Rating Rationale
February 18, 2025 | Mumbai
S M Auto Engineering Private Limited
Ratings reaffirmed at 'Crisil BBB+/Stable/Crisil A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.208.64 Crore
Long Term RatingCrisil BBB+/Stable (Reaffirmed)
Short Term RatingCrisil A2 (Reaffirmed)
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 reaffirmed its ‘Crisil BBB+/Stable/Crisil A2’ ratings on the bank facilities of S M Auto Engineering Pvt Ltd (SMAEPL; part of SM Auto group).

 

The ratings continue to reflect the established market position of the SM Auto group in the automotive (auto) components industry backed by its established and reputed clientele, and moderate financial risk profile. These strengths are partially offset by customer concentration in revenue and susceptibility to cyclicality in the auto industry.

 

The reaffirmation reflects sustenance of the business risk profile of the SM Auto group, as indicated by its healthy revenue of Rs 1126 crore in fiscal 2024 against Rs 1208 crore the previous fiscal. Although revenue dipped in fiscal 2024 due to lower business from Mercedes Benz and Renault India, net cash accrual augmented on the back of improvement in operating margin. The profitability margin improved  from 4.07% in fiscal 2023 to 5.03% in fiscal 2024 due to changes in product mix and is expected to sustain around these levels over the medium term. With steady demand from existing customers for existing as well as new models, the group’s revenue is expected to remain at previous year’s level in the current fiscal and grow steadily over the medium term.

Analytical approach

Crisil Ratings has combined the business and financial risk profiles of SMAEPL and its subsidiary, SM Exhaust Technology Pvt Ltd (SMET). This is because the two companies, collectively referred to as the SM Auto group, are in similar businesses and under the same management, and have strong operational and financial linkages.

 

Unsecured loan of Rs 17 crore as on March 31, 2024, from the promoters has been treated as neither debt nor equity as the loan is likely to remain in the business over the medium term. Preference shares of Rs 7 crore as on March 2024 crore have been treated as 75% equity and 25% debt as they carry low coupon, are from the promoters and expected to remain in the business over the medium term.

 

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 position in the auto components industry: The SM Auto group has established a strong market position in the auto components industry over the past four decades, backed by diversified product portfolio and clientele. Its customers include original equipment manufacturers (OEMs) such as Bajaj Auto Ltd ('Crisil AAA/Stable/Crisil A1+'), Mercedes-Benz India Private Limited ('Crisil AAA/Stable/Crisil A1+'), Tata Motors Ltd, Renault India Pvt Ltd and Royal Enfield India Ltd. The group has upgraded and enhanced its capacities, resulting in steady increase in sales.

 

  • Efficient working capital management: The working capital is efficiently managed as indicated by gross current assets of 65-73 days for the three years through 2024, driven by inventory and receivables of 30-45 days.

 

  • Moderate financial risk profile: Debt protection metrics were adequate, as indicated by interest coverage and net cash accrual to total debt ratios of 3.61 times and 0.20 time, respectively, in fiscal 2024. The capital structure is moderate, as indicated by networth of Rs 94 crore, gearing of 1.86 times,  total outside liabilities to tangible networth (TOLTNW) ratio of 2.71 times and total outside liabilities to adjusted networth (TOLANW) ratio of 3.19 times as on March 31, 2024. Despite the capital expenditure (capex) being undertaken for machinery upgradation and planned capacity expansion over the medium term, the financial risk profile should remain stable owing to improving operating performance and cash flow from operations.

 

Weaknesses:

  • Susceptibility to volatility in raw material prices and cyclicality in the automobile industry: As the key raw materials account for 80-85% of the operating revenue, any slight variation in their prices may impact profitability. This risk is mitigated by the pass-through clause with key customers, though any price increase is passed on to customers after a lag. Furthermore, revenue largely depends on demand from the automobile industry, which is inherently cyclical.

 

  • High customer concentration in revenue: Over 50% of the revenue comes from the top two customers, rendering revenue and profitability susceptible to volatility in demand from these customers. Improvement in the same is critical and will remain monitorable.

