Detailed Rationale

Crisil Ratings has downgraded its ratings on the bank facilities of Wardwizard Innovations & Mobility Ltd (WIML) to ‘Crisil BBB-/Negative/Crisil A3’ from ‘Crisil BBB/Stable/Crisil A3+’.

 

The rating downgrade factors in the weakening of the company’s financial risk profile, especially liquidity, on account of an increase in debt level and high repayment obligation for fiscals 2025 and 2026. Further, operations remain working capital intensive, with gross current assets (GCAs) expected at more than 350 days as on March 31, 2025, and high bank limit utilisation of about 98.7% through the eight months through November 2024, constraining the credit risk profile. To meet the working capital requirement, the company availed of working capital term loans from non-banking financial companies (NBFCs) along with a vendor bill discounting limit. This may increase the debt level, expected to be twice the networth. Thus, total outside liabilities to tangible networth (TOL/TNW) ratio will likely remain more than 2.5 times and gearing at 1.8 times as on March 31, 2025. Furthermore, the company has few capital expenditure (capex) plans lined up, which if funded through debt will impact financial flexibility and liquidity. Hence, improvement in the financial risk profile will remain a key monitorable factor.

 

The Negative outlook considers a likely moderation in the business risk profile of the company. Revenue may be lower than expected in fiscal 2025 on account of slow demand of electric two-wheelers (E2Ws) and electric three-wheelers (E3Ws), despite healthy realisations. Also to support sales, the company did major marketing/promotional activities of Rs 12.4 crore during the first half of fiscal 2025; this led to the operating margin dropping to 5.63% from 12.76% in the corresponding period of the previous fiscal. WIML is expected to see challenges in fiscal 2025, in terms of demand and sustenance of the operating margin. Improvement in the business risk profile will remain a key monitorable.

 

The ratings reflect the established market position, extensive experience of the promoters, healthy revenue profile and moderate debt protection metrics. These strengths are partially offset by large working capital requirement, leveraged capital structure and susceptibility to customer concentration risk.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of WIML.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position, extensive experience of promoters and healthy revenue profile: WIML is the one of largest players in the low-speed E2W market in India, backed by the extensive experience of its promoters, its well-established brand, Joy, and pan-India distribution network. The company has over 750+ dealers, over 150+ showroom distributors and is also planning to set up 10 new super stockiest by the end of FY25. Additionally, its promoter company has a presence across more than 15 states with 200 dealers. Revenue is projected at Rs 300-350 crore for fiscal 2025, which is lower than expected owing to slower demand; however, realisations are better hence, revenue seems achievable. Nevertheless, ability of the company to achieve steady growth in revenue without majorly contributing to related parties and with strategic decisions undertaken by the management, its timely recovery and sustenance thereafter will remain monitorable.

 

• Moderate debt protection metrics: Debt protection metrics are expected to be moderate, with interest coverage ratio of 2.1-2.2 times and net cash accrual to adjusted debt ratio of 0.05-0.10 time for fiscal 2025; the metrics are expected to remain similar over the medium term. Any further decline in profitability or new loans availed will impact the debt protection metrics and remain monitorable.

 

Weaknesses:

• Large working capital requirement: GCAs were 241 days as on March 31, 2024 (214 days a year earlier), driven by inventory of 99 days and receivables of 77 days. Further, inventory stood at 134 days and debtors at 113 days for the first half of fiscal 2025. As the company maintains inventory to meet demand in accordance with its made-to-order business model, inventory is expected at 110-140 days over the medium term as well. The company sells vehicles to its dealers on a prepayment basis. However, debtors of 100-175 days are offered to key distributors and super-stockists, such as such as Wardwizard Solutions India Pvt Ltd, Garuda Mart India Pvt Ltd, Aevas Business Solutions Pvt Ltd and other 4-5 Super Stockists in different states. Nevertheless, the working capital is partially supported through creditors of 90-120 days. Considering the nature of industry, operations are likely to remain working capital intensive over the medium term.

 

• Leveraged capital structure: Networth is expected at more than Rs 100 crore, with debt rising twice the networth in fiscal 2025, as the company has availed of a vendor bill discounting facility and short-term working capital demand loan from a few NBFCs for working capital requirement. Thus, TOL/TNW ratio is expected at more than 2.5 times and gearing more than 1.8 times as on March 31, 2025. Further, the company has planned a capex worth Rs 75 crore in fiscals 2025 and 2026, to be funded through 75% debt or equity (though yet to be decided), for enhancing its production capacity for E3Ws. Furthermore, company is in process of issue of right shares to the tune of Rs 49 crores, which may aid the financial flexibility. If the capex is funded via debt or any delay in raising the equity, the capital structure may further weaken and remain monitorable over the medium term.

 

• Customer concentration in revenue: WIML is an established supplier of E2Ws and E3Ws. Its sales are majorly routed through promoter companies, such as Wardwizard Solutions India Pvt Ltd and Garuda Mart India Pvt Ltd, which are super stockists contributing to ~64% of the revenue. High concentration towards few customers exposes revenue and profitability of WIPL to the growth plans of these key clients.

Liquidity: Stretched

Fund-based bank limit (cash credit) utilisation was high at 98.7% on average for the eight months through November 2024. Though the company received an enhancement of Rs 40 crore in the form of cash credit and working capital demand loan, any further stretch in the bank limit utilisation will remain a key rating sensitivity factor. Cash accrual is expected at ~Rs 15 crore per annum, tightly matched to meet yearly debt obligation of Rs 15-20 crore for fiscals 2025 and 2026 (repayment for fiscal 2025 is Rs 14.95 crore, of which the company has served Rs 7 crore so far). Cash and cash equivalents of Rs 29.5 crore as on September 30, 2024, may aid liquidity. Current ratio stood moderate at 1.13 times as on March 31, 2024.

Outlook: Negative

Business risk profile is likely to remain constrained by the expected moderation in revenue and operating margin against the likely increase in debt levels. Ability of the company to cope with fluctuations in revenue and operating margin, impacting its liquidity, will be a key monitorable.

Rating sensitivity factors

Upward factors:

• Sizeable growth in revenue and operating margin increasing above 10%, leading to healthy cash accrual
• Improvement in the financial risk profile
• Improvement in the working capital cycle, with healthy cushion in the bank limit.
   

Downward factors:

• Decline in revenue or operating margin, resulting in cash accrual less than Rs 15 crore
• Further stretch in the working capital cycle or any large, debt-funded capex
• Further stretch in liquidity, with narrowing cushion in the bank limit

About the Company

Incorporated in 1982 as Manvijay Development Co Ltd, the company was renamed as WIPL in 2019 with change in control and management. WIML manufactures and sells E2Ws and E3Ws, offering five models in the high-speed category and three in the low-speed category. Its product range includes E2W, passenger rickshaws, electric carts and electric loaders. The company has a state-of-the-art manufacturing unit in Vadodara (Gujarat), with installed capacity of 120,000 units for two-wheelers in single shift operation and 40,000 units for three-wheelers based on a three shift operation.

Any other information: Not Applicable