| Gabriel India Limited | ||||
| Rating reaffirmed; FD withdrawn | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the bank facilities of Gabriel India Limited (GIL). Further, CRISIL Ratings has withdrawn its rating on Fixed Deposits of Rs.5 crores, at the company’s request and on receipt of required documentation. This is in-line with CRISIL Ratings’ withdrawal facility.
The reaffirmation continues to reflect healthy business risk profile marked by retention of market share across segments driven by steady ramp-up of operations post lockdowns owing to the pandemic and revenue diversity. The ratings are also strengthened by a robust financial risk profile backed by strong liquidity and unleveraged balance sheet.
Although the second wave of the pandemic has hindered the steady growth from the automobile industry, impact is expected to be low for GIL. The company’s established presence in 2/3 wheeler (2/3W), passenger vehicles (PV) and commercial vehicles (CV) across various channels such as Auto OEMs (Original equipment manufacturers), aftermarket and exports will help in better than industry performance during the fiscal. Strong relationship with clients and execution of new orders received will help benefit the operating performance as well.
Operating profitability is expected to improve over the medium term to 7-8%, owing to various cost reduction measures and an overall lean cost structure with low fixed costs and is expected to sustain with healthy industry growth outlook and strong efficiencies.
The financial risk profile continues to be healthy - with minimal dependence on external debt, and healthy cash surplus of Rs. 232 crore as on May 31, 2021 - and is likely to sustain the improvement over the medium term. Going forward, capital spending will, likely, be moderate and entirely funded through continued healthy cash accrual. This, coupled with efficient working capital management, should strengthen key credit metrics and unencumbered liquidity.
In fiscal 2021, though overall revenue de-grew by 9%, GIL was able to sustain its market share in 2w/3w (contributing to ~67% of revenues) amidst overall industry decline of 11%. Operating margin declined by 110 bps to 6.3% primarily due to higher raw material expenses and suboptimal coverage of fixed costs. During fiscal 2021, company received new orders from various clients which will support the revenue in fiscal 2022.
The ratings continue to reflect GIL's healthy market position in the suspension component segment, supported by diverse customer and segment base, improving operating efficiencies, robust technical capabilities, and strong financial risk profile. These strengths are partially offset by susceptibility to pricing pressure from peers and automotive OEMs. |
Key Rating Drivers & Detailed Description Strengths * Healthy market position and diversified customer and segment base GIL is one of the largest players in the automobile suspension component segment in India, with presence across OEMs, and aftermarket and export segments, through 15000 retailers in all 6 continents. Furthermore, a diverse clientele, spread across segments, provides revenue stability: sales from the top five customers contributed about ~50% to the revenue in fiscal 2021, and contribution of the two-wheeler, passenger car, and commercial vehicle segments was 67%, 21%, and 10%, respectively. Additionally, strong presence in the aftermarket segment (14% of sales in fiscal 2021), and improving exports enhance revenue diversity.
Due to weak demand in Fiscal 2020 and subsequent onslaught of the pandemic in fiscal 2021, revenues of the company moderated from Rs. 2076 crores as on March 31, 2019 to Rs. 1700 crores as on March 31, 2021. However, with recovery in demand and contribution from new orders, the scale is expected to gradually recover. CRISIL Ratings expects 2W and PV demand to improve by 11% and 15% respectively in fiscal 2022 which will help drive growth for GIL.
* Stable operating efficiencies Return on capital employed (ROCE) was healthy at over 16% till fiscal 2020. However due to moderation in margins in fiscal 2021, ROCE declined to 12%. Going forward, with operating margins expected to improve to 8-9% range, ROCE will also revert to over 15% levels.
Increase in sales in the aftermarket segment has however helped maintain growth in realisations, and partially offset the impact of volatility in raw material costs. Furthermore, longstanding technical tie-ups with global players, such as Yamaha Motor Hydraulic System Co Ltd, KYB Spain, and Kayaba Industry Co, enhance product development capabilities.
* Healthy financial risk profile Financial risk profile has continued to strengthen in fiscal 2021, with adjusted debt being Rs 13 crore as on March 31, 2021 (consisting of only lease liabilities on account of Ind-AS changes) , from over Rs 100 crore as on March 31, 2013. In the absence of any large, debt-funded capex, financial risk profile is expected to remain steady. Cash accruals are expected to remain healthy in the range of Rs. 100-120 crores over the next two fiscal. Furthermore, exposure to group companies is likely to remain minimal.
Weakness * Susceptibility to pricing pressure from OEMs and peers Profitability remains susceptible to increasing competition in the auto component segment, and pricing pressures from auto OEMs. The company has moderate flexibility to increase product prices through negotiation with end users during any increase in raw material prices. Volatility in operating margin has been fairly limited due to cost efficiencies and higher revenue contribution from the aftermarket segment. |
Liquidity: Strong Liquidity is strong, with absence of long-term debt and cash accrual expected at Rs 100-120 crore to be sufficient for meeting incremental capex and working capital requirements over the medium term. Bank lines of Rs 120 crore had nil utilisation for the past 4 months ended May 2021. Cash and cash equivalents were over Rs 260 crore as on March 31, 2021. |
Outlook: Stable CRISIL Ratings believes despite challenging business environment due to COVID induced slowdown, GIL will continue to benefit from its established market position in suspensions division, revenue diversity, and healthy operating efficiencies. The company's financial risk profile is expected to continue to be healthy, supported by robust liquidity, steady cash flow from operations, moderate capital expenditure, and healthy capital structure. |
Rating Sensitivity factors Upward Factor
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About the Company Established by Mr D C Anand in 1961, GIL manufactures ride-control products at its facilities in Dewas (Madhya Pradesh), Khandsa (Haryana), Hosur (Tamil Nadu), Parwanoo (Himachal Pradesh), Sanand (Gujarat), Nashik (Maharashtra), and Pune (Maharashtra). Clientele includes leading auto OEMs such as Tata Motors Ltd (rated 'CRISIL AA-/Stable/CRISIL A1+'), Ashok Leyland Ltd, Mahindra & Mahindra Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), TVS Motor Co Ltd, Hyundai Motor India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), Maruti Suzuki India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), and Bajaj Auto Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'). |
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)
&Fully interchangeable with non-fund based limits |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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