Key Rating Drivers & Detailed Description

Strengths:

Extensive industry experience of the promoters: The promoters have an experience of over 20 years in automotive dealership industry, which has given them sound understanding of the market dynamics. SMN is the authorized dealer of passenger vehicle segment of Tata Motors Limited and operates through 7 showrooms spread across Delhi-NCR, along with 3 workshops. Because of improvement in the market demand for passenger vehicles coupled with healthy demand for Tata’s vehicles, revenue of SMN improved to around Rs 637 crore during fy22 from Rs 332 crore during previous fiscal. Healthy business performance in the ongoing fiscal (April-Sep) along with further improvement in demand expected over the medium term, CRISIL believes the revenue profile and hence the overall business risk profile of the company will continue to strengthen; company reported around Rs 486 crore of revenue during April-Sep in fy23.

Efficient working capital management: Healthy demand for a variety of models has result in brisk liquidation of inventory, thereby leading to inventory holding of only 14 days as of Mar 31, 2022 (20 days during previous fiscal). Further, since majority the sale happens to the retail customer, debtor realisation also remains prudent leading to low debtor days of 30-35 pertaining to funds to be realized from financial institutions; debtor days were 34 as of Mar 31, 2022. Resultantly, working capital management remains prudently managed, hence leading low gross current asset days of 65 as of Mar 31, 2022, and shall remain range bound at 60-70 days over the medium term as well.

Weaknesses:

Intense competition in the automobile dealership industry: The automotive sector is intensely competitive with many players in the mini, compact, mid-size, executive, premium, and luxury passenger car segments. Also, SMN faces intense competition from the unorganized and organized used car market and from dealers of other leading and established players in the segment. Going forward, the sustained increase in revenue of SMN amidst stated competitive pressure will remain a key monitroable.

Leveraged capital structure: Low networth and high dependence on working capital debt to aid the operations has resulted in moderately high leverage, evinced by total outside liabilities to tangible networth (TOL/TNW) ratio of 3.03 times as of Mar 31, 2022. Though absence of debt funded capital expenditure (capex) and expected accretion to reserves shall result in moderation in leverage position, its sustained improvement will remain a key rating sensitivity factor.

Key Financial Indicators

Annexure - Details of Instrument(s)

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