Rating Rationale
February 04, 2022 | Mumbai
Suprajit Engineering Limited
Rating removed from 'Watch Developing'; Ratings reaffirmed '; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.262.93 Crore (Enhanced from Rs.246.93 Crore)
Long Term RatingCRISIL AA/Stable (Removed from 'Rating Watch with Developing Implications'; Rating Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has removed the ratings on the bank facilities of Suprajit Engineering Limited (SEL; part of the Suprajit group) from 'Rating Watch with Developing Implications'. The ratings have been reaffirmed at ‘CRISIL AA/CRISIL A1+’ while a ‘Stable’ outlook has been assigned to the long-term rating.


CRISIL Ratings had placed the ratings of SEL on watch with developing implications on November 8, 2021, following the company's announcement of the acquisition of the low duty cable business of Kongsberg Automotive ASA; the enterprise value of which is estimated at around US$ 42 million. CRISIL has been in discussions with SEL's management to understand the impact of the acquisition.


The reaffirmation reflects CRISIL's belief that SEL's business risk profiles shall continue to benefit over the medium term from the acquisition of the low duty cable business of Kongsberg Automotive ASA. This acquisition shall strengthen the cable business segment for SEL in the European market and shall provide cross-selling opportunities across original equipment manufacturers (OEMs) and replacement markets. Further the group is expected to fund the transaction through an optimum mix of debt, cash accrual and available cash and cash equivalents. The gearing and TOLTNW ratio is expected to remain below one time despite the acquisition. The group shall continue to have access to sizeable, unencumbered cash and cash equivalents post the closure of the transaction; which is expected to conclude by March 2022.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of SEL and its wholly owned subsidiaries, Luxlite Lamps and Trifa Lamps, Suprajit Automotive Private Limited, Suprajit Europe Limited, Suprajit USA Inc, and Wescon. That’s because all these entities, collectively referred to as the Suprajit group, have high management, operational, and financial integration.

 

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:

  • Established market position in India, diversified revenue profile, and strong operating efficiency: The group is one of the largest manufacturers of mechanical control cables with a presence in both automotive and non-automotive segments. Revenue growth has been healthy in the past few years, driven by steady offtake and diversification into aftermarket and exports segments. The group has entered segments such as lamps, and started catering to non-automotive segments, through acquisitions, and augmented capacities in the cables business. The operating margin has been healthy at 14-16%, over the four fiscals through 2021. For the first half of fiscal 2022, the group has reported a revenue of Rs.856 crore with an operating profitability of around 16 percent. Over the medium term, revenues and profitability are expected driven by benefits from economies of scale, higher productivity, and the leadership position allowing for passage of any hike in key raw material prices to customers.

 

  • Strong financial risk profile: The networth and total outside liabilities to tangible networth (TOLTNW) ratio were healthy at Rs 1013 crore and 0.71 time, respectively, as on March 31, 2021, aided by steady accretion to reserves. The company is expected to undertake debt of around Rs.150 crore for funding the acquisition however the additional debt is not expected to impact the capital structure adversely aided by a strong networth.. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 14 times and 0.27 time, respectively, for fiscal 2021.

 

Weakness:

  • Susceptibility to volatility in raw material prices and cyclicality in end-user industries: The group remains susceptible to volatility in raw material prices and pricing pressure from OEMs, as the domestic automobile industry contributes to 60% of revenue. In the exports segment, the group faces competition from other large automotive component players across the globe. Raw material cost also accounts for a large portion of overall cost of sales.  As raw materials are commoditized in nature, their prices tend to fluctuate widely, and thus impact the operating margin.

Liquidity: Strong

Liquidity is strong because of sufficient cash accrual against debt repayment obligation and healthy liquid investments. Backed by the healthy scale of operations and strong operating efficiency, cash accrual is expected at over Rs 200 crore anually, as against repayment obligation of around Rs 20 crore, per fiscal over the medium term. The group follows a prudent working capital management policy, resulting in moderate working capital requirement. Fund based working capital limits have been utilised moderately at around 50 percent over the last 12 months ended December 2021. Additionally, a high cash and cash equivalents balance is maintained which was at Rs.350 crore as Sep 30, 2021. Liquidity is likely to remain strong, supported by healthy cash and cash equivalents, with management expected to have cash and bank balances of Rs200 crore over the medium term.

