| Atul Auto Limited | ||||||
| Ratings downgraded to 'CRISIL A-/Stable/CRISIL A2+' | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its ratings on the bank facilities of Atul Auto Limited (AAL) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL A/Stable/CRISIL A1’.
The rating action reflects the moderation in AAL’s business profile with the expected slow recovery in demand for three wheels amidst pandemic situation. After showing initial signs of rebound in Q2FY21 and Q3FY21, the 3 wheeler demand dipped in Q4FY21 and with the pandemic situation worsening, the recovery in demand shall remain muted over near to medium term. CRISIL believes that with AAL totally reliant on 3 wheeler industry, its performance shall remain moderated compared to earlier expectations. However, the credit profile is supported by healthy estimated net worth around Rs. 300 cr with negligible debt as on March 31, 2021. AAL’s liquidity profile is adequate with current freely available mutual fund, FD balance of around Rs. 20 cr and controlled working capital cycle.
The ratings reflect AAL’s robust business risk profile, because of moderate market share, established distribution network, and efficient working capital management. The rating also factors in a healthy financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices, vulnerability to cyclicality in the commercial vehicle segment, and risks associated with scale up in expanded capacity.
CRISIL Ratings has factored in the expected investment of Rs. 44.57 cr by AAL in Khushboo Auto Finance Ltd (KAFL) for acquiring the remaining 70% stake and the corporate guarantee (of Rs 115 crore) AAL has extended. In the medium term, KAFL is expected to play a significant role in AAL’s overall business risk profile. This is because KAFL will operate as a non-banking financial company (NBFC) arm for AAL’s three-wheeler segment. Increase in any corporate guarantee towards, or further infusion of equity in, KAFL shall continue to be a key rating sensitivity factor over the medium term. |
Key Rating Drivers & Detailed Description Strengths:
Financial risk profile is healthy and should remain so over the medium term, backed by net worth, and low reliance on external debt. Balance sheet has remained largely debt-free over the five years ended March 31, 2021, driven by efficient working capital management and funding of capital expenditure (capex) through accrual. Networth is estimated around Rs 300 crore as on March 31, 2021. Though the sharp dip in scale, margin is likely to result in some losses in fiscal 2021, the capital structure will remain healthy with gearing still estimated at below 0.1 times as on March 31, 2021. This has also ensured comfortable estimated debt protection measures in fiscal 2021. Over medium term, the turnaround in operations and debt raised by company shall remain key monitorables.
AAL is an established player in the three-wheeler industry, commanding around 5% of domestic market share. It caters to demand for passenger, cargo, petrol, diesel, liquid petroleum gas, and electric vehicles. The distribution network is spread across India. However, the company’s presence is limited to only 3 wheelers exposing it to high segment concentration risk.
Weaknesses
Despite healthy growth in revenue over the past few years, market share remains modest in the overall three-wheeler segment due to intense competition from large players, such as Bajaj Auto Ltd ( rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'), Piaggio Vehicles Pvt Ltd (rated 'CRISIL A+/Negative/CRISIL A1'), and Mahindra and Mahindra Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+). Competitive pressure from below-one-tonne mini truck and large three-wheeler manufacturers persists, too. Further, the company faces high geographical concentration with majority of revenues coming from Gujarat.
Over last few years, AAL had incurred significant capex doubling its production capacity through greenfield capital expansion at Ahmedabad. While minimal bank borrowings means low finance overheads, the large project exposes AAL to associated risks, such as technology obsolesce, stabilisation and ramp up in operations. The risk are more pronounced amidst the prevailing pandemic situation.
Profitability in the commercial vehicle industry is driven by product mix, sales mix, volatility in commercial vehicle prices, and raw material costs. In line with most end users in the three-wheeler industry, AAL has limited ability to pass on the increase in raw material prices to its customers. |
Liquidity: Adequate AAL has adequate liquidity backed by liquid investments, steady working capital cycle, no bank limit utilization and high financial flexibility. The company currently has freely available mutual fund investments of around Rs. 20 cr. The working capital cycle has remained steady around 3-4 months over last 3 years with no reliance on bank borrowings (nil utilization of Rs.15 cr cash credit limit). The company has a nominal term loan of Rs. 15 cr which is currently under moratorium as per sanction terms. AAL also enjoys high financial flexibility backed by healthy net worth and minimal debt. The recovery in accruals and any significant exposure to group companies remain key monitorable. |
Outlook: Stable CRISIL Ratings believes AAL will continue to benefit from its established market presence, supported by a robust distribution network. |
Rating Sensitivity factors Upward Factors
Downward Factors
|
About the Company Incorporated in 1986, Rajkot-based AAL is listed on the Bombay Stock Exchange. The company is promoted by Mr Chandra and Mr Patel, and their families. It manufactures three-wheelers (goods as well as passenger segments) under the Atul brand, and spares, components, and allied products. |
Key Financial Indicators
|
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)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit | IDBI Bank Limited | 15 | CRISIL A-/Stable |
| Long Term Loan | Exim Bank | 90 | CRISIL A-/Stable |
| Pre-Shipment Credit in Forex | Exim Bank | 25 | CRISIL A2+ |
| Total | - | 130 | - |
This Annexure has been updated on 16-Aug-2021 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.
Criteria Details
|