| SAMKRG Pistons and Rings Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of SAMKRG Pistons and Rings Limited (SAMKRG) at 'CRISIL A-/Stable/CRISIL A2+'.
SAMKRG’s revenues have increased by 20% in 9M’22 compared to 9M’21 driven by better volumes from original equipment manufacturers (OEM), strong replacement market demand and exports. Profitability however moderated by 200bps in 9M’22 driven by increase in input costs and inability to completely pass on the same to OEMs. Earlier in fiscal 2021, SAMKRG’s revenues declined by 4% as H1’21 was impacted by the pandemic induced lockdown and lower offtake from OEMs. Operating margins however remained stable in fiscal 2021 driven by internal cost optimization measures as well as higher contribution per unit from BS-VI variant products.
SAMKRG derives nearly 50-55% of its revenues from domestic automobile original equipment manufacturers (OEMs), while about 35-40% and 15% are derived from domestic aftermarket and exports respectively. Revenues in fiscal 2022 are expected to grow by 8-10% driven by strong after market demand and exports which partially mitigated the lower offtake from OEMs due to shift towards electric vehicles(EVs) where pistons are not required in engines. SAMKRG is in the process of developing EV engine parts in collaboration with its clientele which is expected to be developed within 8-9 months. In the interim, revenue decline due to lower offtake from OEMs will be offset by higher aftermarket demand and exports.
SAMKRG's financial profile will continue to remain strong supported by strong accruals, moderate capex plans and working capital requirements and minimal debt obligations.
The ratings continue to reflect SAMKRG's established position in the pistons and piston-rings industry and its healthy financial risk profile, with comfortable gearing and strong debt protection metrics. These strengths are partially offset by susceptibility of SAMKRG's profitability to volatility in raw material prices and in foreign exchange rates, and limited presence in the four-wheeler segment. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has considered the standalone business and financial risk profile of SAMKRG |
Key Rating Drivers & Detailed Description Strengths * Healthy financial risk profile: SAMKRG’s healthy financial risk profile is marked by steady improvement in cash accruals and declining debt levels with adequate liquidity. In fiscal 2022, gearing is expected to remain stable at below 0.1 times. Other key debt metrics in interest coverage ratios and net cash accruals to total debt ratios are also expected to remain healthy at above 30 times and 1.0 times respectively over the medium term.
SAMKRG is expected to spend an average of Rs 12-14 crore per year over the medium term towards diversification and upgrading its facilities, which will be funded from its internal accruals. CRISIL expects the dividend pay-out trend to continue at 25% levels over the medium term.
CRISIL Ratings believes that SAMKRG’s financial risk profile will continue to remain healthy over the medium term, given that the company will generate healthy cash accruals to fund moderate capex requirements and marginal working capital requirements, thereby restricting further addition of debt on its books.
* Established position in domestic pistons and piston-rings market: SAMKRG has an established market position in the piston and piston-rings market catering to a strong and diversified customer base in the two-wheeler market. This is well supported by the promoters’ experience of more than two decades in piston manufacturing. In the original equipment manufacturers (OEM) segment, company has a long standing relationship with major two wheeler manufacturers and caters to a major share of their piston requirements. Company also has a leading market position in the replacement market, operating through a strong and wide network of dealers and distributors across India. SAMKRG is also active in capitalizing opportunities in the exports market (about 15% of net sales in fiscal 2021), driven by its superior quality products and technical expertise from Japan and German consultants.
SAMKRG’s diversified customer base protects the company from risks associated with customer concentration. CRISIL believes that SAMKRG will maintain a stable business risk profile over the medium term, backed by its promoters’ extensive experience and established relationship with customers.
Weaknesses * Susceptibility of profitability to fluctuations in raw material prices: SAMKRG’s business is inherently exposed to fluctuations in prices of raw materials, mainly aluminium and steel. SAMKRG enters into annual pricing contracts with OEMs and any major increase raw material prices are generally transferred. However, given the severe price competition amidst OEMs, component manufacturers also come under pricing pressure to supply components at competitive rates. In the replacement market, SAMKRG is fully exposed to price fluctuations, as the maintenance of operating margins is determined by the ability to transfer the cost increases to the end market, without any impact on volumes. Over the medium term, CRISIL expects SAMKRG’s margins to remain susceptible to both fluctuations in raw material prices and to pricing pressure from OEMs.
* Limited revenue diversity, with minimal presence in four-wheeler components segment: SAMKRG mainly caters to the two-wheeler parts segment and has a marginal presence in the four-wheeler parts and generator sets segments. SAMKRG plans to increase its presence in the export market segment and has reported increased traction in the segment. However, it will remain a small player in this segment over the medium term because of intense competition from other established players. CRISIL Ratings believes that SAMKRG’s concentrated operations in the two-wheeler parts segment makes it more vulnerable to any changing demand patterns or the effect of negative regulations in the two-wheeler industry. |
Liquidity: Adequate Liquidity is adequate, as reflected in healthy annual accrual of about Rs 20-23 crore expected in fiscal 2022, against minimal debt repayment obligations. Accrual is expected to improve steadily to above Rs 25 crore over the medium term, driven by restoration of volume growth from fiscal 2022 and healthy profitability. Company is expected to undertake capex of about Rs 12-14 crore per annum mainly towards upgrading of existing facilities over the medium term, which will be funded by its internal accruals. Furthermore, prudent management of working capital is reflected in moderate utilisation of bank limits, which averaged 27%. |
Outlook: Stable CRISIL Ratings believes SAMKRG will maintain its business risk profile over the medium term, supported by its longstanding relationships with two-wheeler OEMs, established presence in the after-market segment, and steadily growing presence in the export segment. CRISIL also believes the financial risk profile will remain healthy over this period, backed by comfortable gearing and strong debt protection metrics. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company SAMKRG was set up in March 1985 by Mr S D M Rao, who is currently its chairman and managing director. The company manufactures Pistons, Piston pins and piston-rings. While its main plant is in Hyderabad, it has two other plants at Srikakulam near Visakhapatnam. SAMKRG caters mainly to the two-wheeler segment (accounted for 95% of its revenue in fiscal 2020), and has limited presence in the four-wheeler segment.
For the six month period ending September 30, 2020, SAMKRG reported a profit after tax of Rs 3.0 crore on net sales of Rs 76 crore, against a profit after tax of Rs 10.8 crore on net sales of Rs 122 crore during the corresponding period of the previous fiscal. |
Key Financial Indicators
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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)
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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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Criteria Details
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