Key Rating Drivers & Detailed Description

Strengths:

Strong market position in the two-wheeler components industry:

ASK is a prominent player in the two-wheeler friction materials segment and caters to most of the renowned original equipment manufacturers (OEMs) in India, including Hero MotoCorp Ltd (‘CRISIL AAA/FAAA/Stable/CRISIL A1+’), Honda Motorcycle and Scooter India Pvt Ltd (HMSI), TVS Motors Co Ltd, Suzuki Motorcycle India Pvt Ltd, and Bajaj Auto Ltd (‘CRISIL AAA/ Stable/CRISIL A1+’). Presence in the export market, aftermarket segment and diversified product mix including brake shoe, aluminium die casting, panel assembly, etc. further supports the market position. Consequently, the company has been able to achieve healthy revenue performance in the ongoing fiscal despite the subdued industry performance. The group’s revenue grows around 25-30% to over Rs. 2500 crore in fiscal 2023. Going forward, revenue is further expected to improve with addition of new unit in Bhiwadi and Bangalore and management increased focus towards diversifying into passenger vehicle segment, increase in export sales and penetration into electric two-wheeler space. CRISIL believes ramp up of operations in new units leading to sustained improvement in business risk profile remains key monitorable.

Robust financial risk profile

The financial risk profile has improved consistently because of steady retirement of debt backed by sufficient reserves and reduced reliance on bank lines driven by prudent working capital management. ASK group is undertaking a large capex (around Rs. 300 crores) to setup new unit through its wholly owned subsidiary ASK Automobiles Private Limited which will act as an extended arm for AAL. The stated capex will be funded by an external debt of approx. Rs. 214 crores, the capital structure should remain robust supported by sizeable networth; the total outside liabilities to adjusted networth ratio is 0.93 times as on March 31, 2023 and is estimated at 0.7-0.75 times over the medium term. Debt protection metrics have remained robust and will continue to remain so over the medium term as well backed by steady operating profitability; interest coverage and net cash accrual to debt ratios are at 22-23 times and 0.60-0.80 times, respectively, for fiscal 2023.

Weaknesses:

Declining operating profitability and its susceptibility to volatility in input prices

Material cost accounts for around 65% of the total cost, and majorly comprises of aluminium and related alloys, the prices of which are highly volatile and are governed by the market forces. Moreover, limited bargaining power of ASK with its prominent OEM’s further constrains the operating profitability in the wake of high aluminium price increase, as the same is either not fully passed on or passed on with a time lag. This had impacted the operating profitability during fy22, which moderated to 8.7% (12.3% during fy21). Though operating profitability recovered fy23, at around 10%, it stood lower than historical range of 12.5-13%. Going forward, sustenance of operating profitability at 10-11% amidst sustained volumetric growth will remain a key monitorable.

High Dependence on two-wheeler OEMs, although improving export and aftermarket sales

The two-wheeler segment contributes 90-95% to the company’s revenue, with OEMs accounting for 70-80% over the past few years. Although the company is steadily diversifying into other segments such as exports, aftermarket, their revenue contribution remains low currently, estimated at around 30% in FY24. Though the stated risk is partly mitigated by the company’s strong market position and longstanding relationships with various OEMs, resilience in domestic OEM’s demand leading to overall business growth for ASK will be closely monitored.

Key Financial Indicators

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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