| Competent Automobiles Company Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+ / CRISIL A2 '; outlook revised to 'Positive' | ||||||
| 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 outlook on long-term ratings of Competent Automobiles Co. Ltd (CACL) to ‘Positive’ from ‘Stable’ while reaffirming the ratings at ‘CRISIL BBB+/CRISIL A2’.
The revision in outlook reflects CRISIL’s belief that CACL’s business risk profile will continue to improve despite the impact of Covid induced lockdowns in fiscal 2021 and 2022. This is on the back of showcasing significant improvement in revenue and operating profit in fiscal 2021 compared to CRISIL Ratings’ expectation of a decline. Improvement was led majorly by revival in passenger vehicle demand in second half of fiscal 2021 and increased market penetration for CACL. CRISIL Ratings’ expects sales of passenger vehicles to improve in fiscal 2022 and a long standing presence in the market should benefit CACL’s business risk profile over the medium term.
However, the prolonged impact of Covid-19 outbreak will be monitored and any larger than expected impact on the performance of CACL will be a key rating sensitivity factor.
Financial risk profile continues to remain strong as reflected by healthy capital structure and comfortable debt protection metrics. Gearing is estimated to have improved from 0.43 times as on March 31, 2020 to less than 0.4 times as on March 31, 2021. Interest coverage is estimated to have improved from 3.31 times for fiscal 2020 to more than 4 times for fiscal 2021 largely on account of improved operating profitability leading to lower reliance on external debt to fund incremental working capital requirements.
The ratings continue to reflect the company’s established position in the automobile dealership market in Delhi, Haryana, and Himachal Pradesh; and above-average financial risk profile. These strengths are partially offset by exposure to risks associated with principal concentration, and intense competition. |
Key Rating Drivers & Detailed Description Strengths:
Strong market position—supported by over 30 years of association with Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable/CRISIL A1+’)—supports business risk profile. The company currently has 26 showrooms, 6 E-outlets, and 17 workshops; and has consistently received approvals from the principal for opening showrooms in New Delhi and Himachal Pradesh.
Awards from MSIL, including for highest sales and customer satisfaction, ensure quality of services offered. After having registered a decline in revenue in last two fiscals, revenue is estimated to have improved in fiscal 2021 on the back of growth in volume.
Financial risk profile is likely to remain supported by efficient working capital management and healthy cash accrual. Networth was estimated around Rs 270 crore as on March 31, 2021, with TOL/TNW ratio low at around 0.4 times. Debt protection metrics were also healthy, with interest coverage and NCAAD ratios estimated at over 4 times and 0.3 time, respectively, for fiscal 2021.
Weakness:
Exclusive dealership for MSIL cars exposes the company to risks associated with decline in principal’s revenue and profitability. Furthermore, the agreement with MSIL does not guarantee CACL exclusivity in Delhi, resulting in competition from around 12 other MSIL dealers; apart from dealers of other original equipment manufacturers (OEMs).
Amid increasing pricing pressure, automotive OEMs have cut costs, consequently reducing commission to dealers, as reflected in median operating margin estimated at 2.9% over the five fiscals through 2021. The OEMs also encourage more dealerships (thereby increasing competition) to improve market penetration and sales. |
Liquidity: Strong Cash accrual is expected to remain healthy over Rs 30 crore in fiscal 2022 and beyond and will thus be healthy against nominal yearly debt obligation of around Rs 1 crore. Cash accrual should be sufficient to fund majority of incremental working capital requirement and debt obligation, leading to limited dependence on bank borrowing. Bank limit utilisation averaged 17% during the six months through March 2021 and should remain stable, supported by efficient working capital management.
Liquidity is further supported by healthy cash and bank balance of Rs 28 crore maintained as unencumbered fixed deposits at end of March, 2021. This is over and above cash balance of around Rs 10 crore kept in current account. Further, the promoter has continued to extend unsecured loans, which reduced to Rs 13.5 crore as on March 31, 2021 from Rs 23.3 crore as on March 31, 2020. |
Outlook: Positive CACL should continue to benefit from its established market position and healthy relationship with MSIL. |
Rating Sensitivity factors Upward factors * Sales growth of over 10% while maintaining operating profitability over 3% * Improved financial risk profile, esp. liquidity
Downward factors * Decline in sales by over 30% or stretch in working capital cycle or deterioration in operating margin slipping below 3% on a sustainable basis * Large debt-funded capex impacting financial risk profile, esp. liquidity |
About the Company CACL was incorporated in 1985 by Mr Raj Chopra and went public in 1996. The company is an authorised dealer for MSIL in Delhi, Haryana, and Himachal Pradesh. It is listed on the Bombay Stock Exchange. |
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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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Bank Guarantee | State Bank of India | 1.5 | CRISIL A2 |
| Bank Guarantee | State Bank of India | 1 | CRISIL A2 |
| Cash Credit | HDFC Bank Limited | 40 | CRISIL BBB+/Positive |
| Cash Credit | State Bank of India | 6.3 | CRISIL BBB+/Positive |
| Inventory Funding Facility | HDFC Bank Limited | 70 | CRISIL BBB+/Positive |
| Inventory Funding Facility | HDFC Bank Limited | 35 | CRISIL BBB+/Positive |
| Inventory Funding Facility | State Bank of India | 6 | CRISIL BBB+/Positive |
| Inventory Funding Facility | State Bank of India | 6 | CRISIL BBB+/Positive |
| Proposed Fund-Based Bank Limits | Not Applicable | 0.2 | CRISIL BBB+/Positive |
This Annexure has been updated on 21-Sep-2021 in line with the lender-wise facility details as on 06-Sep-2021 received from the rated entity.
Criteria Details
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