Key rating drivers & detailed description

Strengths: 

Established market position in the automobile dealership business

The three-decade-long association with MSIL will continue to support the business risk profile. The company currently has 24 showrooms, 8 e-outlets and 15 workshops; and has received approvals from the principal to open showrooms in New Delhi and HP. CACL is one of the oldest and largest auto dealer for MSIL in Delhi-NCR (National Capital Region). The company held around 1.70% share in MSIL’s domestic sales in fiscal 2023. Healthy performance of the principal, complemented by new upcoming models, should also aid growth in revenue and profitability of the company.

Healthy financial risk profile

Networth and gearing were estimated to be strong at over Rs 300 crore and below 0.60 time, respectively, as on March 31, 2023 (Rs 285 crore and 0.45 time, respectively, previous fiscal). Gearing has remained below 0.50 time for the last five fiscals and should sustain at similar levels in the absence of any large, debt-funded capital expenditure (capex) in the near term. Debt protection metrics were adequate, with estimated interest coverage and net cash accrual to adjusted debt ratios of over 3 times and 0.2 time, respectively, for fiscal 2022 (6.6 times and 0.34 time, respectively, for fiscal 2022).

Weakness:

Exposure to intense competition and concentration risk associated with a single principal

The exclusive dealership for vehicles manufactured by MSIL makes CACL vulnerable to decline in revenue and profitability of the principal. Furthermore, non-exclusivity in the Delhi region exposes the company to competition from around 12 other MSIL dealers: in addition to dealers of other original equipment manufacturers (OEMs) in the auto sector.

Operating margin remained healthy at 4.4% in fiscal 2022 and is estimated at 3.5%-4.0% in fiscal 2023 because of advanced incentives provided by MSIL and certain cost-cutting measures adopted by CACL. OEMs also encourage more dealerships to improve their market penetration and sales, which further intensifies competition among dealers. Operating margin is likely to sustain at around 3.5% in the near term.

Key financial indicators

Annexure - Details of Instrument(s)

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