| Yazaki India Private Limited | ||||||
| Ratings downgraded to ‘CRISIL BBB+/Stable/CRISIL A2’; Removed from 'Watch Developing' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its ratings on the bank facilities of Yazaki India Private Limited (YIPL) from 'Rating Watch with Developing Implications' and has downgraded the ratings to ‘CRISIL BBB+/CRISIL A2’ from ‘CRISIL A-/CRISIL A2+’ while assigned a ‘Stable’ outlook to the long-term rating.
The ratings had earlier been placed on ‘Watch with Developing Implications’, following a fire incident at a manufacturing plant in Maraimalai Nagar (Chennai) on September 27, 2023. The plant contributed to around 15% of the overall revenue. As informed by the management, the damage was confined to stock and goods in the raw material storage location and two out of eight manufacturing lines were impacted by the fire. The company resumed operations at the site in October 2023. Further, it has adequate insurance coverage for the damage caused by the fire. The watch is now being resolved with clarity on impact of the incident on the financial risk profile of the company as well as timelines for settlement of the insurance claim.
The company has assessed a total insurance claim of Rs 271 crore for the fire incident. It has received Rs 160 crore till March 2024, as settlement towards inventory losses as against claim of around Rs 190 crore. The balance claim of around Rs 81 crore towards fixed assets and business interruption is likely to be settled by end of September 2025. Further, the company has booked losses of around Rs 35 crore for the fire incident in fiscal 2024. No further losses are likely to be booked during fiscal 2025.
The revision in rating follows a change in the analytical approach of CRISIL Ratings, from parent notch framework to a standalone approach, due to non-availability of latest financial statements of the parent - Yazaki Corporation.
YIPL registered healthy on-year revenue growth of 20% to Rs 4,143 crore during fiscal 2024, mainly driven by uptick in volume due to healthy demand from automotive original equipment manufacturers (OEMs), coupled with increased share of business from new and existing customers. With the launch of premium products such as augmented reality head-up display (ARHUD) and battery disconnect unit (BDU), fresh models introduced by auto OEMs, onboarding of new customers, and increasing demand for premiumisation, the company is expected to maintain revenue growth of 8-20% over the medium term.
Operating margin contracted by around 60 basis points to 8.7% in fiscal 2024, mainly owing to rise in operational expenses such as freight cost and lease cost for a new unit, post the fire incident. The margin is likely to sustain at 8.5-9% over the medium term, with increase in share of higher-margin premium products and focus on increased localisation for sourcing, partly offset by rise in input cost.
The financial risk profile remains modest though improving, marked by networth of Rs 473 crore against total debt of Rs 1,277 crore as on March 31, 2024. While debt levels remained high, more than 40% of debt has been availed from the parent, wherein the company enjoys flexibility on the repayment terms. With rise in debt levels to fund the capital expenditure (capex), key debt protection metrics such as interest coverage ratio and net cash accrual to total debt ratio (NCATD) were low at 3.60 times and 0.21 time, respectively, in fiscal 2024, as against 6.60 times and 0.24 time, respectively, in fiscal 2023. The company plans to incur a large capex of around Rs 1,300 crore over the next three years, funded through a mix of external commercial borrowings (ECBs) from the parent, term loan and internal accrual. Execution of capex, its funding and likely implications on key credit metrics of the company are monitorable.
Liquidity remains adequate supported by annual cash accrual estimated to be more than Rs 280 crore, available cushion in working capital limit and cash surplus of Rs 27 crore as on March 31, 2024. These together will be sufficient to cover the annual debt obligation and working capital requirement over the medium term. The company has the option to refinance or extend the loan tenor of ECBs from the parent in case of distress or insufficient cash flow. Further, with average utilisation of 58% for the 12 months through April 2024, there is sizeable cushion available in the bank limit. The entire debt sanctioned to YIPL is backed by corporate guarantee from the parent. Support from the parent and flexibility enjoyed by YIPL towards access to banking limits timely will also aid liquidity.
The ratings continue to reflect the healthy market position of YIPL in the domestic wiring harness industry. It also factors in support from its parent -- Yazaki Corporation, Japan (YC) -- by way of equity infusion, preference shares and loans, as well as operational and technical support. YIPL also benefits immensely from the financial flexibility of its parent (YC) who is expected to provide need-based support as evidenced in the past. However, these strengths are partially offset by the labour-intensive operations and exposure to volatility in raw material prices, which in turn impacts profitability and may lead to working capital mismatches during a slowdown in the industry. |
Analytical Approach CRISIL Ratings has revised its analytical approach from parent notch-up framework considered earlier to a standalone approach, owing to limited availability of information on the parent, YC.
Preference shares from YC, aggregating Rs 100 crore scheduled for repayment in July 2026, have been treated as debt. |
Key Rating Drivers & Detailed Description Strengths: Healthy market position in the Indian wiring harness segment YIPL is the second-largest manufacturer of wire harnesses in India, with a market share of around 20% in fiscal 2024, after Motherson Sumi Wiring India Ltd (‘CRISIL AA+/Stable/CRISIL A1+’). Key clients include major OEMs, including Maruti Suzuki India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Tata Motors Ltd (‘CRISIL AA/Positive/CRISIL A1+’), Toyota Kirloskar Motors Ltd, Honda Cars India Ltd and Ashok Leyland Ltd.
