Rating Rationale
January 20, 2025 | Mumbai
Gala Precision Engineering Limited
Rating outlook revised to 'Positive'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.62 Crore
Long Term RatingCrisil BBB+/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCrisil A2 (Reaffirmed)
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities of Gala Precision Engineering Limited (GPEL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘Crisil BBB+'. Crisil Ratings has also reaffirmed its rating on the short-term bank facility at ‘Crisil A2’.

 

The revision in the outlook reflects expectations of improvement in GPEL’s business profile, backed by strong revenue growth while sustaining operating margins above 18%. Revenues is expected to grow at 20-25% year-on-year with higher volumes in fiscals 2025 and 2026. Financial profile has strengthened with Rs. 121 crores raised from initial public offer (IPO), which has been used towards reduction of debt.  Hence higher operating profit and coupled with lower interest costs will lead to higher cash accruals.

 

The ratings continue to reflect GPEL’s established market position in the springs and fastener industry, the diverse product line, healthy operating margins and comfortable financial risk profile . These strengths are partially offset by large working capital requirements and exposure to cyclicality in end-user industries.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of GPEL and its China-based wholly owned subsidiary, Gala Precision Component Shanghai Ltd, which is strategically important to and has significant operational integration with GPEL.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the springs and fastener industry:: The promoters experience of over two decades in the engineering and automotive industry has helped establish strong relationships with customers leading to repeat orders. The company has an established customer base and has added clients across various industries in both domestic and overseas markets. This has led to revenue growth to Rs 202 crore in Fiscal 2024 from Rs. 106 crore in fiscal 2021. Revenue is further expected to increase over the medium term driven by healthy demand and continuous increase in manufacturing capacity.

 

  • Diversified product profile and end-user industry: GPEL has a diversified portfolio comprising disc spring systems, special fastening solutions and coil spring systems. Disc spring systems products contribute between 65-70% to revenue. It caters to various industries such as automotive, power, renewable energy, industrial and railways. This protects revenues from slowdown in demand in a single industry.

 

  • Comfortable financial risk profile: Networth stood at Rs 82.52 crore, gearing and total outside liabilities to adjusted networth (TOLANW) improved to 0.67 times 1.02 times respectively as on March 31, 2024 from 0.94 and 1.81 times as on March 31, 2024.  Capital structure is further expected to improve with TOLANW below 1 times as GPEL has raised Rs 121 crores IPO which were partly used for the repayment of the term loans. Debt protection metrics were comfortable, as reflected in interest coverage and net cash accrual to total debt ratios of 7.10 times and 0.53 time, respectively, in fiscal 2024. Debt protection metrics would continue to remain healthy driven by moderate leverage and healthy profitability.

 

  • Improvement in operating margin: Operating margin rose to 19.6% in fiscal 2024 from 16.2% in fiscal 2022 driven by new products and new customers in the overseas markets, and better product mix.  The operating margin is expected to remain healthy over the medium term.

 

Weaknesses:

  • Large working capital requirement: Operations are working capital intensive, as reflected in gross current assets (GCAs) of 199 days as on March 31, 2024, driven by receivables and inventory of 88 and 129 days, respectively. Large inventory is due to high lead time in raw material procurement and long manufacturing cycle, while the company provides a moderate credit period to its customers. Working capital cycle is at a similar range over the medium term.

 

  • Exposure to cyclicality in end-user industries: The demand for GPEL products is correlated with the industrial development activity in the world. The performance of automobiles and engineering sectors are driven by factors such as economic policies, demand and supply situation, prices of raw materials. Any reduction in the growth prospects of these sectors will impact the company topline and its profitability.

Liquidity: Adequate

Cash accrual is expected between Rs 28-32 crore in fiscal 2025 and fiscal 2026, against nil repayment obligations over the medium term. Bank lines were utilized 66% on average in the past 8 months ended November 2024/ Cash and bank balance stood at Rs 4.10 crore and current ratio was 1.69 times as on March 31, 2024.

Outlook: Positive

Crisil Ratings believes that the company’s credit profile will continue to improve over the medium term, backed by increasing revenues, established market position and comfortable financial risk profile

Rating sensitivity factors

Upward factors:

  • Improvement in scale of operations while sustaining operating margins above 19%, leading to higher cash accruals
  • Sustenance of financial risk profile while improving working capital cycle

 

Downward factors:

  • Decline in revenue or profitability, leading to net cash accrual of less than Rs 25 crore
  • Stretched working capital cycle or debt-funded capital expenditure, impacting liquidity

About the Group

Incorporated in 2009 by Mr Kirit Gala, GPEL manufactures disc and strip springs as well as coil and spiral springs. The company also provides special fastening solutions. Its manufacturing facilities are in Wada, Maharashtra. GPEL was listed on NSE and BSE on 9th September 2024

 

Gala Precision Component Shanghai Ltd market the products of GPEL in China

Key Financial Indicators: Consolidated

As on / for the period ended March 31

 

H1 2025

2024

2023

Operating income

Rs crore

104.4

194.38

157.87

Reported profit after tax

Rs crore

11.05

21.99

24.21

PAT margins

%

11.54

11.31

15.33

Adjusted Debt/Adjusted Net worth

Times

0.22

0.67

0.94

Interest coverage

Times

11.28

7.10

6.32

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Cash Credit NA NA NA 45.00 NA Crisil BBB+/Positive
NA Letter of Credit NA NA NA 12.50 NA Crisil A2
NA Proposed Working Capital Facility NA NA NA 4.50 NA Crisil BBB+/Positive

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Gala Precision Components Shanghai Limited

Full

Same business and under the same management

Gala Precision Engineering Limited

Full

Same business and under the same management
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 49.5 Crisil BBB+/Positive   -- 02-08-24 Crisil BBB+/Stable / Crisil A2 23-08-23 Crisil BBB/Positive / Crisil A3+ 27-12-22 Crisil BBB/Stable / Crisil A3+ Crisil BBB/Stable
Non-Fund Based Facilities ST 12.5 Crisil A2   -- 02-08-24 Crisil A2 23-08-23 Crisil A3+ 27-12-22 Crisil A3+ Crisil A3+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 34 HDFC Bank Limited Crisil BBB+/Positive
Cash Credit 11 YES Bank Limited Crisil BBB+/Positive
Letter of Credit 10 HDFC Bank Limited Crisil A2
Letter of Credit 2.5 YES Bank Limited Crisil A2
Proposed Working Capital Facility 4.5 HDFC Bank Limited Crisil BBB+/Positive
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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