| Schwing Stetter India Private Limited | ||||||
| Rated amount enhanced for Bank Debt | ||||||
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| 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 rating on the long term bank facility of Schwing Stetter India Private Limited (SSIPL) at ‘CRISIL A/Stable’. CRISIL Ratings has also assigned its ‘CRISIL A1’ rating to the SSIPL’s short term bank facilities.
SSIPL’s revenue growth has been strong, and better than anticipated in CY2023 with revenues estimated to cross over Rs.5000 crores (over 30% growth year-on year), backed by strong domestic demand for construction equipment, following a step up in execution of real estate, road, and other infrastructure projects. Besides, growth in sale of XCMG products and exports, has also witnessed strong traction, with volumes expected to double in CY2023 compared to CY2022. Increased scale of operations at the company’s greenfield capacity at Cheyyar, Tamil Nadu is helping meet enhanced demand. Operating profitability is expected to remain stable at 5% in CY2023 compared to 5.4% in CY2022 despite the higher share of low margin XCMG products (though better than in the past due to increase in domestic manufacturing of XCMG products), supported by moderation in steel prices.
Sale volumes of construction equipment segment are expected to moderate in CY2024, albeit on a higher base of CY2023, with pace of execution of infrastructure projects stabilising. That said, improved export sales and increase in realizations, due to migration to new CEV-Stage V emission norms, effective April 1, 2024, will support overall revenue growth. Over the medium term, domestic demand for construction equipment segment will continue to be driven by the government’s push on infrastructure development. Besides, production of CEV-stage V certified equipment will enhance export prospects to developed prospects.
SSIPL’s diversified product offerings and strong market position in the construction equipment industry is expected to enable it leverage on the healthy demand scenario. Exports are also expected to increase over the medium term supported by sales of products to the parent, Schwing GmBH (Schwing) and increased orders from Middle East and Africa, besides developed nations. Besides, SSIPL is expected to become a global hub for Schwing group over the medium term catering to ancillary requirements of the group. Revenue growth is hence expected at 10-12% over the medium term.
Operating profitability to moderate in CY2024 by 40-60 bps driven by lower sales and expected to improve in CY2025 with expected improvement in domestic and export sales and moderation in share of XCMG products in overall revenues to ~40%.
SSIPL’s financial risk profile continues to remain moderate. Its debt levels are expected to increase to ~Rs. 950-1000 crores by end of CY2023, from ~Rs.870 crores at December 31,2022 due to higher working capital needs, in line with strong revenue growth, as well as due to the longer credit period offered for XCMG products. Credit period of traded XCMG products is backed by longer credit period extended by XCMG to SSIPL. Share of XCMG products is expected to reach 40% of overall SSIPL revenues by end CY2023, from 36% in CY2022 The increase in XCMG sales will alter the product mix, thereby resulting in higher payables and receivables resulting in additional capital requirement. Also, SSIPL has agreed with XCMG to make payments of Rs.720 crores in the year 2023 and is expected to be on the same lines in the year 2024 too, in line with payables irrespective of the quantum of sales in order to streamline payables, which are at elevated levels. However, due to continuing strong growth of XCMG products, material correction in payables position is unlikely in the near term.
Due to high payables and modest accretion to reserves post payment of dividend to its immediate parent (Schwing), as well as additional debt to be raised for capex to put up a new plant, SSIPL’s ratio of total outside liabilities to net worth (TOL/TNW) is also expected to remain high and in excess of 6 times over the near to medium term, compared with earlier expectations of 5-5.5 times (5.25 in CY2022). Besides, the ratio of debt/EBITDA is also expected to remain range bound between 3.5-4 times over the medium term. Receivables also are rising due to continued aggressive push by construction equipment players, including SSIPL to capture market share, resulting in higher credit period (though lower than that offered on XCMG products). SSIPL’s management proposes to raise the share of own products and exports in near term, which will yield higher margins, and focus on better collection efficiency on the receivables front. This will be critical to manage working capital and for also any material improvement in key debt metrics, going forward.
