Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil A1+' rating on the short-term debt and commercial paper programme of Sundram Fasteners Limited (SFL).

 

Revenue is estimated to have grown 4-5% in fiscal 2025 driven by healthy exports growth, though demand from the original domestic equipment manufacturers (OEMs) was modest, in line with moderate demand across key automobile segments. Over the medium term, revenue is expected to grow 6-8% supported by domestic demand from OEMs, which constitutes ~two-thirds of the revenue, as well as steady growth in exports. The company had secured contracts for supply of electric vehicle (EV) components worth $400 million from multiple OEMs in North America, which is expected to commence from fiscal 2026.

 

Operating profitability has improved in the nine months through December 2024 to 16.3%, driven by a favourable product mix with increasing share of exports and stable raw material costs. Improved performance of the overseas Chinese subsidiary also supported profitability. Share of exports constitute around 30% of total revenue, of which exports to the US contribute ~70%. While baseline US tariffs of 10% on auto component exports, are not expected to materially impact profitability, there is also levy of 25% reciprocal tariffs on exports of auto components from India to the US, applicable from June 2025. While a sizeable portion of SFL’s exports to the US are basis duty paid by customers, the quantum of pass on to customers basis negotiations will have a bearing on SFL’s operating profitability, but the impact remains monitorable.

 

SFL is likely to sustain its strong financial risk profile supported by the moderate debt on its balance sheet and its healthy cash-generating ability. On a standalone basis, SFL repaid all its term debt in August 2024. On a consolidated basis, the company is expected to have a total debt of ~Rs 796 crore, with term loan(non-current) of Rs 88 crore and working capital loans along with current maturities of long-term loans of Rs 708 crore as on March 31, 2025. The overall debt increase during fiscal 2025 is due to a rise in working capital as few key vendors had sought for advance payment. The company is estimated to have undertaken capital expenditure (capex) of Rs 350-400 crore in fiscal 2025 and is likely to incur annual capex of Rs 250-300 crore per annum over the medium term towards expansion. The capex is expected to be funded through internal accrual, keeping debt metrics comfortable with interest coverage ratio expected to remain above 15-20 times and gearing below 0.2 time over the medium term.

 

SFL has strong liquidity with healthy annual cash generation of over Rs 550-600 crore per annum, sufficient to meet annual debt obligation of Rs 50-60 crore as well as annual capex of close to Rs 250-300 crore per annum expected over the medium term. The company has an adequate cushion in bank limit of around Rs 1,700 crore with modest 23% average utilisation over the 12 months ended March 31, 2025. The cash surplus is expected to be moderate at ~Rs 50 crore.

 

The rating continues to reflect the leading market position of SFL in the fasteners industry, its wide product portfolio and geographic diversity, healthy operating efficiency, and strong financial risk profile. These strengths are partially offset by working capital-intensive operations, and modest, albeit improving, performance of the overseas subsidiaries.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of SFL, and its subsidiaries held directly or indirectly as these entities share a common management and have significant operational and financial linkages.

 

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:

Leading market position in the fasteners segment, diverse product portfolio and wide geographical reach: SFL continues to dominate the domestic fasteners market. It has a healthy revenue mix, with domestic sales (including OEMs and aftermarket) accounting for 65-67% in fiscal 2024 and exports 33-35% (including subsidiaries). The product portfolio broadly comprises fasteners, metal forms, radiator caps, and automotive pumps and assemblies that find application across various industries such as automotive, wind energy, aerospace, defence, farm equipment and industrial. Established relationships across commercial vehicle (CV), passenger vehicle (PV), tractor and two-wheeler OEMs lend stability to the revenue. Supplies to CV and PV OEMs account for 65-70% of sales, with the balance coming from tractor, two-wheeler and wind energy equipment manufacturers. SFL is gradually diversifying its customer base by enhancing manufacturing of industrial fasteners, including for wind equipment, to reduce dependence on the cyclical auto sector. However, the auto industry will continue to contribute close to 70% of the consolidated revenue of SFL over the medium term, given the company’s strong presence in the segment.

 

Healthy operating efficiency: SFL has maintained strong focus on processes, quality improvement and cost reduction, apart from continuously improving productivity. Implementation of industry-wide best practices, such as Total Quality Management, and internal automation measures have helped to improve operating efficiency and meet the rigorous standards of clients. Overseas manufacturing units and established supply chain logistics enable the company to cater to customers on just-in-time basis. Operating profitability was between 16% and 18% during fiscals 2019-2024 and is estimated at ~16% in fiscal 2025. Operating profitability is expected to sustain at 15.5-16.0% in fiscal 2026, factoring in baseline US tariffs of 10% on exports coming into force in fiscal 2026. Levying of reciprocal tariffs of 25% from June 2025 may also moderately impact profitability depending on the extent of pass through to customers, which will depend on negotiation. Still, operating profitability will continue to be healthy.

 

Strong financial risk profile: SFL’s financial risk profile is expected to remain strong, supported by healthy cash accrual and prudent funding of capex, even as working capital intensity remains high. Networth is estimated at over Rs 4,000 crore in the near term, with gearing expected to be less than 0.2 time. Interest coverage ratio is estimated to be 15-20 times in the near term (~17 times in fiscal 2025). 