Outlook: Stable

CRISIL Ratings believes Suprajit group shall continue to benefit over the medium term from its established market position in India, diversified revenue profile, and strong operating efficiency.

Rating Sensitivity factors

Upward Factors:

  • Continued improvement in product and geographical diversification with turnover increasing by 30% on a sustained basis
  • Sustenence of high margins

 

Downward Factors:

  • Decline in operating profitability to less than 11 percent
  • Any further debt funded capital expenditure adversely impacting the financial risk profile or cash balances falling below Rs.100 crore

About the Company

SEL was incorporated at Bengaluru in 1985, promoted by Mr Ajith Kumar Rai. The company manufactures mechanical control cables used in two- and four-wheelers and by non-automotive segments, and equipment such as speedometers, tachometers, and fuel and temperature gauges for the automotive sector. It also produces halogen lamps for the automobile industry, and is a dominant player, catering to the two- and four-wheeler, passenger, commercial vehicle, and after-market segments. Merger of Phoenix Lamps Ltd with SEL became effective from April 1, 2016. In fiscal 2017, SEL has also acquired Wescon, a leading player in manufacture of non-automotive cables, particularly in North America. The company, is listed on the National Stock Exchange and the Bombay Stock Exchange Ltd.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

1674

1567

Profit after tax

Rs crore

143

104

Profit after tax margin

%

8.5

6.6

Adjusted debt/adjusted networth

Times

0.27

0.44

Interest coverage

Times

14.07

10.21

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 Cr) Complexity levels Rating assigned with outlook
NA Bank Guarantee NA NA NA 1.5 NA CRISIL A1+
NA Cash Credit NA NA NA 70.12 NA CRISIL AA/Stable
NA External Commercial Borrowings NA NA NA 30.45 NA CRISIL AA/Stable
NA Long Term Loan NA NA Jun-22 7.61 NA CRISIL AA/Stable
NA Proposed Cash Credit Limit NA NA NA 16 NA CRISIL AA/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 14.6 NA CRISIL AA/Stable
NA Secured Overdraft Facility NA NA NA 55 NA CRISIL AA/Stable
NA Working Capital Demand Loan NA NA NA 67.65 NA CRISIL AA/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Suprajit Engineering Limited

100%

Parent company

Suprajit Automotive Private Limited

100%

Wholly owned subsidiary with operational linkages

Luxlite Lamps and Trifa Lamps,

100%

Wholly owned subsidiary with operational linkages

Suprajit USA Inc

100%

Wholly owned subsidiary with operational linkages

Suprajit Europe Limited

100%

Wholly owned subsidiary with operational linkages
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 261.43 CRISIL AA/Stable   -- 08-11-21 CRISIL AA/Watch Developing 30-12-20 CRISIL AA/Stable 27-12-19 CRISIL AA/Stable CRISIL AA-/Positive
      --   -- 28-07-21 CRISIL AA/Stable   -- 06-12-19 CRISIL AA/Stable --
      --   --   --   -- 26-03-19 CRISIL AA/Stable --
Non-Fund Based Facilities ST 1.5 CRISIL A1+   -- 08-11-21 CRISIL A1+ 30-12-20 CRISIL A1+ 27-12-19 CRISIL A1+ CRISIL A1+
      --   -- 28-07-21 CRISIL A1+   -- 06-12-19 CRISIL A1+ --
      --   --   --   -- 26-03-19 CRISIL A1+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1.5 Canara Bank CRISIL A1+
Cash Credit 50.6 State Bank of India CRISIL AA/Stable
Cash Credit 10 ICICI Bank Limited CRISIL AA/Stable
Cash Credit 9.52 State Bank of India CRISIL AA/Stable
External Commercial Borrowings 30.45 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA/Stable
Long Term Loan 7.61 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA/Stable
Proposed Cash Credit Limit 16 Not Applicable CRISIL AA/Stable
Proposed Long Term Bank Loan Facility 14.6 Not Applicable CRISIL AA/Stable
Secured Overdraft Facility 40 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA/Stable
Secured Overdraft Facility 15 Canara Bank CRISIL AA/Stable
Working Capital Demand Loan 67.65 Citibank NA CRISIL AA/Stable

This Annexure has been updated on 04-Feb-2022 in line with the lender-wise facility details as on 04-Feb-2022 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 Auto Component Suppliers
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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