Rating Rationale
July 28, 2021 | Mumbai
Suprajit Engineering Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.246.93 Crore
Long Term RatingCRISIL AA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Suprajit Engineering Limited (SEL; part of the Suprajit group) at 'CRISIL AA/Stable/CRISIL A1+’.

 

SEL’s credit risk profile has remained healthy in fiscal 2021 despite Covid-19 led disruptions, supported by its strong market presence in the aftermarkets, exports and non-automotive segments. The turnover has grown at a compounded annual growth rate of around 12 percent to Rs.1641 crore for the last three fiscals ended March 2021, while operating profitability has remained strong at around 14 percent.

 

For the current fiscal, the rating takes into account expected impact of partial lockdowns during the months of May and June 2021 to contain spread of the second wave of Covid-19 on SEL's business risk profile, resulting in moderation of demand from the group’s customers. However, increase in components per unit and improvement in wallet share with key customers to offset any major impact on overall performance. Given SEL’s strong business risk profile, aided by an established market position, strong customer base, the group’s credit risk profile will continue to remain strong over the medium term.

 

Financial risk profile remains strong, with cash surplus and minimal external debt. Moderate capital expenditure (capex) funded through cash accruals will result in sustenance of healthy debt protection metrics.

 

The ratings reflect an established market position in the mechanical control cables and automotive lamps segment in India, diverse revenue profile, and superior operating efficiency. The ratings also factor in a strong financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and cyclicality in end-user industries.

Analytical Approach

For arriving at the ratings, CRISIL 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, and should be sustained in the medium term, 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. With no major capex plans in the medium term, the capital structure should remain strong. 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 Rs 160-180 crore, as against repayment obligation of around Rs 20-25 crore, per fiscal over the medium term. The group follows a prudent working capital management policy, resulting in moderate working capital requirement. Additionally, a high cash and cash equivalents balance is maintained. Liquidity is likely to remain strong, supported by healthy cash and cash equivalents.

Outlook: Stable

CRISIL believes the business risk profile will improve over the medium term, backed by an established market position, diverse revenue profile, and superior operating efficiency

Rating Sensitivity factors

Upward factors

  • Continued improvement in geographic concentration and customer diversity
  • Revenue growth of 20 percent while maintaining operating margins at around 14-16 percent

 

Downward factors

  • Deterioration in TOLTNW to more than 1.5 times
  • Decline in operating profitability leading to weaker than expected cash accrual.

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

 

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

1.5

NA

CRISIL A1+

NA

Cash Credit

NA

NA

NA

70.12

NA

CRISIL AA/Stable

NA

External Commercial

Borrowings

NA

NA

31-Mar-23

30.45

NA

CRISIL AA/Stable

NA

Long Term Loan

NA

NA

31-Mar-23

7.61

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 Automotive Private Limited, India

100%

Wholly owned subsidiary

Suprajit Europe Limited, UK

100%

Wholly owned subsidiary

Suprajit USA INC, USA

100%

Wholly owned subsidiary

Wescon Controls LLC, USA

100%

Wholly owned subsidiary

Luxlite Lamps SARL, Luxembourg

100%

Wholly owned subsidiary

Trifa Lamps Germany, Gmbh

100%

Wholly owned subsidiary

 

 
Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 245.43 CRISIL AA/Stable   -- 30-12-20 CRISIL AA/Stable 27-12-19 CRISIL AA/Stable   -- CRISIL AA-/Positive
      --   --   -- 06-12-19 CRISIL AA/Stable   -- --
      --   --   -- 26-03-19 CRISIL AA/Stable   -- --
Non-Fund Based Facilities ST 1.5 CRISIL A1+   -- 30-12-20 CRISIL A1+ 27-12-19 CRISIL A1+   -- CRISIL A1+
      --   --   -- 06-12-19 CRISIL A1+   -- --
      --   --   -- 26-03-19 CRISIL A1+   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 1.5 CRISIL A1+ Bank Guarantee 1.5 CRISIL A1+
Cash Credit 70.12 CRISIL AA/Stable Cash Credit 70.12 CRISIL AA/Stable
External Commercial Borrowings 30.45 CRISIL AA/Stable External Commercial Borrowings 30.45 CRISIL AA/Stable
Long Term Loan 7.61 CRISIL AA/Stable Long Term Loan 7.61 CRISIL AA/Stable
Proposed Long Term Bank Loan Facility 14.6 CRISIL AA/Stable Proposed Long Term Bank Loan Facility 14.6 CRISIL AA/Stable
Secured Overdraft Facility 55 CRISIL AA/Stable Secured Overdraft Facility 55 CRISIL AA/Stable
Working Capital Demand Loan 67.65 CRISIL AA/Stable Working Capital Demand Loan 67.65 CRISIL AA/Stable
Total 246.93 - Total 246.93 -
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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