| Competent Automobiles Company Limited | ||||
| Rating upgraded to 'CRISIL A-/Stable; rated amount enhanced for 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 upgraded its rating on the long-term bank facilities of Competent Automobiles Co Ltd (CACL) to ‘CRISIL A-’ from ‘CRISIL BBB+’. The outlook has been revised to ‘Stable’ from ‘Positive’.
The upgrade reflects continuous improvement in the financial risk profile and liquidity over the three fiscals ending March 31, 2022, led by healthy accretion to reserves and low reliance on working capital debt. The company has also repaid its entire term debt. Liquidity should thus remain adequate, supported by healthy reserves of around Rs 74 crore estimated in fiscal 2022. The company also maintains healthy unencumbered cash throughout the year, to support the smooth operations. Networth has grown by over 40% in the four fiscals ending March 31, 2022. Gearing has also remained below 0.50 time in the past five fiscals.
Business risk profile is supported by the three-decade-long association with the principal, Maruti Suzuki India Ltd (MSIL; rated ‘CRISIL AAA/Stable/CRISIL A1+’) and continuous expansion in operations with new showrooms opened in Kullu and Rohini. However, growth has been stagnant, with CACL estimated to record sales of Rs 1,240 crore of sales in fiscal 2022, similar to that in fiscal 2019. Sales volume is slated to drop by over 11%, which may impact the market share amidst increasing competition. Sustenance of market share and improvement in scale of operations are key monitorables.
The ratings continue to reflect the established market position of CACL in the automobile dealership market in Delhi, Haryana and Himachal Pradesh (HP), and its healthy financial risk profile. These strengths are partially offset by exposure to intense competition and concentration risk associated with a single principal, MSIL. |
Key rating drivers & detailed description Strengths: Established market position in the automobile dealership business The three-decade-long association maintained 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 holds around 1.6% share in the total domestic sales of MSIL in fiscal 2022. 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 Financial risk profile is marked by large networth and low gearing of over Rs 280 crore and below 0.50 time, respectively, estimated as on March 31, 2022 (Rs 266.8 crore and 0.31 time, respectively, a year ago). Gearing has been 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) plans in the near term. Debt protection metrics are adequate with interest coverage and net cash accrual to adjusted debt ratios estimated over 3 times and 0.2 time, respectively, for fiscal 2022 (5.0 times and 0.50 time, respectively, for fiscal 2021).
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.
Increasing pricing pressure has forced auto OEMs to cut cost and lower their commission to dealers. This has led to a drop in the average operating margin to 2.5-3.0% over the five fiscals through March 2022. Operating margin was exceptionally high at 4.5% in fiscal 2021, 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 amongst dealers. Operating margin is likely to sustain around 3% in the near term. |
Liquidity: Strong Expected cash accrual of over Rs 30 crore in fiscal 2023 and beyond, should suffice to cover bulk of the incremental working capital expenses and debt obligation, in the absence of any debt obligation. Bank limit utilisation was also negligible, averaging 6% in the 12 months through February 2022, down from 28% in the 12 months through March 2021. Efficient working capital management should ensure limited reliance on bank debt.
The company maintained cash and bank balance of Rs 58 crore (Rs 45.5 crore in previous fiscal) as unencumbered fixed deposits estimated as on March 31, 2022. This is over and above the cash balance of around Rs 16 crore (Rs 17 crore in previous fiscal) in the current account. |
Outlook: Stable CACL should continue to benefit from its established market position in the auto dealership business in Delhi, Haryana and HP, and its healthy relationship with MSIL. |
Rating sensitivity factors Upward factors
Downward factors
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About the company CACL was incorporated by Mr Raj Chopra in 1985, and raised funds through a public issue in 1996. The company is an authorised dealer for MSIL in Delhi, Haryana, and HP. 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 | ||||||||||||||||||||||||||||||||
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This Annexure has been updated on 04-May-2022 in line with the lender-wise facility details as on 06-Sep-2021 received from the rated entity.
Criteria Details
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