| Atul Auto Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+/Negative/CRISIL A2'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Negative/CRISIL A2’ ratings on the bank facilities of Atul Auto Limited (AAL).
The rating reflects AAL’s robust business risk profile, because of moderate market share, established distribution network, and a 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 susceptibility to volatility in raw material prices.
Earlier, AAL’s ratings were downgraded to ‘CRISIL BBB+/Negative/CRISIL A2’ from ‘CRISIL A-/Stable/CRISIL A2+’ on March 29, 2022.
The rating action reflects the moderation in AAL’s business profile with slower recovery in demand for three wheels amidst pandemic situation. Against the earlier annual vehicle sales in range of 40000-50000 units, AAL’s sales volume dipped to 16295 vehicles in fiscal 2021 and estimated around similar levels in current fiscal. During the 9 months to December 2021, AAL had clocked sales of Rs. 210 cr with losses of Rs. 25 cr. Over the last couple of years, three wheeler industry has been worst affected automobile segment and AAL’s total reliance on the segment has translated into sharply reduced scale and operating losses. Further, while AAL’s quarterly sales has recovered to estimated average 5000 vehicles from sub-2000 vehicles (in Q1FY22), AAL’s volume recovery to pre-covid levels may take a couple of years and restrain the business profile over medium term. However, the credit profile is supported by healthy capital structure with estimated net worth around Rs. 270 cr and gearing around 0.3 times March 31, 2022. AAL’s liquidity is supported by healthy cushion in bank limits, controlled working capital cycle and ongoing term loan moratorium period. The pace and recovery of accruals are key monitorables for the company before the term repayments start in September 2022.
CRISIL Rating has factored the corporate guarantee AAL has extended to its subsidiary- Khushboo Auto Finance Ltd (KAFL). 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:
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.
Financial risk profile is backed by healthy 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. Though the much reduced scale, margin shall result in losses in fiscal 2022, the capital structure will remain healthy with gearing still estimated around 0.3 times as on March 31, 2022. The draw down on capex reimbursement term loan, cushion in working capital limits and incremental funding requirements, absence of repayment obligations, provided support to debt servicing ability during fiscal 2022. Over medium term, the turnaround in operations and recovery in margin shall remain key monitorables.
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 high financial flexibility, cushion in working capital limits, and steady working capital cycle. The controlled debt levels coupled with healthy net worth provides high financial flexibility to the company to raise funds in case of any exigency. Its average bank limit utilization stood below 30% over the last 12 months. Apart from USD 3.5 million working capital limits from EXIM bank, AAL has got Rs. 37.5 cr CC limits from IDBI bank and ICICI bank; company got IDBI limits doubled to Rs. 30 cr and fresh sanction from ICICI during the fiscal. AAL’s working capital cycle has remained steady around 3-4 months over the last few years. The drawdown of incremental (Rs. 60 cr) reimbursement capex in current fiscal has supported the liquidity and funding needs of the company, amidst the estimated cash losses, in current fiscal. The recovery in accruals and any significant exposure to group companies remain key monitorable. |
Outlook: Negative CRISIL Rating believes AAL’s business and financial risk profile is likely to remain under pressure owing to high dependence on 3 wheelers, weak demand and high competition. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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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
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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)
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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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This Annexure has been updated on 05-May-2022 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.
Criteria Details
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