Liquidity: Adequate

Bank limit utilisation was moderate at 85% on average over the 12 months through December 2024. Expected net cash accrual of Rs 35-50 crore per annum will sufficiently cover debt obligation of Rs 21-27 crore over the medium term. Liquidity is also supported by funds from the promoters in the form of unsecured loans, which stood at Rs 17 crore as on March 31, 2024. Current ratio remains average at 1.01 times as on March 31, 2024.

Outlook: Stable

The SM Auto group will continue to benefit from its established position in the auto components industry and maintain steady revenue growth over the medium term.

Rating sensitivity factors

Upward factors:

  • Sharp increase in revenue and operating margin, supported by rapid ramp-up in operations of new capacities, leading to higher-than-expected cash accrual.
  • Improvement in the capital structure with TOLANW ratio below 2 times on continuous basis

 

Downward factors:

  • Sharp dip in revenue or fall in operating margin below 4% resulting in lower cash accrual
  • Larger-than-expected, debt-funded capex or stretched working capital cycle weakening the financial risk profile and liquidity.

About the group

Incorporated in 1976, SMAEPL is engaged in in manufacturing of automotive components such as Sheet Metal, Machined Assemblies, Car Engine Housing, Floor Assembly, Motorcycle Chassis &  Assembly, Swing Arms, Fuel Tanks, Parking Brakes & Pedal Assemblies, Heat Exchangers, Exhaust Systems for Two wheelers, Passenger Cars, Commercial Vehicles,  Non-Road Applications, HDPE Parts like Spray Suppression System & Mudguards.The company is based in Pune and has total nine units.

 

SMET, a 99% subsidiary of SMAEPL, manufactures three and four-wheeler exhaust systems and has two plants.

Key financial indicators

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

1126.61

1,208.91

Reported profit after tax (PAT)

Rs crore

13.89

12.35

PAT margin

%

1.24

1.02

Adjusted debt/adjusted networth

Times

1.86

2.10

Interest coverage

Times

3.61

3.59

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 Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Bank Guarantee NA NA NA 0.50 NA Crisil A2
NA Cash Credit NA NA NA 70.00 NA Crisil BBB+/Stable
NA Letter of Credit NA NA NA 1.00 NA Crisil A2
NA Term Loan NA NA 30-Jun-29 55.00 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Dec-27 15.00 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 50.00 NA Crisil BBB+/Stable
NA Working Capital Term Loan NA NA 31-Mar-27 9.30 NA Crisil BBB+/Stable
NA Working Capital Term Loan NA NA 31-Mar-27 7.84 NA Crisil BBB+/Stable

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

S M Auto Engineering Pvt Ltd

NA

Parent company

SM Exhaust Technology Pvt Ltd

100

Common management; operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 207.14 Crisil BBB+/Stable   --   -- 21-11-23 Crisil BBB+/Stable 28-12-22 Crisil BBB+/Stable Crisil BBB/Positive
      --   --   --   -- 07-12-22 Crisil BBB+/Stable --
      --   --   --   -- 10-06-22 Crisil BBB/Positive --
      --   --   --   -- 07-06-22 Crisil BBB/Positive --
Non-Fund Based Facilities ST 1.5 Crisil A2   --   -- 21-11-23 Crisil A2 28-12-22 Crisil A2 Crisil A3+
      --   --   --   -- 07-12-22 Crisil A2 --
      --   --   --   -- 10-06-22 Crisil A3+ --
      --   --   --   -- 07-06-22 Crisil A3+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 0.5 State Bank of India Crisil A2
Cash Credit 70 State Bank of India Crisil BBB+/Stable
Letter of Credit 1 State Bank of India Crisil A2
Term Loan 55 State Bank of India Crisil BBB+/Stable
Term Loan 15 Bajaj Finance Limited Crisil BBB+/Stable
Term Loan 50 Bajaj Finance Limited Crisil BBB+/Stable
Working Capital Term Loan 9.3 Bajaj Finance Limited Crisil BBB+/Stable
Working Capital Term Loan 7.84 State Bank of India Crisil BBB+/Stable
Criteria Details
Links to related criteria
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for consolidation

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