| AIA Engineering Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities of AIA Engineering Limited (AIA; a part of the AIA group). CRISIL Ratings has also withdrawn its rating on bank facilities of Rs.458 crore basis request of the company and no objection from respective lenders with the withdrawal as there is no requirement of rating of these facilities stipulated by the lenders. This is in line with CRISIL Ratings policy for withdrawal of ratings
Revenues improved 22% year on year to Rs. 1625 crore during the first half of fiscal 2022 over the corresponding period previous year as exports continued to remain strong amid lower restrictions and easing of logistics issues. Revenue growth was driven by realization growth of 16% and volume growth of 6%. Operating margins however declined by ~300 bps during the period due to continued increase in raw material prices which could not be fully passed on. Nonetheless, operating margins continued to be maintained over 20% and with the company’s ability to pass on increase in raw material prices gradually, operating margins are expected to be maintained at 21-23% over the medium term as well.
AIA commissioned a 50,000 MT capacity in August 2019, and is in the process of adding additional capacity of 50,000 MT of mill liner capacity, expected to be commissioned by end of fiscal 2022; the latter has been delayed due to the pandemic. The company has further paused the last phase of expansion in the grinding media by 50,000 MT for the time being. This entire capex of Rs. 200 Crores is to be funded via existing cash surplus and internal accrual. Given the sizeable market potential of high-chrome grinding media for mining globally, increased capacities will enable AIA to scale-up further and strengthen its market presence.
The ratings continue to reflect the AIA group's healthy market position in the high-chrome mill parts and components market globally, its well-diversified revenue profile (both in terms of end-user segments and geographic coverage), and robust financial risk profile. These strengths are partially offset by the large working capital requirement and susceptibility to fluctuations in raw material prices and volatile foreign exchange (forex) rates. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of AIA and its subsidiaries, Welcast Steels Ltd (74.85% stake) and Vega Industries (Middle East) FZE (100%). This is because of the close operational and financial linkages between all these entities, collectively referred to herein as AIA.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths Healthy market position in the high-chrome mill parts and components market The AIA group has a strong market position in the in the high-chrome mill parts and components market globally, driven by superior technology, presence across key segments, efficient aftersales services, and longstanding client relationships in all end-user segments.
Diversified revenue profile The revenue mix benefits from diversity across end-user segments and geographical reach. AIA sells mill parts and components to the cement, mining and power industries. Further, within the mining segment, the company services ores of different minerals such as iron, copper, gold, and platinum across various geographies.
Robust financial risk profile Financial risk profile is robust, supported by steady cash accrual, low debt, comfortable debt protection metrics and strong liquidity. Gearing has been stable below 0.11 time over the past decade and will remain strong going forward. Besides strong liquidity at over Rs 2000 crore as on September 30, 2021 and healthy accruals, will comfortably fund the capex of for enhancing capacities to 440,000 tonne per annum (tpa).
Weaknesses Large working capital requirement Operations are working capital intensive, marked by large inventory and receivables of 124 days and 82 days, respectively, as on March 31, 2021. The company has to maintain large stock of inventory across geographies. Besides, receivables are moderately high due to long credit cycles extended to overseas clients. However incremental working capital requirement may be funded from the strong internal cash accrual, with negligible reliance on external debt.
Susceptibility to fluctuations in raw material prices and volatile forex movements Operating margin remains susceptible to fluctuations in raw material prices (particularly, steel scrap and ferrochrome) and foreign exchange rates, with exporting account for 75% of sales. Operating margin for instance declined to 18-20% in fiscals 2012 and 2013, and subsequently improved to over 28% over fiscals 2015 to 2017. While the margin remains susceptible to the above-mentioned risks, CRISIL Ratings believes that profitability would sustain at 21-23% over the medium term, given the ability to pass on raw material price fluctuations to customers. |
Liquidity: Strong The AIA group has strong liquidity, with cash and marketable securities of about Rs 2200 crore as on September 30, 2021. The fund-based bank limits remain largely unutilised. Healthy cash accrual of over Rs 400 crore, expected in the medium term, should suffice to cover the capex requirement of Rs 100-150 crore, in the absence of long term debt. |
Outlook: Stable CRISIL Ratings believes AIA’s business risk profile will continue to benefit from the group’s healthy market position and diversified revenue profile. Furthermore, the financial risk profile should remain healthy over this period, supported by steady cash accrual and large liquid surplus, notwithstanding the ongoing capex. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company AIA was incorporated in 1978, as Ahmedabad Induction Alloys Pvt Ltd, by the promoter, Mr Bhadresh Shah. This company was reconstituted as a public-limited company with the current name in 2005. It manufactures high-chrome grinding media, liners, and diaphragms, collectively known as mill internals. These are used for crushing and grinding operations in grinding mills, in the cement, power utility, and mining industries. AIA has one manufacturing subsidiary in India and eight marketing entities overseas. Capacity of 390,000 tpa, is being expanded to 440,000 tpa.
For the first six months of fiscal 2022, consolidated net profit was Rs 287 crore on operating income of Rs 1625 crore, against Rs 273 crore and Rs 1323 crore, respectively, during the corresponding period of fiscal 2021. |
Key Financial Indicators (Consolidated)
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
#OD/EPC/PCFC/FBD/EBRD/BG/SBLC/LC is sub limit of WCDL/FCDL of Rs.100 Crore. *EPC/PCFC/FBP/FBD/WCDL is sub limit of CC of Rs.25 Crore. $Interchangable with Working capital/Pre-Shipment/Post Shipment. LC/BG is sub-limit of Fund based limit of Rs.30 Crore. ^Interchangable with Working Capital Demand Loan. LC/BG is sub-limit of Fund based limit of Rs.150 Crore. ^^Interchangable with EPC/FBD **Interchangable with BC/BD/WCDL/LC/SBLC. BG upto 110 Crores is sub-limit of Fund based limit of Rs.228 Crore $$Letter of credit is sub limit of BG Limit of Rs.50 Crore. |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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#OD/EPC/PCFC/FBD/EBRD/ BG/SBLC/LC is sub limit of WCDL/FCDL of Rs.100 Crore.
*EPC/PCFC/FBP/FBD/WCDL is sub limit of CC of Rs.25 Crore.
$Interchangable with Working capital/Pre-Shipment/Post Shipment. LC/BG is sub-limit of Fund based limit of Rs.30 Crore.
^Interchangable with Working Capital Demand Loan. LC/BG is sub-limit of Fund based limit of Rs.150 Crore.
^^Interchangable with EPC/FBD
**Interchangable with BC/BD/WCDL/LC/SBLC. BG upto 110 Crores is sub-limit of Fund based limit of Rs.228 Crore
$$Letter of credit is sub limit of BG Limit of Rs.50 Crore.Criteria Details
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