| Atlas Copco India Limited | ||||||
| Rated amount enhanced for Bank Debt | ||||||
| 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 reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities of Atlas Copco India Limited (Atlas Copco).
The ratings continue to reflect the leadership position of Atlas Copco in the compressor and construction segments in India, its robust financial risk profile and strong technological and managerial support from the parent, Atlas Copco AB (ACAB; rated ‘A+/Stable/A1’ by S&P Global Ratings).
Revenue is estimated at Rs 3,977 crore for fiscal 2023 (up by 11% over the previous fiscal), driven by healthy growth in the compressor segment, and is likely to grow by 10-13% in the medium term. The operating margin is estimated to be at an all-time high of 19% for fiscal 2023, driven by increased profitability in the compressor technique and industrial technique segments. The margin should sustain at similar levels in the medium term, supported by revenue from high-value products.
Financial risk profile remains robust, backed by a strong networth of over Rs 1,500 crore as on March 31, 2023, and a conservative capital structure. Moderate capital expenditure (capex) plans support credit metrics, despite high dividend payout, which is expected to continue over the medium term. The company is debt-free as of March 2023, and will fund future expansion plans through its internal accrual.
The above-mentioned strengths are however partially offset by the large working capital requirement and susceptibility to cyclicality in demand from end-user industries. |
Analytical Approach To arrive at the ratings, CRISIL Ratings has applied its parent notch-up framework to factor in the technological and managerial support from ACAB. In the event of an exigency, the parent should also provide distress support to Atlas Copco. This considers the strategic importance of Atlas Copco to ACAB and the companies being in the same line of business. ACAB owns 99.99% stake in Atlas Copco and shares its name and product lines with the subsidiary. |
Key Rating Drivers & Detailed Description Strengths: Leadership position in the compressor and construction equipment segments: Among the factors that contribute to the dominant market position of Atlas Copco are its strong brand equity, diversified product portfolio, use of latest technology and a wide distribution and service network. Revenue is expected to grow by around 12% over the medium term, because of the strong market position of the company.
Strong technological and managerial support from the parent: ACAB is a leading global player in the compressed air equipment, vacuum solutions, generators, pumps, construction equipment and pneumatic tool industries. Access to technological capabilities of the parent, the diversified product portfolio and brand name offer Atlas Copco, a competitive edge in the domestic market. The company imports critical components for compressors from its group companies on a routine basis, and thus, benefits from new technology and global economies of scale.
Robust financial risk profile: Financial risk profile remains strong, backed by a conservative capital structure, above-average profitability, nil debt and healthy credit metrics; as reflected by its interest coverage of 154 times for fiscal 2023 and negligible gearing of 0.02 time as on March 31, 2023. This is notwithstanding a high dividend payout of up to 90% of profit after tax. The sizeable payout may continue over the medium term as well, post meeting the internal cash outflow requirements.
Weaknesses: Exposure to cyclicality in demand from end-user industries: Customers in the industrial segment are mainly from the engineering and other capital-intensive divisions. Demand from these industries remains cyclical and depends on the underlying macroeconomic situation in the country. Revenue growth, therefore, remains susceptible to economic downturns.
Large working capital requirement: Most of the critical components and spare parts are imported from group companies. The long delivery lead time for imports and need to maintain stock of spares necessitate a large inventory. As a result, receivables and inventory are estimated at 72 days and 90 days, respectively, as on March 31, 2023 (vis-a-vis 72 days and 93 days, respectively, a year before). |
Liquidity: Superior Financial support from the parent should continue both on an ongoing basis and in the event of distress. On a standalone basis, the company has strong liquidity, driven by net cash accrual estimated at Rs 160 crore (net of dividend) in fiscal 2023 and cash and cash equivalents of Rs 520 crores as on March 31, 2023. Net cash accrual declined from Rs 234 crore in fiscal 2022, owing to a high dividend payout of Rs 434 crore to the parent. Expected net cash accrual of Rs 200-250 crore in fiscals 2024 and 2025 should suffice to cover the capital expansion plans and the working capital expenses. No fund-based limits were utilised. In the absence of any long-term debt, the company plans to fund its capex of around Rs 250 crore over the next two fiscals, through its internal accrual. |
Outlook: Stable Atlas Copco should maintain its strong business risk profile over the medium term, backed by technological support from its parent and its established market position in the Indian compressor and construction equipment segments. Further, financial risk profile is expected to remain robust, supported by steady cash accrual, negligible debt and a healthy liquid surplus. |
Rating Sensitivity Factors Downward Factors
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About the Company Atlas Copco manufactures air and gas compressors, construction equipment and industrial tools. Its units are in Chakan and Pune (both in Maharashtra). In March 2011, ACAB increased its equity stake in Atlas Copco to 96.29% (from 83.77%), following which the latter was delisted. Consequent to the capital reduction exercise in July 2020, ACAB has 99.9% stake in Atlas Copco as on date. |
Key Financial Indicators
*Provisional |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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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