October 03, 2012

Mumbai

Alicon Castalloy Limited

Ratings Reaffirmed

(Refer to Annexure 1 for details on facilities)

CRISIL’s ratings on the bank facilities of Alicon Castalloy Ltd (Alicon; erstwhile Enkei Castalloy Ltd [Enkei Castalloy]) continue to reflect Alicon’s established market position in the cast-aluminium automobile components sector, its improving scale of operations, and its adequate financial risk profile, marked by healthy debt protection metrics. These rating strengths are partially offset by the susceptibility of Alicon’s profitability to volatility in input prices, weak though improving performance of overseas subsidiaries, and the company’s moderately working-capital-intensive operations.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Alicon and its wholly owned subsidiaries, Illichmann Castalloy, GmbH, Austria, and Illichmann Castalloy, s.r.o, Slovakia.

Outlook: Stable

CRISIL believes that Alicon will maintain its established market position in the domestic cast-aluminium automobile components sector, and gradually improve its financial risk profile, supported by steady cash generation and prudent capital expenditure (capex). The outlook may be revised to ’Positive’ if Alicon’s revenues register better than anticipated growth, operating profitability is maintained at adequate levels, including through turnaround of overseas subsidiaries, and the company’s gearing and debt protection metrics register faster-than-expected improvement. Conversely, the outlook may be revised to ‘Negative’ if Alicon’s business performance is weaker than anticipated, its subsidiaries take longer than expected to turn around, working capital intensity is higher than expected, or if the company undertakes a larger-than-expected debt-funded capex, preventing the envisaged improvement in gearing and debt protection metrics.

About the Company

Alicon was originally established as Enkei Castalloy, a joint venture of Pegasus Castalloy Ltd (an Indian company, engaged in producing cast-aluminium automotive components since 1990) and Enkei Corporation (Japan), one of the largest manufacturers of alloy wheels in the world. Enkei Castalloy ventured into the alloy wheel casting business in 2006 to capitalise on the experience of Enkei Corporation, and by 2008-09 (refers to financial year, April 1 to March 31), the business division accounted for around 38 per cent of the company’s total revenues. However, faced with stiff competition from Chinese manufacturers, the company’s alloy wheels division continued to make losses and required additional funding. Therefore, the promoters decided to demerge the wheels business into a separate company, Enkei Wheels Ltd, while retaining the casting business; the demerger has been effective from April 1, 2009. Enkei Castalloy’s name was changed to Alicon on December 27, 2010.

Alicon manufactures aluminium castings such as cylinder heads, support brackets, intake manifolds, crankshafts, engine brackets, and others, for use in the automobile industry. The company has a capacity to manufacture about 21,000 tonnes of aluminium casting products per annum. Its clients includes major Indian auto original equipment manufacturers (OEMs) such as Honda Motorcycles and Scooters India Ltd, Maruti Suzuki India Ltd, Hero MotoCorp Ltd, Bajaj Auto Ltd, and Tata Motors Ltd. Alicon’s manufacturing units are located in Pune (Maharashtra) and Binola (Haryana). The company’s subsidiaries manufacture aluminium casting products, which are supplied to automobile and engineering OEMs in the European market.

For 2011-12, Alicon reported, a net profit of Rs.128.8 million on net sales of Rs.4.6 billion; it reported a net profit of Rs.119.1 million on net sales of Rs.2.9 billion for the previous year. For the quarter ended June 30, 2012, the company reported a net profit of Rs.3.7 million on net sales of Rs.1358 million, compared with a net profit of Rs.3.9 million on net sales of Rs.1019 million in the corresponding quarter of 2011-12.

Annexure 1 - Details of various bank facilities