Rating Rationale
November 24, 2020 | Mumbai
Sai Service Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.100 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1' ratings on the bank facilities of Sai Service Pvt Ltd (SSPL; part of the Sai Service group).
 
The group's business risk profile is expected to partly weaken in fiscal 2021 following the impact of the nation-wide lockdown and demand slowdown in automotive industry amid Covid-19 pandemic. For the first half of fiscal 2021, revenue was estimated at Rs 774.54 crore, lower than the corresponding period of the previous fiscal, because of reduced demand for vehicles and closure of business activities at the start of the financial year. Vehicle sales have picked-up in the last two months and demand is expected to remain stable, consequently the group is likely to record topline of around Rs.2000 crore for current fiscal against Rs. 2779 crore in previous fiscal. Despite the drop in sales, operating margin is likely to moderate only marginally as the group has adopted several cost control measures while its sales of pre-owned cars and spares and service remained steady.
 
The group's financial risk profile remains healthy with negligible debt. The group has complied with IND AS 116 (Leases) with effect from April 1, 2019. Accordingly, it was required to create right-of-use asset with corresponding lease liability for all leases, which has increased reported assets and liabilities. Also interest on lease liability and depreciation on right of use asset were shown separately in the profit and loss statement in lieu of rents. The changes have impacted the group's capital structure and debt protection metrics. The total outside liabilities to tangible networth (TOLTNW) ratio weakened from 0.43 time in fiscal 2019 to 0.77 time in fiscal 2020, while interest coverage ratio declined from 25.4 times to 8.9 times. Nonetheless the metrics still remain healthy.

Financial risk profile is also supported by ample liquidity marked by negligible utilization of bank lines and surplus liquid investments of over Rs 200 crore.
 
The ratings continue to reflect the group's established presence in the automotive dealership business with a large network of showrooms and service centres, and longstanding relationship with principals, Maruti Suzuki India Ltd (MSIL: rated 'CRISIL AAA/Stable/CRISIL A1+') and Bajaj Auto Ltd (BAL; 'CRISIL AAA/Stable/CRISIL A1+'). The ratings also factor in the group's efficient working capital management, limited exposure to inventory and receivables risks, and strong financial risk profile. These strengths are partially offset by susceptibility to economic cycles and exposure to intense competition.

Analytical Approach

CRISIL has combined the business and financial risk profiles of SSPL and its wholly-owned subsidiary, Sai Service Spares and Accessories Pvt Ltd (SSSAPL). The companies, collectively referred to as the Sai Service group, are under a common management and in the same business, and have fungible cash flow.

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

Key Rating Drivers & Detailed Description
Strengths: 
* Strong market position and established relationship with principal suppliers: The group has 102 showrooms, service stations, and e-outlets dealing in MSIL cars, spread across Mumbai, Pune, Kolhapur (Maharashtra), Goa, Kerala, and Hyderabad. It has been associated with MSIL and BAL for over 30 years, and is the largest dealer of MSIL in India, and the second-largest dealer of BAL in Maharashtra by volume sales. The group benefits from its long standing presence, geographically wide dealership network and large scale of operation which bolster its market position.
 
* Efficient working capital management: Gross current assets, inventory, and receivables were 52, 34, and 7 days, respectively, as on March 31, 2020.
 
* Strong financial risk profile: Networth and TOLTNW ratio were comfortable at Rs 557 crore and 0.77 time, respectively, as on March 31, 2020. Debt protection metrics remained robust, with interest coverage ratio of 8.9 times in fiscal 2020. With IND AS 116 (Leases), inflated assets and liabilities recognized has led to marginal weakening in TOLTNW and interest coverage ratios, nonetheless the metrics still remain healthy. The group has very limited reliance on external debt and it utilizes bank lines rarely.
 