To meet the higher sales velocity and working capital intensity, SSIPL had enhanced its working capital limits in CY2023 to Rs.1100 crores from Rs. 925 crores in December 2022 which provides sufficient cushion as the fund based bank limit utilisation remains moderate at 55% (on drawing power of Rs.869 crores) over the past eight months ended August 2023. Besides, SSIPL also has discounting limits of Rs.180 crores which help in reducing reliance on working capital borrowings. The company had also availed short term loans from private banks (outside working capital limits) at attractive interest rates, to support working capital requirements and keeps sufficient buffer available against these limits. Continued availability of such limits will be critical to ensure sufficient liquidity, going forward, as working capital intensity will remain high.
The ratings continue to reflect SSIPL’s strong brand and dominant market position in the ready-mix concrete (RMC) handling equipment industry, and technology and product support of its immediate parent Schwing, a global leader in the RMC handling equipment sector and enhanced portfolio from its ultimate parent, XCMG, China, a leading global player in construction machinery segment. These strengths are partially offset by susceptibility of performance to business cycles, SSIPL’s moderate financial position, and the working capital-intensive nature of operations. |
Analytical Approach For arriving at its rating, CRISIL Ratings has considered the standalone business and financial risk profiles of SSIPL. |
Key Rating Drivers & Detailed Description Strengths: Strong brand and dominant market position: The company has an established position in the domestic RMC-handling equipment market on the back of a strong and customizable product profile, robust marketing and service network, and established clientele. Its product strengths have also helped SSIPL maintain its leading market shares across product categories. SSIPL’s products are perceived to be of high quality, and usually enjoy a premium over comparable products in the market. Established pan-India service network also provides an edge. Moreover, SSIPL has been steadily augmenting its product portfolio through periodic new launches in collaboration with XCMG. While the product basket has expanded due to a higher proportion of traded sales, service income generated on same, also supports revenues. Export revenues are expected to cross approximately Rs.300 crores in CY2023 with healthy offtake from immediate parent, due to better cost economics at SSIPL. Increase in export contribution will also benefit profitability as exports are at higher margins.
Support from parents, Schwing and XCMG: The Schwing group, headquartered at Herne, Germany, has 12 manufacturing facilities spread over Germany, Austria, the US, Brazil, Russia, China, and India; and sells products in more than 100 countries. SSIPL markets its products under the Schwing-Stetter brand. The brand has a healthy franchise in the global premium RMC-handling equipment market as Schwing continues to be one of the world's leading players in this segment. Support from Schwing has enabled SSIPL to introduce new products based on customer-specific requirements, while traded goods on behalf of XCMG has enlarged its product offerings. Further, the technical skill sets of SSIPL’s team has also improved, due to the need to provide service for XCMG’s products. CRISIL Ratings believes that support extended by the parents to SSIPL will continue over the medium term and will facilitate further strengthening of operations.
The company by leveraging on the recognition of the R&D facilities for two of its factories, from the Department of Scientific & Industrial Research (DSIR), has started exporting the design services to Germany and U.S., for their projects and has also got a NABL accredited testing lab, to cater to the construction industry’s testing requirements. The R&D team in India of the company has started contributing to the development of new design and technology in India, matching to the global quality requirements of the Schwing group.
Weakness: Vulnerability to business cycles in the RMC segment: SSIPL’s revenues have a high correlation to infrastructure investment activity in the country. This is reflected in moderation in turnover during the slowdown in the infrastructure and real estate sector in 2009, 2012 and 2013 as well as 2020. SSIPL took the initiative to include small and mid-sized customers over the past few years to mitigate the impact of down-cycle and has also been focusing on exports and aftermarket ( ~15% of revenues) to reduce dependence only on the domestic market. While this indeed benefits the company, any sharp decline in off-take by the construction/infrastructure sectors will continue to impact its performance. Notably, the company has also grown well in the pandemic affected years, as it has broadened its product offerings and captured market share from peers.
Moderate financial risk profile, mainly due to working capital intensive operations: The financial risk profile has remains moderate despite strong revenue growth, due to an increase in working capital needs resulting in higher borrowings.