 

Capex of Rs 250-300 crore in the near term is estimated to have been funded mainly through internal accrual. The company plans to enhance its new product development, especially on the EV side, and add capacity across existing lines. These new-age products are expected to improve revenue diversity and lend more stability to profitability. Given the expected healthy annual cash accrual of Rs 550-600 crore over the medium term, the capex needs will be funded through accrual. The overall debt levels have increased during fiscal 2025 on account of rising working capital needs. Debt metrics will remain comfortable, with gearing unlikely to cross 0.3-0.4 time. Any sizeable debt-funded acquisition, materially impacting the debt metrics, will be monitorable.

 

Weaknesses:

Working capital-intensive operations: Due to the variety and different sizes of products manufactured, SFL maintains large inventory compared with peers in the auto components space. Raw material imports and increasing exports (which have a longer lead time) add to the working capital needs. Consequently, gross current assets are estimated at 150-170 days as on March 31, 2025, and are expected at similar levels over the medium term.

 

Modest, albeit improving, performance of subsidiaries: While the standalone performance of SFL has improved steadily since fiscal 2019, its overall performance was tempered by modest contribution of its subsidiaries, especially those overseas. However, the performance of the subsidiaries has improved since fiscal 2023. The subsidiaries are expected to contribute 13-14% to the consolidated revenue in fiscal 2025, and 8-10% to consolidated operating profit. The Chinese subsidiary was able to maintain its performance with revenue growth of 11% during the first nine months of fiscal 2025, majorly aided by measures taken to improve in the operational efficiency. Performance of the UK subsidiary, Cramlington Precision Forge Ltd, was impacted due to adverse business conditions in the whole of Europe and high inflation, which led to revenue declining ~30% during the first nine months of fiscal 2025 from the same period previous fiscal.

Liquidity: Strong

Healthy annual cash generation of Rs 550-600 crore per annum will be sufficient to meet annual debt obligation of Rs 20-25 crore as well as capex of close to Rs 250-300 crore per annum over medium term. The company has adequate cushion in bank limit of around Rs 1,700 crore, as they were utilised only 23% on average over the 12 months ended March 31, 2025. Cash surplus is expected to be moderate, at ~Rs 50 crore.

Rating sensitivity factors

Downward factors

• Steady decline in revenue and operating profitability below 11-12% impacting the cash generation
• Large, debt-funded capex/acquisition or stretch in the working capital cycle impacting the financial risk profile and debt metrics

 

ESG profile of SFL:

Crisil Ratings believes that the environment, social, and governance (ESG) profile of SFL supports its already strong credit risk profile. The auto components sector has a moderate impact on the environment owing to moderate emissions, water consumption and waste generation. The sector’s social impact is also moderate considering the impact of operations on employees. SFL is focusing on mitigating the environmental and social risks.

 

Key ESG highlights:

• The company’s scope 1 and 2 emissions intensity were relatively lower compared with its peers in fiscal 2024, and the renewable energy consumption (as a % of total energy consumption) is higher than that of peers.
• The company’s gender diversity was relatively higher than its peers (~7% female employees and ~21% female workers), nil lost time injury frequency rate of employees, and all of the workforce was trained on skills and safety.
• Governance structure is characterised by 50% of its board comprising independent directors, relatively high representation of women directors on the company’s board (50%), and dedicated investor grievance redressal system.

 

There is growing importance of ESG among investors and lenders. The commitment of SFL to ESG principles will play a key role in enhancing stakeholder confidence, given the share of market borrowing in its overall debt and access to domestic and foreign capital markets.

About the Company

SFL, led by Mr Suresh Krishna, is a leading auto components supplier with seven manufacturing facilities in Tamil Nadu, one in Puducherry, one at Sri City in Andhra Pradesh and one each at Medak in Telangana and Pantnagar in Uttarakhand. The company has key operating subsidiaries in India, China, and the UK. Its product range comprises fasteners, powertrain components, sintered metal products, iron powder, cold extruded parts, radiator caps, water pumps, oil pumps, hot-forged and machined parts, cold-forged and machined parts and wind energy components. Key overseas customers include OEMs in China, the US, Germany, the UK, Brazil, Italy, and France in Europe.

 

As on March 31, 2025, the promoter and promoter-held investment companies held 46.95% stake in SFL, mutual funds 14.58%, insurance companies 3.87% and foreign portfolio investors 12.38%, with the balance held by public and others.

 

For the nine months ended December 31, 2024, SFL reported a consolidated profit after tax (PAT) of Rs 417 crore (Rs 391 crore in the corresponding period of fiscal 2023) on net revenue of Rs 4,425 crore (Rs 4,200 crore).

Any other information: Not Applicable

Annexure – List of entities consolidated

Note: During fiscal 2024, two of the company’s wholly owned subsidiaries, Sunfast TVS Ltd and TVS Engineering Ltd, were merged with the company pursuant to the approval of the National Company Law Tribunal, Chennai bench. The appointed date for the purpose was April 1, 2023.