| Yazaki India Private Limited | ||||||
| Ratings placed on 'Watch Developing'; Rated amount enhanced for Bank Debt | ||||||
| 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 placed its ratings on the bank facilities of Yazaki India Private Limited (YIPL) on ‘Rating Watch with Developing Implications’.
The rating action follows fire incident at one of the company’s manufacturing plants at Maraimalai Nagar, Chennai plant on September 27, 2023. The plant contributes to around 15% of the overall revenue. As informed by the YIPL’s management, as per early estimates, the damage is confined to stock and goods in the raw material storage location and only one of the eight manufacturing lines has got impacted due to fire. Besides, the Company has adequate insurance cover available to the claim the damage caused by the fire incident. CRISIL Ratings will continue to be in discussion with the management and will be taking appropriate rating action basis the streamlining of operations to back to normal and with emergence of clarity of the impact on the company’s financial risk profile.
The ratings continue to reflect upon YIPL’s healthy market position in the domestic wiring harness industry. It also factors in support from its parent Yazaki Corporation (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 are expected to provide need-based support as evidenced in the past. However, these ratings 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 slowdown in the industry. Further, the company is planning to incur large a capital expenditure of over Rs 1500 crore over the medium term. The execution of this capex, its funding and implications on the company’s key credit metrics will be a key rating sensitivity factor in the near-to-medium term. Besides, the impact of the slowdown in global economy as well as automotive industry in the regions to which the parent caters, on credit risk of profile of the parent YC will be a key monitorable.
The Company registered a healthy revenue y-o-y growth of 47% to Rs 3,457 crore during fiscal 2023 mainly driven by uptick in volumes due to strong recovery in demand from auto OEM players post pandemic coupled with increased share of business with new customers. Volume growth is expected to sustain going forward owing to expansion of customer base, increasing wallet shares from existing customers and launch of new premium products in the pipeline. As a result, the company is expected to maintain revenue growth of 15-20% over the medium term.
Operating margins expanded by over 200 bps to 9.3% in fiscal 2023 due to correction in key input costs (mainly copper prices) and positive operating leverage gains due to volume growth. Stable input prices, change in product mix with rising share of premium products, implementation of cost optimisation techniques and increasing focus on localisation should result in further improvement in the company’s operating margin from the current level. However, the same might get impacted in case the faster execution of the large capex planned over the medium term as it would result in significant increase in overhead costs and will remain key monitorable.
Company’s financial risk profile remains modest marked by average capital structure, resulting from networth of Rs.251 crore and total debt of Rs.1106 crore as on March 31, 2023. While the debt levels remained high, around 40% of such debt is availed from parent wherein the company enjoys flexibility on the repayment terms. With the significant revival in the company’s operating performance in fiscal 2023, some of the key debt protection metrics such as interest cover and debt/ EBITDA have improved significantly to over 6.5 times and around 3.5 times, respectively (3.2 times and 6.9 times in fiscal 2022). That said, given the company plans to incur large-size capex of over Rs 1500 crore, the execution plan of the capex, its funding and the likely implications on the company’s key credit metrics will be a key rating sensitivity factor.
Liquidity continues to remain adequate with annual cash accruals in excess of Rs.190 crore coupled with cushion available in working capital limits which will be sufficient to cover the annual debt obligations and working capital requirement over medium term. Company has the option to refinance or extend the loan tenor of ECB from parent in case of distress or insufficient cashflows. Further, the Company has buffer in working capital limits which remained utilised to an extent of 61% for past twelve months ended July 2023. The entire debt sanctioned to YIPL is backed by corporate guarantee from the parent—Yazaki Corporation, Japan (YC). Support from the parent and timely enhancement in limit will help the company to maintain adequate liquidity. |
CRISIL Ratings has also applied the parent notch-up framework to factor in the strong financial and business support from the parent i.e. Yazaki Corporation. And, the preference shares from Yazaki Corporation aggregating Rs.100 crore and scheduled for repayment in July 2026 has been treated as debt. |
Key Rating Drivers & Detailed Description Strengths: Strong operational and financial support from the parent YC, a leading auto component company globally, has healthy market share in the wiring harness business. It clocked revenue of Yen 1804 billion during the year ended June 2022 (increased from Yen 1612 billion in June 2021), with adjusted gearing at 0.81 times. The impact of the ongoing slowdown in global economy as well as automotive industry in the regions to which the parent caters, on credit risk of profile of the parent YC remains a key monitorable.