Gross current assets remained high at 237 days as on December 31, 2022, due to high inventory levels and increase in debtors, and are expected to be in ~ 250-275 days on December 31, 2023, due to higher credit period, mainly for XCMG products, and higher inventory levels to ensure uninterrupted supplies. SSIPL, on average, has to maintain high inventory levels because of the large share of imported stocks maintained to cope with long delivery lead time for imported goods, and criticality of some spares that mandates continuous availability. SSIPL is also required to maintain finished goods and spares inventory at various service centres across India for ensuring timely and quality service. In turn, SSIPL also receives extended credit of up to a year or more from XCMG. Any revision in policy by XCMG to lower credit period and reduction in share of XCMG products in SSIPL’s revenues will be critical to arrest the sharp rise in working capital intensity going ahead.
The company completed major capital expenditure (capex) of over Rs.350 crore at Cheyyar unit (spread over CY2019 and CY2020), and incurred modest spend of ~Rs.70-80 crores each in CY2021 and CY2022. SSIPL is expected to invest ~Rs.80-100 crores in CY2023 to upgrade Cheyyar facility and establish an assembly plant in Jamshedpur to cater to Tata Motors Limited. Besides, the company is expected to undertake capex of ~Rs.300 crore spread over 2-3 years, to set up a plant for XCMG products, which will involve debt funding of up to Rs.150-200 crores. This increase in debt along with continuing high working capital intensity related borrowings, will prevent sizeable improvement in debt metrics over the near to medium term; interest cover and TOL/TNW ratios are expected at ~3.1 times and over ~6 times in CY 2023, compared with ~3.5 times and 5.7 times in CY 2022. TOL/TNW and Debt/EBITDA ratios are expected to range between 5.5-6 times and 3.5-4 times respectively over the medium term. |
Liquidity: Adequate Annual cash accruals of over Rs.120 crores are expected to suffice to meet annual repayment obligations ranging from Rs.50-65 crores in the near to medium term. SSIPL is expected to avail Rs.30-50 crores of long term debt to fund the capex of Rs.80-100 crores in CY2023. Besides, the company is also expected to borrow up to Rs.200 crores for its new plant for XCMG products. Adequate buffer is available in bank limits after enhancement (to Rs.1100 crores from Rs.923 crores) with average utilisation at ~55-60% (of drawing power available). Besides, company also has access to short term lines of Rs.320 crores outside the drawing power which further supports the liquidity.
SSIPL also has established relationships in the lending community and is able to arrange for refinancing, when required, at attractive interest rates, as demonstrated in past years. Also continued reduction in debtor levels, including through proposed factoring without recourse, or step up in collection efforts, will be critical to avoid tightening in liquidity. |
Outlook: Stable CRISIL Ratings believes SSIPL's business performance will benefit from demand recovery in the construction equipment sector, and steady monetization of expanded capacities. Financial risk profile will remain moderate due to high working capital intensity and proposed sizeable, and debt funded capex. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company SSIPL, a wholly owned subsidiary of Schwing, was registered in 1998 and began operations in 1999. It initially imported truck mixers and pumps in a semi-knocked-down form from Germany and assembled and sold them in the Indian market under the Schwing Stetter brand. Schwing was acquired by XCMG, in 2012. XCMG is a Chinese multinational, government-owned, heavy machinery manufacturing company with headquarters in Xuzhou, Jiangsu. SSIPL is now a stepdown subsidiary of XCMG |
About the Group The Schwing group is one of the world’s largest manufacturers of construction equipment concerning concrete. Schwing GmbH, Germany, manufactures concrete mixing equipment (batching plant), truck mixers, concrete pumps, and shotcrete machines used for concreting tunnels and recycling plants for conversion of waste concrete. The group has been operating in the industry for over seven decades across 11 countries. Schwing was acquired by XCMG, in 2012. SSIPL is now a step-down subsidiary of XCMG.
About the ultimate parent – XCMG XCMG is one of the leading Chinese manufacturers of construction machinery equipment. It was established in 1989 in Xuzhou and ranks among the largest manufacturers in the global construction machinery industry. It manufactures heavy machinery equipment such as cranes, loaders, heavy-duty trucks, and special-purpose vehicles. |
Key Financial Indicators
Note: Part of short term debt was classified under creditors in audited financials in CY2021; same has been reclassified as debt by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
&Shinhan Bank limit is working capital term loan limit, repayable over a period of 3 years |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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