Diversified customer profile, increased wallet share with existing clients and expected improvement in the product range with ramp-up of operations in new segments will benefit the business over the medium term. YIPL is expected to undertake large capex to increase capacity of its component and wire harness systems, to accommodate demand from new clients. It also aims to set up factories for ARHUD and BDU, which should support revenue growth and market position over the medium term.
Strong operational and financial support from the parent YC, a leading automotive component company globally, enjoys a healthy market share in the wiring harness business. Impact of the ongoing slowdown in the global economy and automotive industry (in the regions the parent caters to) on the credit risk of profile of the parent is a key monitorable.
YIPL receives technological support received from its parent for setting up manufacturing facilities and continuous upgrade of systems and processes. The parent has shifted its global information technology support segment to India. Ramp-up of this segment will enhance the strategic importance of YIPL to YC over the medium term. On the operational front, around 25% of raw material consumed is imported from the parent and its associate companies. YC has also extended corporate guarantees for the entire debt of YIPL.
Weaknesses: Susceptibility to labour-intensive operations and volatility in raw material prices Manufacture of wiring harnesses is labour intensive as it involves a series of manual processes. Employee cost forms 15-21% of overall cost, after raw materials (66-70%) over the past five fiscals. Further, the company imports 48-50% of is raw material requirement from various countries such as Japan, Europe, Thailand and China, given the shortage in India. Profitability remains vulnerable to fluctuations in cost of raw material and foreign exchange rates. Hence, prices of key inputs such as copper will remain a key monitorable.
Limited pricing power due to dependence on OEMs High dependence on OEMs limits the pricing power of the company. While it has the flexibility to pass on increase in input cost to customers, it comes with a lag, and may not cover the full impact. Besides, the ability to pass on hike in other manufacturing overheads is restricted. In case of prolonged slowdown and lower automotive demand, OEMs are not able to pass on the price increase. Input cost increase is therefore absorbed by both the component manufacturers and the OEMs. This has led to volatility in profitability of the company over the past years.
Modest financial risk profile Financial risk profile is modest, marked by networth of Rs 473 crore, gearing of 2.70 times and total outside liabilities to tangible networth ratio of 4.70 times as on March 31, 2024. While the company has embarked upon an aggressive debt-funded capex of Rs 1,300 crore spread over three fiscals, the funding source for this capex is yet to be finalised. However, CRISIL Ratings understands that it will be funded through a mix of ECB from the parent, equity, internal cash accrual and term debt. Debt/Ebitda is expected at 4-5 times over the medium term (fiscal 2024: 3.5 times). Loans from the parent are for a tenure of three years with bullet repayment. Progress of capex, its funding and implications on the company’s key credit metrics will be a key monitorable in the near-to-medium term.
Capital structure is expected to remain modest over the medium term, marked by networth of over Rs 550 crore, debt of Rs 1,800-2200 crore and gearing of around 3 times. Parent support will remain a key monitorable over the medium term. |
Liquidity: Adequate The company had cash surplus of Rs 27 crore as on March 31, 2024, and generated cash accrual of Rs 270 crore during fiscal 2024. Liquidity should be adequate over the medium term, supported by annual cash accrual of over Rs 280 crore. Expected cash accrual, along with cushion available in the working capital limit, will suffice to cover the annual debt and working capital requirement over the medium term. Bank limit utilisation averaged 58% for the 12 months ended April 30, 2024 and the unutilised portion will act as buffer for exigencies. The company also draws parent support and has the option to refinance or extend the loan tenor in case of distress or insufficient cash flow. |
Outlook: Stable CRISIL Ratings believes YIPL will maintain its healthy business risk profile backed by its strong market position, healthy demand from auto OEMS and product diversification. Increase in scale of operations will lead to higher cash accrual. However, the debt-funded capex shall constrain the financial risk profile over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company YIPL was incorporated in 1997, as an equal joint venture between Tata Auto Comp Systems Ltd (TACO; 'CRISIL AA-/Stable/CRISIL A1+') and YC. The company began commercial production in 1999. It manufactures wire harnesses for various segments of the automotive industry. YC acquired the 50% stake from TACO in December 2012, making YIPL its wholly owned subsidiary.
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About YC Set up in 1941, YC is one of Japan's largest privately held companies. It operates across 42 countries and has business ties with major automotive OEMs worldwide. Japan is the primary market, followed by America, Asia, Europe and Africa. In addition to automotive components, YC and its subsidiaries manufacture a variety of items, including air-conditioning equipment, solar thermal conversion equipment, gas equipment and household electric wiring units. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Interchangeable with working capital demand loan ^^Interchangeable with buyer’s credit and overdraft #Interchangeable with vendor bill discounting |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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^Interchangeable with working capital demand loan
^^Interchangeable with buyer’s credit and overdraft
#Interchangeable with vendor bill discounting
Criteria Details
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