| ASA Industries | ||||||
| Rating outlook revised to 'Negative'; Ratings Reaffirmed | ||||||
| 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 revised its outlook on the long-term bank facilities of ASA Industries (ASA) to 'Negative' from 'Stable' while reaffirming the rating at ‘CRISIL BBB', the short-term rating is reaffirmed at 'CRISIL A3+’.
The revision in outlook reflects the deterioration in the financial risk profile characterized by higher-than-expected debt levels and lower operating margins resulting into low cash accruals. The debt protection metrics have further declined as on March 31, 2023 with high TOL/TNW at 4.3x and gearing of 2.01x respectively as compared to 3.8x and 1.96x respectively as on March 31, 2022. The revenue of the firm has grown by 11% in fiscal 2023, however the operating margin got impacted and declined to 4.5% in fiscal 2023 vs 5.8% in fiscal 2022 primarily due to volatility in the CR steel prices and moderate ability of the firm to pass on increase in raw material prices. While CR steel prices are expected to soften in the current fiscal, margins are expected to remain range bound between 4.5-5% over the medium term. CRISIL Ratings hence expects that capital structure correction will take longer than previously expected.
The ratings continue to reflect the established position of ASA in the ceiling fan stamping industry, its longstanding relationships with reputed clients such as Crompton Greaves Consumer Electricals Ltd (Crompton Greaves; ‘CRISIL AA+/Stable/CRISIL A1+’), Bajaj Electricals Ltd, USHA Fans, Havells India Ltd (Havells), and Polycab India Ltd (Polycab; ‘CRISIL AA+/Stable/CRISIL A1+’), and moderate financial risk profile. These strengths are partially offset by working capital-intensive operations, exposure to intense competition, and modest operating efficiency. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of ASA and an associate company, Sarveshwar Lamination Pvt Ltd (SLPL). This is because SLPL holds the fixed assets (land and building) of ASA, and both the entities have a common management.
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: Established position in the ceiling fan stamping industry and longstanding customers relationships Presence of more than four decades in the ceiling fan stamping industry has helped the partners establish strong relationships with customers and suppliers. ASA is a leading producer of ceiling fan stampings in the country and registered a compound annual growth rate of around 30% in revenue between fiscals 2017 and 2023. It caters to almost all major fan original equipment manufacturers such as USHA Fans, Crompton Greaves, Bajaj Electricals, V Guard, Havells and Polycab.
The firm began manufacturing fan covers in fiscal 2020 and has also started manufacturing chutney makers from the current fiscal. ASA has also set up a satellite plant in Hyderabad to cater to the south Indian market (30% fan manufacturers are based in Hyderabad).
ASA has been diversifying its product portfolio to reduce revenue concentration from fan products. It has started developing air-conditioning motors which is expected to result in better margins. These initiatives are expected to drive growth over the medium term.
Increasing scale of operations Firm’s revenue has seen a growth of 11% in the operating revenue duly supported by the volumetric growth in the electric stamping division. The operating income stood at Rs. 278 crore in fiscal 2023 compared to Rs 25 crore in fiscal 2016. ASA has also expanded its production capacity from 150 lakh kgs in fiscal 2022 to 200 lakh kg in fiscal 2023 for electrical stampings, which is expected to drive growth over the medium term. Firm’s new plant in Hyderabad is also expected to drive revenue growth in the medium term.
Weaknesses: Deterioration in the financial risk profile The company’s operating margin declined to 4.5% in fiscal 2023 from 5.9% in fiscal 2022 due to volatility in the CR steel prices and moderate ability of the firm to pass on increase in raw material prices which resulted into lower cash accruals and networth. The firm had a small net worth of Rs 25 crore as on March 31, 2023, which limits loss-absorption capacity. This along with increase in debt in fiscal 2023 to Rs 51 crore from Rs 46 crore in fiscal 2022 has led to decline in financial risk profile. The debt protection metrics have declined with high TOL/TNW at 4.3x and gearing of 2.01x as on March 31, 2023 as compared to 3.8x and 1.96x respectively as on March 31, 2022. While CR steel prices are expected to soften in the current fiscal, margins are expected to remain range bound between 4.5-5% over the medium term. CRISIL Ratings hence expects that capital structure correction will take longer than previously expected.
Working capital-intensive operations and modest operating efficiency Gross current assets were at 100-200 days over the five years through fiscal 2023. However, working capital efficiency has improved in the past 2-3 fiscals. Receivables have increased to 90 days in fiscal 2023 from 67 days in fiscal 2022 and is expected to stay in the same range going forward.
The firm has modest operating efficiency as it is a Tier II supplier, which limits upside on margins. Return on capital employed were 10.3% in fiscal 2023 compared to 14.9% in fiscal 2022, similar to decline in operating efficiency from 5.9% to 4.5% in the similar period. |
Liquidity: Adequate Bank limit of Rs 33 crore was utilized by around 68% over the past 6 months through March 2023. Net cash accrual of Rs 9-10 crore per annum in the medium term is expected to be adequate to repay debt obligations. Liquidity should remain adequate because of negligible capital withdrawal by the partners. |
Outlook: Negative CRISIL Ratings believes that capital structure correction of ASA will take longer than previously expected due to lower operating margin and expected debt funded capex in the medium term. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Set up in 1985 in Noida as a partnership firm by Mr Prakash Agarwal and Mr Sanjiv Kumar Agarwal, ASA manufactures stampings, laminations, and die cast rotors for electrical appliances, mainly fans. The firm has two plants in Noida comprising a total workforce of 350 employees. |
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)
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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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Criteria Details
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