| Automotive Stampings and Assemblies Limited | ||||||
| Rating outlook revised to 'Positive'; Rating reaffirmed; Short-term rating upgraded to 'CRISIL A3+' | ||||||
| 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 outlook on the long-term bank facilities of Automotive Stampings and Assemblies Limited (ASAL) to ‘Positive’ from ‘Stable’ while reaffirming the long term rating at ‘CRISIL BBB’; CRISIL Ratings has also upgraded the rating on the short term bank facilities to ‘CRISIL A3+’ from ‘CRISIL A3’.
The outlook revision follows similar action of parent Tata Autocomp Systems Ltd (CRISIL AA-/Positive/CRISIL A1+), wherein the outlook was revised to Positive on account of expected improvement in business profile driven by healthy operating performance, and improvement in financial risk profile.
The rating action also reflects improvement in the liquidity profile of the company, supported by cash inflow from sale of land parcels in Chakan, Maharashtra, and Halol, Gujarat, for total consideration of Rs 113 crore; and better cash flow from operations. The company will use the proceeds from the land sale for debt reduction. The rating also factors in expected sustenance of operating performance, supported by healthy growth in revenue and profitability owing to recovery in end user demand, receipt of new orders and cost rationalisation initiatives.
Revenue is expected to increase by 30-35% in fiscal 2022 on a low base, driven by healthy offtake from its key customer, Tata Motors Ltd (TML; 'CRISIL AA-/Stable/CRISIL A1+'), and new orders from Tata Autocomp Hendrickson Suspensions Pvt Ltd and Cummins. Operating margin is expected to increase to 2-4% over the medium term on account of improving capacity utilisation, contribution from high-margin orders and reduction in cost through higher labour efficiency and reduction in rejection rate. Moreover, total debt (including loans from the parent and group) is expected to reduce to Rs 98 crore as on March 31, 2022, from Rs 157 crore as on March 31, 2021, using proceeds from the sale of land. Aided by better operating profit and reduction in total debt, interest coverage ratio will improve to 1-3 times in fiscals 2022 and 2023. Lower-than-expected increase in revenue and profitability may further increase debt and hence will be closely monitored.
The ratings factor in strong financial support received from Tata Autocomp Systems Ltd (TACO) and other group companies. As on March 31, 2021, TACO and other group companies had extended unsecured loan of about Rs 115 crore. These strengths are partially offset by ASAL’s weak financial risk profile; concentration in terms of product portfolio, geographical reach and clientele; and limited value addition in products. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial support ASAL receives from TACO, which holds 75% entity and has a track record of providing financial support by way of unsecured loans and intercorporate deposits. Adequate need-based support is likely to continue. |
Key Rating Drivers & Detailed Description Strengths:
ASAL is a key supplier of sheet-metal stampings, welded assemblies and modules for the passenger car segment of TML. Additional business from TML is likely to improve operating performance over the medium term. ASAL has received loans and intercorporate deposits from TACO and TATA Capital to ensure timely servicing of debt obligation and meet other funding requirement. ASAL will likely continue to receive timely, need-based funds from TACO.
The company has focused on reducing cost through various savings programmes over the past two fiscals. As a result, operating margin improved over the past three quarters to 2-6%, with various initiatives taken to expand the high-margin business, improve operating efficiency and implement low-cost automations.
Furthermore, revenue, which remained stagnant at Rs 290-360 crore over the past two fiscals, is expected to improve to Rs 450-500 crore in the current fiscal supported by recovery in passenger and commercial vehicles demand and new orders. Reduction in fixed cost and better throughput along with higher absorption of fixed cost with increasing revenue will enable ASAL to sustain its operating margin at 3-5% over the medium term. As a result, ASAL should achieve cash breakeven (excluding impact of sale of assets) in fiscal 2022.
Weaknesses:
The company had cash loss of Rs 30 crore and networth of negative Rs 13 crore in fiscal 2021. It has monetised two land parcels (Halol and Chakan) for combined consideration of Rs 113 crore, and has received advances of Rs 30-35 crore, which have been used to reduce debt and fund the working capital cycle. Networth will improve in the current fiscal but will remain negative owing to large accumulated losses. Expected breakeven and sustenance of profitability will result in improvement in the networth over the medium term.
Debt protection metrics will also improve, driven by interest coverage and net cash accrual to total debt ratios of 1-3 times and 20-50%, respectively, over the medium term. Timely receipt of proceeds from the land sale and commensurate debt reduction will be key monitorables. |
Liquidity: Adequate Bank limit of Rs 19 crore was utilised 86% on average during the 12 months through July 2021. Cash accrual will likely improve over the medium term backed by new orders and proceeds from land monetisation. The company has planned capital expenditure (capex) of Rs 25 crore in fiscal 2022, out of which Rs 15 crore will be funded through cash accrual and the remaining through bank debt; capex is expected at Rs 7-8 crore in fiscal 2023. Funding support from TACO is likely to continue. |
Outlook: Positive CRISIL Ratings believes ASAL will continue to benefit from the regular funding support from TACO, though the business risk profile will be constrained by low profitability and high dependence on TML. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company ASAL was set up as JBM Tools Ltd (JBM) by SK Arya and Associates (SKAA) in March 1990, and got its current name in August 2003. ASAL manufactures sheet-metal stampings, welded assemblies and modules for passenger cars and commercial vehicles, largely for TML; these products account for more than 95% of the total revenue. It has manufacturing facilities in Pune and Pantnagar, Uttarakhand.
ASAL reported revenue of Rs 404 crore and net loss of Rs. 8 crores in the first nine months of fiscal 2022, against revenue of Rs 205 crore and net loss of Rs. 30 crores during the corresponding period of the previous fiscal. |
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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Criteria Details
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