YIPL benefits from technological support received from the parent for establishing its manufacturing facilities, and for 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. Further on the operational front, around 25% of the overall raw material consumed is imported from the parent and its associate companies.
Though the limits sanctioned to YIPL are standalone limits but they draw comfort from the parent’s (YC) support. YC has extended corporate guarantees for YIPL’s entire debt
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 29% in fiscal 2023 after Motherson Sumi Wiring India Ltd (‘CRISIL AA+/Stable/CRISIL A1+’) and supplies to major OEMs, including Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable/CRISIL A1+’), TATA Motors Ltd (‘CRISIL AA/Stable/CRISIL A1+’), Toyota Kirloskar Motors Ltd, Honda Cars India Limited and Ashok Leyland Limited.
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 in the medium term to increase capacity for their component and wire harness system to accommodate new clients and also aims to set up factories for Augmented Reality Head-Up Display (ARHUD) and Battery Disconnect Unit (BDU), which in turn shall support the revenue growth going forward and improve YIPL’s market position over the medium term.
Weakness: Labour-intensive operations and exposure to volatility in raw material prices The manufacture of wiring harnesses involves a series of manual processes, and hence is labour intensive. The employee costs at 15-20% form the second largest cost head for the company after raw materials at 66-70% over the past five fiscals. Further, Company imports around 50% of the raw material consumed from various countries like Japan, Europe, Thailand and China due to non-availability of the required materials in domestic market. Profitability is vulnerable to fluctuations in the prices of raw materials and foreign exchange rates and hence, price for key input materials like copper will remain a key monitorable.
Limited pricing power due to dependence on OEMs High dependence on OEMs limits pricing power. While there is flexibility to pass on increase in input cost to customers, the extent and timing is with a lag. Besides, the ability to pass on increases in other manufacturing overheads is restricted. In case of prolonged slowdown and lower auto demand, it is not always possible for OEMs to pass on the price increase. Input cost increase are therefore absorbed by both the component manufacturers and OEMs. This has led to volatility in YIPL’s profitability over the past years.
Modest financial risk profile Financial risk profile is modest marked by networth of Rs 251 crore, gearing and TOL/TNW at 4.40 times and 6.76 times respectively as on March 31, 2023. While the company has embarked upon an aggressive debt funded capex plans of over Rs 1500 crore spread over three years, the funding source for this capex is yet to be finalised. However, CRISIL Ratings understands that it will be funded largely through external commercial borrowings (ECB) from parent and balance from equity and internal accruals. Equity infusion of Rs 100 crore from parent is expected within next one to two months. The Debt/EBDITA is expected at 4-5 times (FY2023: 3.4 times) over the medium term. Loans from parent are for a tenure of 3 years with bullet repayment. The progress of the 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 medium term with networth of over Rs 400 crore, debt of Rs 1500-1900 crores (including parent loans of Rs. 600-1050 crores) and gearing of 4 times. Parent support will remain a key monitorable over the medium term. |
Company had cash surplus of Rs.27 crore as on March 31, 2023 and generated cash accruals of Rs.128 crore during fiscal 2023. Liquidity is expected to remain adequate over the medium term supported by annual cash accruals of over Rs 190 crore in the medium term. The expected cash accruals along with cushion available in working capital limits will be sufficient to cover the annual debt obligations and working capital requirements over medium term. Company has unutilised bank limits to an extent of 39% for a period of twelve months ended July 31, 2023, which will act as buffer for exigencies. Company also draws parent support and has the option refinance or extend the loan tenor in case of distress or insufficient cashflows. |
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 auto industry. YC acquired TACO's 50% stake in December 2012, making YIPL its wholly owned subsidiary.
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Set up in 1941, YC is one of Japan's largest privately held companies. It operates in 42 countries and has business ties with major auto OEMs worldwide. Japan is the company's primary market, followed by America, Asia, Europe and Africa. In addition to auto 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. YC’s operating revenue was Yen 1804 billion and operating margin was 0.5% as on June 30, 2022, against revenue of Yen 1612 billion and operating loss of 0.4% as on June 30, 2021. |
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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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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