Weakness:
* Susceptibility to cyclicality and exposure to intense competition: The automotive dealership business is susceptible to economic cyclicality as monetary tightening measures, such as increase in interest rate, can impact demand for vehicles. Also, the automotive demand is liked with economic cycles and a severe slowdown in economic activity can impact both revenue and earnings. Further the group faces competition from other MSIL dealers as well as from dealers of other automotive manufacturers.
Liquidity Strong

Efficient working capital management is expected to keep bank limit utilization'a mere 3% for the 12 months through September 2020'low over the medium term. Further, despite moderation, cash accrual (Rs 140 crore in fiscal 2020) will remain comfortable at over Rs 90 crore each in fiscals 2021 and 2022 and will be adequate to meet additional capital expenditure (capex) and working capital requirements. The group also has surplus of more than Rs 200 crore in the form of unencumbered cash and bank balance and liquid mutual fund investments.

Outlook: Stable

CRISIL believes the Sai Service group will maintain its healthy market position, backed by a strong brand, widespread service and distribution network, and longstanding relationship with principals. Also, cash accrual should be more than sufficient to meet capex, ensuring maintenance of a robust financial risk profile.

Rating Sensitivity factors
Upward factors
* A sustained scale up in operation (revenue growth of more than 25%) while maintaining stable operating efficiency
* Sustenance of comfortable financial risk profile, particularly liquidity
 
Downward factors
* More than 40% decline in revenue and/or significantly lower operating profitability
* Stretch in working capital cycle or large unanticipated capex weakening financial risk profile.
About the Group

Incorporated in 1985, Pune-based SSPL is an authorised dealer of MSIL's passenger cars in Mumbai, Pune, Kolhapur, Goa, Kerala, and Telangana. The company is also an authorised dealer of BAL's two- and three-wheelers in Pune and Kolhapur. The promoters, Mr Shridhar Kalmadi, Mr Mukesh Kalmadi, Mr Sumeer Kalmadi, and Mr Sandeep Kalmadi, manage the operations.
 
SSSAPL, incorporated in 1991, is an authorised distributor of spare parts and accessories of MSIL in Mumbai, Pune, Kolhapur, Solapur, Sangli, Satara, Karad (all in Maharashtra), and Kochi (Kerala).

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs crore 2779 2978
Profit after tax (PAT) Rs crore 79 78
PAT margin % 2.9 2.6
Adjusted debt/adjusted networth Times NA NA
Interest coverage Times 8.95 25.45

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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity Level Rating assigned with outlook
NA Bank guarantee NA NA NA 57 NA CRISIL A1
NA Cash credit* NA NA NA 28 NA CRISIL A+/Stable
NA Proposed working capital facility NA NA NA 15 NA CRISIL A+/Stable
*Interchangeable with working capital demand loan
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
Sai Service Spares and Accessories Pvt Ltd 100% Subsidiary
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  43.00  CRISIL A+/Stable      29-08-19  CRISIL A+/Stable  31-07-18  CRISIL A+/Stable  26-04-17  CRISIL A+/Stable  CRISIL A/Stable 
                    24-04-17  CRISIL A+/Stable   
Non Fund-based Bank Facilities  LT/ST  57.00  CRISIL A1      29-08-19  CRISIL A1  31-07-18  CRISIL A1  26-04-17  CRISIL A1  CRISIL A1 
                    24-04-17  CRISIL A1   
All amounts are in Rs.Cr.
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Bank Guarantee Bank of Maharashtra 7 CRISIL A1
Bank Guarantee HDFC Bank Limited 50 CRISIL A1
Cash Credit* Bank of Maharashtra 3 CRISIL A+/Stable
Cash Credit* HDFC Bank Limited 25 CRISIL A+/Stable
Proposed Working Capital Facility Not Applicable 15 CRISIL A+/Stable
*Interchangeable with working capital demand loan

This Annexure has been updated on 02-Sep-2021 in line with the lender-wise facility details as on 18-Aug-2021 received from the rated entity.

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 Retailing Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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