| AIA Engineering Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+/Stable/CRISIL A1+'; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
| ||||||
| 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 reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities of AIA Engineering Limited (AIA; a part of the AIA group).
The ratings continue to reflect the healthy position of the group in the high-chrome mill parts and components market globally, well-diversified revenue profile (both in terms of end users and geographic coverage), and robust financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to fluctuations in raw material prices and foreign exchange (forex) rates.
Operating income improved 25% year-on-year to Rs 3,635 crore during the first nine months of fiscal 2023 as exports remained strong amid lower restrictions and easing of logistics issues. Revenue growth was driven by 16% rise in volumes following better realisations. Operating margin improved to 25.4% during the same period from 22% in fiscal 2022 due to moderating raw material prices and favourable product mix. Margin is expected to remain strong at 22-24% over the medium term.
AIA commissioned a 50,000 MT capacity in August 2022 and is adding 80,000 MT of grinding media capacity, expected to be commissioned by the end of fiscal 2024. This capital expenditure (capex) of Rs 200-250 crore to be incurred over fiscals 2023-2024 along with additional maintenance capex, will be funded through 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 market presence. |
Analytical Approach 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 close operational and financial linkages among all entities, which are collectively referred to 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 The strong market position is driven by superior technology, presence across key segments, efficient aftersales services, and longstanding client relationships in all end-user segments. This makes AIA the biggest player in India and one of the top players globally.
Diversified revenue profile Revenue mix benefits from diversity across end-user segments and geographical reach. AIA sells mill parts and components to the cement, mining, thermal power plants and aggregate industries. Within the mining industry, 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 supported by large networth of Rs 4,741 crore as on March 31, 2022, steady cash accrual, small debt, comfortable debt protection metrics and strong liquidity. Gearing has remained below 0.11 time over the past decade and will continue to be strong over the medium term. Besides, strong liquidity of over Rs 2,300 crore as on December 31, 2022, and healthy accrual will comfortably fund capex for enhancing capacities to 520,000 tonne per annum (TPA).
Weaknesses Large working capital requirement Inventory and receivables levels were high at 161 days and 83 days, respectively, as on March 31, 2022, because the company has to maintain large stocks across geographies and extend high credit to overseas clients.
Susceptibility to fluctuations in raw material prices and forex rates Operating margin remains susceptible to changes in the prices of inputs (mainly steel scrap and ferrochrome) and forex rates, as exports account for 75% of sales. For instance, margin had significantly declined in the past to 18-20% and subsequently recovered due to this volatility. However, profitability would sustain at 22-24% over the medium term given improved ability to pass on raw material price fluctuations to most customers, insulating the margins against volatility. |
Liquidity: Strong Cash and marketable securities stood at about Rs 2,300 crore as on December 31, 2022. Fund-based limit remained moderately utilised at 28% over the 12 months through January 2023. Healthy annual cash accrual of over Rs 800 crore over the medium term should suffice to cover capex requirement of Rs 200-350 crore per annum.
ESG profile of AIA The ESG profile of AIA supports its already strong credit risk profile. The sector has a strong environmental and social impact, driven by its raw material sourcing strategies and energy-intensive processes.
Key ESG highlights:
ESG is gaining importance among investors and lenders. The commitment of AIA to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets. |
Outlook: Stable The business risk profile of AIA will continue to benefit from its healthy market position and diversified revenue profile. Financial risk profile should also remain strong over the medium term on the back of steady cash accrual and large liquid surplus, notwithstanding the ongoing capex. |
Rating Sensitivity factors Upward factors:
Downward factors:
|
About the Company AIA was set up in 1978 as Ahmedabad Induction Alloys Pvt Ltd by Mr Bhadresh Shah. It was listed on the stock exchanges with an initial public offering in 2005. AIA manufactures high-chrome grinding media, liners and diaphragms, collectively known as mill internals. These are used for crushing and grinding operations in the cement, power utility & aggregates and mining industries. AIA has one manufacturing subsidiary in India and nine marketing entities overseas. Capacity of 440,000 TPA is being expanded to 520,000 TPA.
For the first nine months of fiscal 2023, consolidated net profit was Rs 788 crore on operating income of Rs 3,635 crore, against Rs 425 crore and Rs 2,473 crore, respectively, during the corresponding period of fiscal 2022. |
Key Financial Indicators (consolidated)
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Interchangeable with working capital demand loan. Letter of Credit /Bank Guarantee is a sub-limit of fund-based limit of Rs 150 crore $$Letter of credit is a sub-limit of Bank Guarantee limit of Rs 50 crore *EPC/PCFC/FBP/FBD/WCDL is a sub-limit of CC of Rs 25 crore # OD/EPC/PCFC/FBD/EBRD/ BG/SBLC/LC is sub limit of WCDL/FCDL of Rs. 100 Crore |
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
|
Criteria Details
|