Rating Rationale
October 21, 2022 | Mumbai
Suprajit Engineering Limited
Ratings reaffirmed at 'CRISIL AA / Stable / CRISIL A1+ '; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.386.25 Crore (Enhanced from Rs.262.93 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 Suprajit Engineering Limited (SEL; part of the Suprajit group) at ‘CRISIL AA/Stable/CRISIL A1+’.

 

The rating continues to reflect an established market position in India, diversified revenue profile, and strong operating efficiency along with a strong financial risk profile. These rating 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 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

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 14-15%, over the four fiscals through 2022.

 

For the first quarter of fiscal 2023, the group has reported a revenue of Rs.645 crore with an operating profitability of around 8%. 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% during first quarter FY23. 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 total outside liabilities to tangible net worth (TOLTNW) ratio were healthy at Rs 886.88 crore and 0.73 time, respectively, as on March 31, 2022, aided by steady accretion to reserves. The company has undertaken debt of around Rs.150 crore for funding the acquisition. Further, apart from regular annual capex, there are capex plans of around Rs.100 crore spread over the next two fiscals towards improving operating efficiencies of the facilities, around 75% of which is expected to be funded by external debt. However, the 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 19.24 times and 0.66 time, respectively, for fiscal 2022

 

Weaknesses:

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.

Liquidity: Strong

Average month end bank limit utilization remains moderate at less than 60% for the 12 months ended July 2022. Net cash accruals are expected to remain at more than Rs.190 crore per annum over the medium term which is expected to remain sufficient against repayment obligations in the range of Rs.50-60 crore. Healthy unencumbered cash and bank balance maintained of around Rs.80-100 crore, provides additional support to liquidity. Current ratio remains comfortable at around 2 times as on 31st March, 2022.

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 marked by healthy revenue growth rate along with sustenance of operating margin at more than 15%
  • Sustenance of strong financial risk profile

Downward Factors

  • Significant decline in revenue or operating profitability falling less than 9 percent
  • Any further debt funded capital expenditure or acquisitions adversely impacting the financial risk profile or cash balances falling below Rs.70 crore

About the Group

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

Consolidated

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

1,842.01

1,643.54

Reported profit after tax

Rs crore

173.08

142.71

PAT margins

%

9.40

8.68

Adjusted Debt/Adjusted Net worth

Times

0.35

0.42

Interest coverage

Times

19.24

12.83

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities – including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings’ complexity levels please visit www.crisil.com/complexity-levels. 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 Level Rating Assigned with Outlook
NA Cash Credit NA NA NA 30 NA CRISIL AA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 3.6 NA CRISIL A1+
NA Term Loan NA NA Mar-28 115 NA CRISIL AA/Stable
NA Working Capital Facility NA NA NA 237.65 NA CRISIL AA/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated Extent of Consolidation  Rationale for Consolidation 
Suprajit Engineering Limited 1 Parent company
Suprajit Automotive Private Limited 1 Wholly owned subsidiary with operational linkages
Luxlite Lamps and Trifa Lamps, 1 Wholly owned subsidiary with operational linkages
Suprajit USA Inc 1 Wholly owned subsidiary with operational linkages
Suprajit Europe Limited 1 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 382.65 CRISIL AA/Stable 04-02-22 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 3.6 CRISIL A1+ 04-02-22 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
Cash Credit 30 ICICI Bank Limited CRISIL AA/Stable
Letter of credit & Bank Guarantee 2.1 State Bank of India CRISIL A1+
Letter of credit & Bank Guarantee 1.5 Canara Bank CRISIL A1+
Term Loan 75 State Bank of India CRISIL AA/Stable
Term Loan 40 HSBC Bank Plc CRISIL AA/Stable
Working Capital Facility 4.72 Union Bank of India CRISIL AA/Stable
Working Capital Facility 67.65 Citi Bank CRISIL AA/Stable
Working Capital Facility 40 HSBC Bank Plc CRISIL AA/Stable
Working Capital Facility 15 Canara Bank CRISIL AA/Stable
Working Capital Facility 15 Axis Bank Limited CRISIL AA/Stable
Working Capital Facility 30 JP Morgan Chase Bank N.A. CRISIL AA/Stable
Working Capital Facility 15.28 Union Bank of India CRISIL AA/Stable
Working Capital Facility 50 State Bank of India CRISIL AA/Stable

This Annexure has been updated on 21-Oct-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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