Rating Rationale
December 28, 2023 | Mumbai
Munjal Showa Limited
Ratings reaffirmed at 'CRISIL A+ / Stable / CRISIL A1+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.144.25 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
 
Rs.6 Crore Commercial PaperCRISIL A1+ (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 reaffirmed its ratings on the bank facilities and commercial paper of Munjal Showa Ltd (MSL) at ‘CRISIL A+/Stable/CRISIL A1+’.

 

The ratings continue to reflect the company’s established business linkages with customers, above-average scale of operations, and healthy financial risk profile supported by an almost debt-free balance sheet. These strengths are partially offset by limited segmental and customer diversification, leading to low bargaining power with OEMs (original equipment manufacturers) and subdued operating efficiency.

 

Revenue in fiscal 2023 stood at Rs 1241 crores, a growth of ~17% over fiscal 2022. In H1-FY2024, company achieved a revenue of Rs. 575 crores , against Rs. 635 crores  in corresponding period previous fiscal, a de-growth of about 9.3% primarily  owing to lower realizations and lower than expected traction in the Electric Vehicle (EV) segment. Company’s revenues are expected to remain flattish in fiscal 24 and thereafter grow at low single digits over the medium term. The business risk profile remains constrained by limited customer diversification, rising competitive intensity and low bargaining power with OEMs. Further, due to the drop in sales from the EV segment owing to issues surrounding the FAME-II subsidy, the revenue scale is expected to remain rangebound over the near term.

 

Operating margin improved to 2.5% in fiscal 2023 from 0.8% in fiscal 2022 due to cost-rationalisation measures undertaken by the company such as closure of raw bottom case unit and controlling employee costs. Margin stood at 1.4% for the first half of fiscal 2024 against 0.99% for the corresponding period previous fiscal due to lower operating leverage owing to loss of revenue from EV segment. The second half of the fiscal is historically better for the company, and overall operating margins are expected at 2-2.25%. Over the medium term, margins are expected to remain rangebound at 2-2.5% owing to limited product and customer diversification limiting revenue expansion.

 

Financial risk profile,  remained strong on the back of strong networth of Rs. 648 crore as on September 30, 2023 and a nil debt balance sheet. Low reliance on debt has led to strong gearing of less than 0.1 time since fiscal 2013. Liquidity profile also remained strong with unencumbered cash and equivalent of ~Rs 353 crore (investments in mutual funds and Rs 90 crore in alternate investments/non-convertible debentures) as on September 30, 2023. The company’s annual income from investments is Rs 18-20 crore, which is expected to continue over the medium term as well.  Net cash accrual of Rs 23-25 crore per annum would be sufficient to meet capital expenditure (capex) requirement of Rs 10-12 crore per annum as well as working capital needs. Further, company had access to working capital limits of Rs. 63.5 crore which remain marginally utilized over the past 12 months further aiding liquidity.

Key Rating Drivers & Detailed Description

Strengths:

  • Established business linkages with key customers, and above-average scale of operations: MSL is a key player in the domestic shock-absorber industry and one of the leading suppliers to Hero MotoCorp Ltd (HMCL, rated ‘CRISIL AAA/FAAA/Stable/CRISIL A1+’), the largest player in the two-wheeler market in India. Earlier, MSL used to supply shock absorbers to Honda Motorcycle and Scooters India Ltd (HMSI). However, it has discontinued this for the last 3-4 years due to change in the client’s sourcing policy. MSL also supplies struts and window balances to Maruti Suzuki India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'). HMCL accounts for 80-85% of total revenue.

 

  • Healthy financial risk profile: Networth was adequate at Rs 648 crore and balance sheet was debt-free as on September 30, 2023. Despite low profitability, debt protection metrics remained healthy due to nil debt. Though cash accrual is expected to remain modest due to subdued operational efficiency, it will be adequate to meet capex (Rs 10-12 crore annually) and working capital requirement. Liquidity is supported by healthy surpluses (Rs 353 crore as on September 30, 2023), as well as fund-based bank limit (~Rs 63.4 crore as on November 30, 2023) that saw marginal utilisation of about 2.2% over the past 12 months. Reliance on debt is expected to remain minimal going forward as well.

 

Weaknesses:

  • Modest operating efficiency: Due to a decline in orders across segments and customers, capacity utilisation is subdued, leading to lower absorption of fixed costs. This is compounded by low bargaining power with OEMs, leading to inability to pass on increased input costs to customers. Hence, operating profitability is expected to remain at 2-2.5% over the medium term. However, MSL benefits from the fact that its three large manufacturing facilities are close to key clients, which allows it to manage their requirements efficiently.

 

  • Limited segmental and geographical diversification: Despite increasing supplies to other OEMs, bulk of the revenue is derived from HMCL. MSL has negligible reach in the global market due to restrictions from its collaborator and second-largest shareholder, Showa Corporation. Also, it has no direct presence in the high-margin aftermarket segment. