| Aurangabad Electricals Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term bank facilities of Aurangabad Electricals Limited (AEL) to ‘Positive’ from 'Stable' while reaffirming the long term rating at ‘CRISIL A+’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1’.
The change in outlook factors in the expected improvement in the company’s business risk profile driven by its established market position in the aluminum die casting segment, long standing relationships with various OEMS, expanding product basket catering to two wheelers, four wheelers & other industrial segments (Genets/digisets etc.) and technological, managerial and need based financial support from its parent Mahindra CIE Automotive Limited (MCIE).The ratings also factor in the company’s healthy financial risk profile marked by a healthy capital structure and strong debt protection metrics. These strengths are partially offset by limited diversification in end-user industries and client base, and susceptibility to demand volatility in the two-wheeler and passenger car segments.
During CY2021, revenues grew 33% year on year to Rs 964 crores driven by improvement in both price realization (~18%) and volumes (~15%). Operating margins moderated marginally to 10.3% in CY2021 as against 11.2% in CY2020. This was primarily on account of sharp increase in prices of its primary raw material aluminum which resulted in a 500 bps dip in the gross margin level; however higher scale of operations resulted in better absorption of fixed costs thus limiting the impact on overall operating margin to ~90 bps. Going forward, revenues are expected to grow by 5-7% over the medium term in-spite of expected decrease in realizations while operating margins are expected to sustain at 10-12% supported by higher capacity utilization and better operating leverage.
Healthy capital structure and adequate debt protection metrics should support the credit risk profile. Gearing is expected to remain below 0.20 times over the medium term while debt protection metrices like interest coverage and net cash accruals to total debt (NCATD) are expected to remain above 30 times and 1.4 times respectively over the medium term.. Company has planned capex of ~Rs. 50 crore per annum over the medium term which is expected to be funded through internal accruals.
AEL’s parent, Mahindra CIE Automotive Ltd (MCIE), saw healthy revenue growth of 37% y-o-y in CY2021, on a low base of last year and recovery in demand from the passenger vehicle (PV), commercial vehicle (CV), and two-wheeler segments. Operating profitability also improved to 12.5% in CY 2021 from 8.7% in CY2021. The revenue growth momentum continued in the first half of this calendar year with the company recording revenues of Rs. 5,005 crore during H1CY22 (H1CY21: Rs. 4,026 crore) while operating margins remained steady at 12.9% (H1CY21: 14.3%). The credit profile of the parent is expected to remain healthy with steady increase in scale of operations while maintaining steady operating margins benefitting cash generation. |
Analytical Approach The ratings factor in the distress support expected from the parent MCIE. AEL will receive support from the parent for timely debt servicing during exigencies, besides operational, financial, and managerial support, considering both companies are in similar businesses. |
Key Rating Drivers & Detailed Description Strengths: Strong business relationship with key customer The company derived ~68% of its revenues from Bajaj Auto Ltd (BAL; CRISIL AAA/Stable/CRISIL A1+) during CY2021, the second-largest player in the two wheeler industry in India. AEL has been associated with BAL for more than two decades, and supplies castings and brake drums for BAL's two and three-wheelers manufactured for both the domestic and global markets. It is one of the primary suppliers to BAL. Its clientele also includes major auto original equipment manufacturers (OEMs) such as Ashok Leyland Ltd and Mitsubishi Motors. Increased business from new customers in the past three years has resulted in improved customer diversity.
Addition of new customers esp. in the four-wheeler segment has resulted in steady decrease in revenue concentration from key customer BAL from over 85% a decade earlier to less than 70% currently. This is expected to further come down to ~60% over the medium term.
* Strong technological, operational and financial support from the parent The MCIE group has an established market position and strong relationships with global and domestic OEMs such as Mahindra & Mahindra Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Tata Motors Ltd (‘CRISIL AA-/Stable/CRISIL A1+’), Ford Motor Company and Nissan Motor Company Ltd. The technological support from MCIE will help AEL strengthen its market presence in India. MCIE also is also expected to provide timely financial support during exigencies. AEL remains strategically important to MCIE owing as it is the only company in the group having capabilities in aluminum die casting segment. MCIE has also extended financial support when needed to ensure smooth operations (as indicated by promoter loan of Rs 12-13 crore in the Q2 of FY2021, which has been repaid).
