Rating Rationale
July 20, 2020 | Mumbai
Gestamp Automotive Chennai Private Limited
 Rating continues on 'Watch Negative' 
 
Rating Action
Rs.275 Crore Non Convertible Debentures CRISIL BBB+ (Continues on 'Rating Watch with Negative Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL rating on the the non-convertible debentures (NCDs) of Gestamp Automotive Chennai Private Limited (GACPL, part of Gestamp group) continues on 'Rating Watch with Negative Implications'
 
The rating was earlier placed on watch following S&P Global Ratings' (S&P) revision in ratings on GACPL's ultimate parent, Gestamp Automocion S.A (GASA) to 'BB/Watch Negative' from 'BB/Negative'.  S&P expects that the recent industry wide shut downs in US and Europe could potentially indicate a larger downside than earlier assumptions and GASA will likely take a significant hit on its earnings generation in CY 2020.
 
GACPL's revenues during fiscal 2020 are expected to decline due to continued decline in off-take from original equipment manufacturers (OEM) mainly Ford and Nissan. Profitability will also decline due to lower absorption of fixed costs and absence of any tooling income.
 
During fiscal 2020, GACPL has availed Rs 100 crore of inter corporate loans from Gestamp Automotive India, Pune (GAI, subsidiary of GASA). During fiscal 2021, GACPL has further availed Rs 60 crore from GAI to better manage liquidity requirements during the nationwide lockdown. The company further plans to refinance its NCDs (from parent) of Rs 275 crore (which is due for redemption in April 2021) through additional inter corporate loans of Rs 200 crore from GAI at lower interest rates (compared to existing interest rate of 11.5%) during early fiscal 2021.
 
The ratings continue to factor strong support from the parent, GASA, a leading automotive parts manufacturer for many global OEMs. GAPCL will benefit from the improving business risk profile driven by new customer additions. This is partially offset by client concentration risk and absence of revenue diversification into aftermarkets or exports.

Analytical Approach

For arriving at its rating, CRISIL has fully consolidated the business and financial risk profiles of GACPL and Gestamp Pune Automotive Pvt Ltd (GPAPL). CRISIL considers GPAPL as being strategically important to GACPL in view of their common line of business and significant operational and financial linkages.
 
For arriving at the ratings, CRISIL has applied its parent notch-up framework to factor in the extent of financial and managerial support available from the parent, GASA. CRISIL believes that GACPL will, in case of exigencies, receive distress support from GASA for timely repayment of debt obligations.

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:
* Need-based support from the parent, Gestamp Automocion S.A:
GACPL derives need-based operational and financial support from the parent GASA. The company has achieved a moderate scale of business by leveraging the parent's product portfolio and established relationships with key global customers such as Ford, Renault and Nissan. The parent company also extends need-based technical and operational support. In fiscal 2016, NCDs of Rs 275 crores issued by GACPL, were fully subscribed by the parent, demonstrating the commitment of the parent company in providing financial support to enable GCAPL to operate and settle its obligations as they become due. NCD repayment is due in April 2021 and is expected to be refinanced through inter corporate loans from GAI.
 
CRISIL believes GACPL will continue to derive timely need-based support from the parent.
 
* Improving business risk profile
Gestamp group's business risk profile is improving, backed by improving scale of operations mainly in Pune facility and a healthy operating margin of about 12.6% in fiscal 2019. Company's market position is driven by its established relationships with OEMs such as Renault, Nissan, and Ford. Company is expected to forge new partnerships with leading OEMs mainly for its hot-stamping technology driven by increasing opportunities from the implementation of BS-VI norms and introduction of electric vehicles over the medium term. Despite the slowdown envisaged in the OEM volumes, operating margin is expected to remain healthy and improve gradually over the medium term, driven by better capacity utilisation and various cost control measures undertaken by the company.
 
