| Atul Auto Limited | ||||||
| Rating outlook revised to 'Stable'; 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 Atul Auto Ltd (AAL) to ‘Stable’ from ‘Negative’ while reaffirming the rating at ‘CRISIL BBB+’. The short-term rating has been reaffirmed at 'CRISIL A2’.
CRISIL Ratings has also withdrawn its rating on the Rs 71.46 crore long-term bank facility on the request of the company as the same has been paid in full. This is in line with the withdrawal policy of CRISIL Ratings.
The outlook revision factors in improved business performance of AAL after covid-19 led slowdown and further expected improvement in vehicle sales over the medium term. However vehicle sale numbers remain low during first quarter on account of delay in regulatory approval for its diesel engine vehicles and same has been resolved and expected healthy contribution from diesel vehicles is expected to improve overall vehicle sales numbers. CRISIL will continue to monitor momentum in vehicle sales number over the medium term. Though financial risk profile continues to remain healthy and further improved on account of additional infusion of funds by promoters and the additional fund infusion also improved company’s liquidity profile. However rating continues to remain constrained because of business risk profile.
The ratings also factor in robust business risk profile of AAL because of moderate market share, established distribution network, and healthy financial risk profile. These strengths are partially offset by high reliance on a single vehicle segment and vulnerability to cyclicality, risks associated with scale up in expanded capacity and volatility in raw material prices.
CRISIL Rating has factored in the corporate guarantee AAL has extended to its subsidiary -- Khushboo Auto Finance Ltd (KAFL). KAFL is expected to play a significant role in the overall business risk profile of AAL over the medium term. This is because KAFL will operate as a non-banking financial company arm for the three-wheeler segment of AAL. Increase in any corporate guarantee towards, or further infusion of equity in, KAFL shall continue to be a key rating sensitivity factor. |
Key Rating Drivers & Detailed Description Strengths: Established business risk profile AAL is an established player in the three-wheeler industry, commanding around 5% of domestic market share and 3% of overall 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 operates only in the three-wheeler segment, exposing it to high segment concentration risk. Timely innovation, introduction of new products in line with market needs and revival of overall demand will be driving factors for growth in sales.
Healthy financial risk profile Financial risk profile is backed by healthy networth and low reliance on external debt. Balance sheet remained largely debt free till fiscal 2021, driven by efficient working capital management and funding of capital expenditure (capex) through cash accrual. The management infused fresh equity capital of Rs 89.75 crore till June 2023, out of total planned infusion of Rs 115 crore. The remaining Rs 25.25 crore will be infused in September 2023. The infusion has been used towards full repayment of the long-term loan obligation and remaining will be used for working capital purpose. Networth was healthy at Rs. 330.2 crores as on March 31, 2023 and the adjusting gearing remains at 0.61 times as on March 31, 2023 against 0.99 times as on March 31, 2022 after factoring in corporate guarantee extended to KAFL. Debt protection metrics remains adequate with interest coverage and adjusted NCAAD of 4.09 times and 0.11 times respectively as on March 31, 2023.
Weakness: Exposure to intense competition and risks related to geographic concentration and cyclicality in the commercial vehicle segment Despite healthy revenue growth 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 ('CRISIL AAA/Stable/CRISIL A1+'), Piaggio Vehicles Pvt Ltd ('CRISIL A/Negative/CRISIL A1'), and Mahindra and Mahindra Ltd ('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 revenue coming from Gujarat and few other states.
Risks associated with ramp up in capacity utilization Over the last few years, AAL incurred significant capex doubling its production capacity through greenfield capital expansion at Ahmedabad. While reduction in bank borrowing means low finance overheads, the large project exposes AAL to associated risks such as technology obsolesce, stabilisation and ramp up in operations. The risks are more pronounced amidst slow demand recovery. Turnaround in operations and recovery in margin shall remain key monitorables.
Exposure to volatility in raw material prices Profitability in the commercial vehicle industry is driven by product mix, sales mix, volatility in commercial vehicle prices, and input cost. 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 customers. |
Liquidity: Adequate Bank limit utilisation was low at 7.08% for the 12 months through March 2023. In the absence of any repayment obligation over the medium term, the entire cash accrual -- projected at Rs 38-58 crore per annum – will aid financial flexibility. Current ratio was 1.12 times on March 31, 2023. Low gearing and moderate networth should support liquidity. |
Outlook: Stable CRISIL Ratings believes AAL will continue to benefit from its established market presence, supported by a robust distribution network. |
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About the Company Incorporated in 1986, AAL is listed on the Bombay Stock Exchange. It manufactures three wheelers (goods as well as passenger segments) under the Atul brand, and spares, components, and allied products. The company is based in Rajkot has two manufacturing plants at Rajkot and Ahmedabad (both in Gujarat) with installed capacity to manufacture 60,000 vehicles each. Mr Chandra and Mr Patel along with their family members manage the business. |
Key Financial Indicators
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Any other information: Not applicable |
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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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