| Atul Auto Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 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 BBB+/Stable/CRISIL A2’ ratings on the bank facilities of Atul Auto Limited (AAL).
The ratings continue to reflect the robust business risk profile of AAL backed by moderate market share and established distribution network, and its healthy financial risk profile. These strengths are partially offset by exposure to intense competition, segmental and geographical concentration risks and cyclicality in the commercial vehicle segment, and to risks associated with ramp-up of the expanded capacity and volatility in raw material prices.
CRISIL Ratings has factored in the corporate guarantee AAL has extended to its subsidiary, Khushboo Auto Finance Ltd (KAFL). KAFL will operate as a non-banking financial company for the three-wheelers sold by AAL, thereby playing a significant role in the overall business risk profile of AAL. Increase in any corporate guarantee towards, or further infusion of equity in, KAFL shall continue to be a key rating sensitivity factor. |
Analytical Approach CRISIL Ratings had earlier considered the standalone business and financial risk profiles of AAL and has now combined its subsidiaries, Atul Green Automotive Pvt Ltd (AGAPL) and Atul Greentech Pvt Ltd (AGPL), with commencement of operations in AGPL. All the companies have business and financial fungibility, are in similar business and have a common management.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established business risk profile AAL is an established player in the three-wheeler industry, with around 4% of the domestic market share and 3% share in domestic sales and exports by Indian companies. It caters to passenger, cargo, petrol, diesel, liquid petroleum gas and electric vehicles. Its distribution network is spread across India. As the company operates only in the three-wheeler segment, timely innovation, introduction of new products in line with the market needs and revival of demand will be driving factors for sales growth over the medium term.
The operating revenue was largely stable at Rs 495 crore in fiscal 2024 as against Rs 476 crore in fiscal 2023. It is expected to grow by 20-30% with improved operating margin, driven by an increase in vehicle sales.
Healthy financial risk profile The financial risk profile is backed by healthy networth of Rs 409 crore and low reliance on external debt, resulting in low gearing of 0.05 time as on March 31, 2024 (0.19 time a year earlier). The debt protection metrics were adequate with interest coverage and net cash accrual to adjusted debt ratios of 5.45 times and 1.09 times, respectively, for fiscal 2024.
The company has also extended corporate guarantee to KAFL, which is engaged into financing of vehicles sold by AAL. The gearing ratio, after factoring in the corporate guarantee, remained comfortable at 0.31 time as on March 31, 2024, against 0.51 time as on March 31, 2023.
Weakness: Exposure to intense competition, segmental and geographical concentration risks and cyclicality in the commercial vehicle segment AAL operates only in the three-wheeler segment, exposing it to high segment concentration risk. Despite healthy revenue growth over the past few years, the market share of AAL 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/Stable/CRISIL A1'), and Mahindra and Mahindra Ltd ('CRISIL AAA/Stable/CRISIL A1+). The competitive pressure from below-one-tonne mini truck and large three-wheeler manufacturers persists, too. Further, the company faces high geographical concentration in revenue with a major proportion coming from Gujarat and a few other states.
Risks associated with ramp-up in capacity utilisation Over the past few years, AAL has doubled its production capacity through greenfield expansion at Ahmedabad. While reduction in bank borrowing has led to low finance overheads, AAL remains exposed to risks such as technology obsolescence and ramp-up of operations following the expansion, especially amid slow demand recovery. Turnaround in operations and recovery in operating margin shall remain monitorable.
Exposure to volatility in raw material prices Profitability in the commercial vehicle industry depends on the product mix, sales mix, product prices and input cost. In line with the three-wheeler industry, AAL has limited ability to pass on the increase in raw material prices to its customers. |
Liquidity: Adequate Bank limit utilisation was nil for the 12 months through September 2024. Annual cash accrual is expected at Rs 40-50 crore against yearly term debt obligation of Rs 2-3 crore over the medium term, and will cushion liquidity.
The current ratio was healthy at 2.3 times as on March 31, 2024. |
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 Group Rajkot-based AAL was incorporated in 1986 and listed on the Bombay Stock Exchange. The company manufactures three-wheelers (goods and passenger segments) under the Atul brand, and spare parts, components, and allied products. The company has two plants at Rajkot and Ahmedabad (both in Gujarat) with capacity to manufacture 60,000 vehicles each. The business is managed by Mr Chandra and Mr Patel along with their family members.
Atul Greentech Pvt Ltd (AGPL) manufactures special electric vehicle (EV) variants and started commercial production from fiscal 2024. AAL has kept this segment separate to focus on the rapidly developing market for EVs. .
Atul Green Automotive Pvt Ltd (AGAPL) was incorporated to explore e-mobility services and potential opportunities in the green energy sector. AGAPL does not have major operations yet. |
Key Financial Indicators
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
|
Criteria Details
|