Weaknesses:
* Modest financial risk profile
GACPL's financial risk profile remains modest. Gearing is expected to improve to 2.9 times in fiscal 2019 compared to 3.2 times in fiscal 2018 on account of lower borrowing by GPAPL to fund its capex and increased working capital requirement. Debt protection metrics are expected to be moderate with interest coverage of about 2.08 times and NCATD of about 0.09 times in fiscal 2019.
 
* Exposure to risks relating to concentration in revenue
OEMs account for the entire revenue, in the absence of any diversification into exports or aftermarket segments. Risks relating to revenue concentration in the OEM segment are partially mitigated by the company's established relationships with the OEMs. Gestamp is expected to forge new customers for its hot stamping technology over the medium term; nevertheless, CRISIL believes that due to limited customer diversification, revenue will continue to be linked with performance of OEMs in the domestic market.
Liquidity Adequate

Liquidity remains adequate, aided by undrawn inter corporate loans of about Rs 27 crore as of June 2020 and sufficient cushion in bank limits of Rs 215 crore which have been sparsely utilized at less than 10% during the 6-month period end June 2020. Yearly cash accrual are expected to increase to about Rs 30-40 crore expected over the medium term post the volume decline in fiscal 2020 and 2021 and should adequately cover incremental working capital requirements.

Rating Sensitivity factors
Upward factors:
* Improvement in revenues driven by addition of new customers
* Operating profitability sustaining above 12% driven by improvement in scale of operations
* Upgrade in GASA's ratings by S&P Global Ratings

Downward factors:
* Downgrade in GASA's ratings by S&P Global Ratings
* Further decline in business performance due to lower offtake from OEMs or sustained decline in operating profitability below 8% leading to steep decline in accruals
* Larger-than-expected external-debt-funded capital expenditure or working capital requirement, impacting financial risk profile and liquidity

About the parent
GASA based in Madrid, Spain, was founded in 1997 and is one of large manufacturers of body-in-white and chassis for global automobile OEMs. Key products include external as well as structural components, chassis, door mechanism components, powered systems, and drive controls. It has strong and longstanding association will many global OEMs including Volkswagen AG (rated BBB+/Stable/A2 by S&P), Renault-Nissan BV (rated BBB-/Credit watch negative/A-3 by S&P), Daimler AG (rated A-/Negative/A-1 by S&P), General Motors Company and Bayerische Motoren Werke AG (BMW; rated A+/Negative/A-1 by S&P). The Gestamp group has over 100 manufacturing plants spread over 20 countries across the globe.
 
About the company
GACPL, incorporated on July 29, 2011, manufactures cold stampings and structural components. The company has a 40,150 square meter manufacturing facility in Chennai, and sells primarily to Renault, Nissan, and Ford. It began operations in August 2012.
Key Financial Indicators - (Consolidated)
As on / for the period ended March 31   2019 2018
Revenue Rs Crores 666 915
PAT Rs Crores (12.4) 3.8
PAT margins % (1.9) 0.4
Adjusted debt/adjusted net worth Times 3.17 3.21
Interest coverage Times 1.54 2.01

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity
Date		 Issue Size
(Rs Cr)		 Complexity level Rating Assigned
with Outlook
INE428U08018 Non-Convertible Debentures 3-Oct-16 11.5% 15-Apr-21 275 Simple CRISIL BBB+/Watch Negative
 
 
Annexure - List of entities consolidated
Fully consolidated entities Extent of Consolidation Rationale for Consolidation
Gestamp Pune Automotive Pvt Ltd Full common line of business and significant operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  275.00
20-07-20  		CRISIL BBB+/(Watch) Negative  22-04-20  CRISIL BBB+/Watch Negative  03-10-19  CRISIL BBB+/Stable  05-01-18  CRISIL BBB/Positive      CRISIL BBB/Stable 
        18-03-20  CRISIL BBB+/Negative  17-01-19  CRISIL BBB+/Stable           
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for Consolidation
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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