* Comfortable financial risk profile The financial risk profile of AEL has strengthened with continued control over debt and healthy cash accruals. This is reflected in comfortable credit metrics; adjusted gearing improved to 0.22 time as on Dec 31, 2021, from 0.48 times a year earlier on account of reduction in debt to Rs 68 crore from Rs 114 crore due to prudent working capital management. Interest coverage and NCATD also remained healthy at 43 times and 1.64 times respectively for CY2021. Cash accruals is expected to remain in the range of Rs 90-110 crore over the medium term which would be sufficient for meeting increased working capital and capex requirements.
Weakness: * Customer and segmental concentration in revenue The company's business prospects are largely linked to the performance of the two-wheeler industry (~75% of revenues in CY2021), and specifically to BAL. The risk is mitigated by BAL's position as the second-largest player in the motorcycle industry. However, limited segmental diversification, negligible presence in the aftermarket, and large dependence on one client and segment limits bargaining power and constrains the business risk profile. Benefits of increased business with new customers will likely kick in only over the medium term. CRISIL expects customer and geographical diversification to improve gradually over medium term.
* Susceptibility to demand volatility in the two-wheeler and passenger car segments High focus on research and development, large product portfolio and faster adoption of new technologies should result in increased business over the medium term. While the revenue profile benefits from improving geographic diversity, it remains susceptible to cyclicality in the auto industry and the ability of OEMs to sustain their market share in the domestic and overseas markets. |
Liquidity: Adequate Liquidity is likely to remain adequate over the medium term. The company has fund based working capital limits of Rs. 55 crore which was moderated utilized at ~40% over the past 12 months ending June’2022. Further, expected cash accrual of Rs 90-110 crore over the medium term should be sufficient to support debt repayment obligations of Rs 20 crores in CY2022 and 2023 and incremental capex requirments. In addition, AEL has cash surplus of around Rs 59 crores as on 31 Dec 2021. Any large, debt-funded capex or acquisition affecting the credit metrics will remain a key rating sensitivity factor. |
Outlook Positive CRISIL Ratings believes AEL will continue to improve its business risk profile over the medium term, driven by greater product and geographic diversification. The business risk profile also benefits from continued steady offtake by BAL and synergies with its parent. The financial risk profile will continue to be supported by increase in steady operating cash flow and prudent working capital management. Support from parent will continue to benefit the credit risk profile of AEL. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company AEL was incorporated in 1986 as a part of the Bagla group to supply magnetos to the Bajaj group. The company manufactures aluminum die-castings and has five units, at Aurangabad and Chakan in Maharashtra and at Pantnagar in Uttarakhand. In April 2019, AEL was acquired by MCIE and become a 100% subsidiary of MCIE.
About MCIE MCIE was formed as a result of a partnership between the Mahindra group of India and CIE Automotive SA (CIE) of Spain. As part of this partnership, CIE acquired a majority stake in the auto component companies of the Mahindra group. All these companies were brought under MCIE (some were merged while others became subsidiaries), along with the three forgings plants of CIE in Europe.
MCIE provides a wide product mix, including components for engines and powertrains, chassis, gears and shafts, automotive magnets and lamps, and around 50% of its revenue is from outside India. From December 2015, the company changed its reporting year from March 31 to December 31. In September 2016, MCIE announced acquisition of Bill Forge India Pvt Ltd (BFPL) for Rs 1,331 crore.
For 2021, on a consolidated basis, MCIE reported adjusted PAT of Rs 393 crores and operating income of Rs 8425 crores against an adjusted PAT of Rs 106 crores and net sales of Rs 7624 crores in the previous year. |
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)
*Interchangeable with Export Bill Discounting to the extent of Rs.10 crore ^Interchangeable with LC/BG to the extent of Rs. 10 crore ** Interchangeability from FB to NFB limits enhanced from existing Rs 4 Cr to Rs.6 Cr. *** 100% Interchangeability in fund and Non-fund base |
| 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 24-Aug-2021 in line with the lender-wise facility details as on 3-Aug-2021 received from the rated entity.
Criteria Details
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