| CMR-Toyotsu Aluminium India Private Limited | ||||||
| 'CRISIL A+/Stable/CRISIL A1' assigned to 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 assigned its 'CRISIL A+/Stable/CRISIL A1' ratings to the bank facilities of CMR-Toyotsu Aluminium India Private Limited (CMRT; part of the CMR group).
The rating reflect the healthy business risk profile of CMRT, supported by established position in the aluminium recycling industry with strong technical capabilities and high operating efficiencies; comfortable financial risk profile and significant synergies as well as strong business and financial support from parent, Century Metal Recycling Ltd (CMR; ‘CRISIL A+/Stable/CRISIL A1’). These strengths are partially offset by exposure to cyclicality in the automobile (auto) industry and to volatility in metal prices. Despite the impact of Covid-19, revenue grew marginally at 2% in fiscal 2021 driven by healthy aluminium demand following rebound in sales for auto original equipment manufacturers (OEMs). Similar to the parent, CMRT has strengthened its competitive edge in supplying molten aluminium and ingot to auto companies over the last five fiscals. Furthermore, longstanding relationships with customers and favourable location of plants will result in healthy revenue growth of 8-12% per annum over the medium term. Stringent cost control, focus on quality and low rejection rate along with efficient procurement of scrap through established global vendor base have steadily improved operating margin to about 9.2% in fiscal 2021 from 7% in fiscal 2017. Better capacity utilisation with recovery in demand will help sustain margin at 9-10% over the medium term. Impact on profitability owing to ramp-up will remain a key monitorable. Financial risk profile remained strong, with adjusted networth of about Rs 165 crore as on March 31, 2021, as improved operating profitability resulted in high accretion to reserves along with equity capital invested in the business. Against this, total debt was Rs 100 crore. Financial risk profile is further supported by healthy annual cash accrual of Rs 30-35 crore against modest average capital expenditure (capex) of Rs 20-25 crore and debt repayment of around Rs 5 crore per annum over the medium term. Any large, debt-funded capex will remain a key monitorable. The rating is also supported by strong promoter experience and managerial and financial synergies with the parent. CMR has also given corporate guarantees for 100% of the credit facilities of CMRT. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong business managerial and financial linkages with the parent. |
Key Rating Drivers & Detailed Description Strengths: * Strong support of CMR and commonality in business CMRT is the key entity for the CMR group, which has capacity of over 300,000 tonne per annum (tpa) spread across 11 plants. The group has about 60% market share in liquid aluminium and 30-35% share in the recycled aluminium industry (1.3 million tonne capacity). With a production capacity of 66,000 tpa, CMRT contributes to about 20% of the revenue and operating profit of the group.
During its three decades of industry experience, the management has invested in several technologies and formed joint ventures (JVs) with many global players to advance the aluminium recycling process. The CMR group has pioneered liquid aluminium and several other technologies over the last five years to generate better scrap yield and segregate minute aluminium. It continues to invest in newer capabilities, the benefits of which are enjoyed by all group entities including CMRT. The parent has extended need-based support in the past and will continue to do so in case of exigency.
* Healthy position in the recycled aluminium industry and high operating efficiency: The company follows the hub-and-spoke model for over-the-road molten aluminium technology in areas where its plants are near the units of major auto OEMs. This has enabled it to develop healthy relationships with customers and save inventory cost. Operating margin has been high largely because of material cost efficiencies achieved by investing in technologies such as hot refining and cold refining. Yield from scrap has improved to about 80% from 75% earlier. The group has pass-through clauses that mitigate the impact of price volatility on margin.
Moreover, a robust centralised IT (information technology) system supports overall manufacturing process. Since every consignment is different, the IT system becomes crucial in determining its exact composite and managing inventory effectively. It tracks material buying, logistics, production and sorting of materials. This has resulted in cost efficiencies and operating margin of 9.2% in fiscal 2021. Return on capital employed also remained healthy at about 18.5%. Though margin is expected to remain range bound at 9-10% over the medium term. the impact of ramp-up in scale on profitability will remain a key monitorable.
* Comfortable financial risk profile: Cash accrual of Rs 30-40 crore per annum is expected to be sufficient for average annual capex of Rs 20-25 crore, over the medium term. While accrual is sufficient for expenses, any large capex/acquisition may require the group to contract external debt. Networth and gearing are estimated to be strong at over Rs 165 crore and 0.6 time, respectively, as on March 31, 2021. Debt protection metrics are strong, with interest coverage and ratios of 5 times for fiscal 2021.
Weakness: * Susceptibility to cyclicality in the auto industry and limited pricing power: The auto industry is inherently cyclical with performance linked to the economy. High dependence on OEMs partially limits pricing power. Also, operating profitability is exposed to volatility in raw material prices. Profitability may remain at 8-10% over the medium term. |
Liquidity: Adequate Cash accrual is expected to be Rs 30-40 crore in fiscal 2021. Fund-based limit of Rs 84 crore was utilised at 49% on average during the 12 months through March 2021. Internal accrual, cash and equivalent and unutilised bank limit will be sufficient to meet debt obligation and working capital requirement. However, the company may depend on debt to fund increased capex or incremental working capital requirement. |
Outlook: Stable The company is expected to maintain its position in the aluminium recycling industry and benefit from healthy growth prospects. Steady cash-generating ability, improving profitability and moderate capex are also expected to help sustain healthy financial risk profile over the medium term. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company CMRT was established in April 2014 in Sriperumbudur, near Chennai. The company is a JV between CMR (70%) and Toyota Tsusho Corporation, Japan (TTC; 30%). CMRT manufactures aluminium alloys at its 9-acre plant and has a market share of 15-20% in South India. It is a pioneer in ingot and molten metal in this part of the country. Association with TTC, which has extensive experience in the alloy business, has further strengthened the technical know-how of CMRT. The company’s plant has a pump furnace, twin-shaft shredder, advanced sorting technology and baghouses. |
About the Group CMR is India’s largest producer of aluminium and zinc die-casting alloys with a combined annual capacity of over 300,000 tpa. The CMR group is also engaged in the segregation and sale of metal scrap (with specific focus on stainless steel, brass, copper and zinc).
For the nine months through December 2020, the CMR group reported revenue of Rs 2,173 crore and profit after tax (PAT) of Rs 115 crore. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 WCDL and FCNRB WC Loan |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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