of the group. Going forward efficient management of working capital requirements amid sustained increase in operating income leading to lower reliance on bank limits and sustained improvement in ROCE levels would therefore remain a key monitorable.

Liquidity: Strong

RAIL enjoys healthy liquidity driven by expected cash accruals of more than Rs.190 crores in FY24 and FY25 and cash and cash equivalents of ~Rs 35 crores as on March 31, 2023. The net cash accruals would be sufficient to meet annual repayment obligation of Rs 100 crores. The fund-based limits of Rs 215 crores have been utilized to the tune of 88% on an average over the 12 months ended April 2023. Annual capital expenditure are expected to remain under Rs 100.0 crores and shall be largely funded by internal cash accruals, and therefore the annual repayment obligations are expected to remain moderate over medium term. The group would continue with its dividend policy of 30% each year for its shareholders. Further any incremental working capital requirements are proposed to be met from vendor financing limits.

Outlook: Stable

CRISIL Ratings believe the Rico group will continue to benefit from the ability to develop new critical auto components along with estabilished relationship with diversified customer base.

Rating sensitivity factors

Upward factors:

  • Sustained growth in operating income with sustenance increase in operating margins beyond 12% leading to more than expected net cash accruals.
  • Efficient management of working capital cycle leading to lower reliance on working capital limits.

 

Downward factors:

  • Sustained decline in operating margins below 8% leading to lower than expected net cash accruals.
  • Higher than expected debt leading to deterioration in financial risk profile.

About the group

RAIL, part of the Ludhiana-based Rico group, was incorporated in March 1983. The group manufactures machined engine and die-casting and clutch parts for leading two- and four-wheeler original equipment manufacturers (OEMs) across the globe. The company is listed on National Stock Exchange and Bombay Stock Exchange.

 

AAN Engineering Industries Ltd (AAN) is wholly owned subsidiary of RAIL and was incorporated in January 2010 and is engaged in manufacturing and assembling of mechanical fuses and metal parts for electronic fuses mainly for Aerospace and Defence Industry.

 

Rico Auto Industries Inc., USA (RAII), wholly owned subsidiary of RAIL, is engaged in trading of Auto Components and providing warehousing and logistics support to the OEM's and Tier I customers of RICO for the markets of United States of America.

 

Rico Auto Industries (UK) Limited (RAIUL), wholly owned subsidiary of RAIL and is engaged in trading of Auto Components and providing Warehousing and logistics support to the OEM's and Tier I customers of RAIL for the North America and Brazilian Markets.

 

Rico Friction Technologies Private Limited (RFTPL) is 70% held by RAIL and manufactures friction materials for clutches and other applications.

 

Rico Fluidtronics Limited (RFL, previously known as Magna Rico Powertrain Pvt Ltd), manufactures oil pumps and Water pumps for Automotive engines in India & Europe. 50.95% stake is held by RAIL and 49.05% held by RAL.

 

Rico Jinfei Wheels Limited (RJWL), 74.79% held by RIL and 20% held by RFL and is engaged in manufacturing of aluminum alloy wheels for Two Wheelers.

 

The group has 15 manufacturing facilities located in Haryana, Uttarakhand, Tamil Nadu, Rajasthan and Gujarat. It is headed by Shri Arvind Kapur (Chairman, CEO & Managing Director).

Key financial indicators (consolidated)

Particulars

Unit

2023

2022

Revenue

Rs crore

2302

1864

Profit after tax (PAT)

