Rating Rationale

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 11-15%, over the four fiscals through 2023.

For the first half of fiscal 2024, the group has reported a revenue of Rs.1389 crore with an operating profitability of around 10%. Recent acquisition of low duty cable business of Kongsberg Automotive ASA under Suprajit USA INC has led to increased quarterly revenue. However, increased expenses incurred during this transition has led to moderation in operating margin. Going forward, with around Rs.600 crore incremental yearly revenue from Kongsberg where margin remains around 8-10%, overall margin for the group is expected to be in the range of 11-12%. Margin for standalone entity continues to remain steady at around 15-17% during first half of FY24. Over the medium term, revenues and profitability are expected to be 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 net worth and gearing ratio were healthy at Rs 1272 crore and 0.49 time, respectively, as on September 30, 2023, aided by steady accretion to reserves. The company has undertaken debt of around Rs.150 crore for funding the acquisition. Additional debt is not expected to impact the capital structure adversely aided by a strong net worth. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 6 times and 0.1 time, respectively as on September 30th 2023.

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 around 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.