Rs crore

51.03

23.7

PAT margin

%

2.21

1.28

Adjusted debt / adjusted networth

Times

1.07

0.91

Interest coverage

Times

4.4

4.2

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure – Details of instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Working Capital Facility NA NA NA 50 NA CRISIL A/Stable
NA Working Capital Facility NA NA NA 30 NA CRISIL A/Stable
NA Working Capital Facility NA NA NA 55 NA CRISIL A/Stable
NA Working Capital Facility NA NA NA 5 NA CRISIL A/Stable
NA Working Capital Facility NA NA NA 20 NA CRISIL A/Stable
NA Working Capital Facility NA NA NA 30 NA CRISIL A/Stable
NA Working Capital Facility NA NA NA 25 NA CRISIL A/Stable
NA Working Capital Term Loan NA NA Dec-27 8.35 NA CRISIL A/Stable
NA Working Capital Term Loan NA NA Mar-26 11.69 NA CRISIL A/Stable
NA Term Loan NA NA Apr-27 23.11 NA CRISIL A/Stable
NA Working Capital Term Loan NA NA Jan-26 19.59 NA CRISIL A/Stable
NA Term Loan NA NA Nov-25 34.01 NA CRISIL A/Stable
NA Working Capital Term Loan NA NA Mar-26 11.79 NA CRISIL A/Stable
NA Term Loan NA NA Sep-24 10.25 NA CRISIL A/Stable
NA Term Loan NA NA Oct-28 8.51 NA CRISIL A/Stable
NA Term Loan NA NA Oct-28 51.49 NA CRISIL A/Stable
NA Working Capital Term Loan NA NA Jan-28 8.74 NA CRISIL A/Stable
NA Term Loan NA NA Jun-27 8.61 NA CRISIL A/Stable
NA Term Loan NA NA Jun-27 12.65 NA CRISIL A/Stable
NA Term Loan NA NA Feb-26 13.73 NA CRISIL A/Stable
NA Working Capital Term Loan NA NA Mar-29 12 NA CRISIL A/Stable
NA Term Loan NA NA Oct-26 17.5 NA CRISIL A/Stable
NA Term Loan NA NA Jun-29 60 NA CRISIL A/Stable
NA Term Loan NA NA Feb-28 75 NA CRISIL A/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 0.48 NA CRISIL A/Stable
NA Non-Fund Based Limit NA NA NA 2.5 NA CRISIL A1
NA Non-Fund Based Limit NA NA NA 10 NA CRISIL A1

 

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

AAN Engineering Industries Ltd (AAN)

Full

100% subsidiary of RAIL

Rico Auto Industries Inc, USA (RAII)

Full

100% subsidiary of RAIL

Rico Auto Industries (UK) Ltd, (RAIUL)

Full

100% subsidiary of RAIL

Rico Friction Technologies Pvt Ltd (RFTPL)

Full

70% subsidiary of RAIL

Rico Fluidtronics Ltd (RFL)

Full

100% (50.95% held by RAIL and 49.05% held by Rasa Autocom Limited)

Rico Jinfei Wheels Ltd (RJWL)

Full

74.79% held by RIL and 20% held by RFL
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 602.5 CRISIL A/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 12.5 CRISIL A1   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Non-Fund Based Limit 10 IndusInd Bank Limited CRISIL A1
Non-Fund Based Limit 2.5 State Bank of India CRISIL A1
Proposed Long Term Bank Loan Facility 0.48 Not Applicable CRISIL A/Stable
Term Loan 75 Axis Finance Limited CRISIL A/Stable
Term Loan 10.25 RBL Bank Limited CRISIL A/Stable
Term Loan 23.11 YES Bank Limited CRISIL A/Stable
Term Loan 60 The Karnataka Bank Limited CRISIL A/Stable
Term Loan 51.49 IndusInd Bank Limited CRISIL A/Stable
Term Loan 17.5 HDFC Bank Limited CRISIL A/Stable
Term Loan 8.61 Axis Bank Limited CRISIL A/Stable
Term Loan 13.73 Bajaj Finance Limited CRISIL A/Stable
Term Loan 8.51 IndusInd Bank Limited CRISIL A/Stable
Term Loan 12.65 Axis Bank Limited CRISIL A/Stable
Term Loan 34.01 Kotak Mahindra Bank Limited CRISIL A/Stable
Working Capital Facility 50 State Bank of India CRISIL A/Stable
Working Capital Facility 25 HDFC Bank Limited CRISIL A/Stable
Working Capital Facility 30 Axis Bank Limited CRISIL A/Stable
Working Capital Facility 20 IndusInd Bank Limited CRISIL A/Stable
Working Capital Facility 55 Kotak Mahindra Bank Limited CRISIL A/Stable
Working Capital Facility 5 RBL Bank Limited CRISIL A/Stable
Working Capital Facility 30 YES Bank Limited CRISIL A/Stable
Working Capital Term Loan 12 HDFC Bank Limited CRISIL A/Stable
Working Capital Term Loan 11.69 YES Bank Limited CRISIL A/Stable
Working Capital Term Loan 19.59 Kotak Mahindra Bank Limited CRISIL A/Stable
Working Capital Term Loan 8.35 State Bank of India CRISIL A/Stable
Working Capital Term Loan 8.74 Axis Bank Limited CRISIL A/Stable
Working Capital Term Loan 11.79 RBL Bank Limited CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for Consolidation

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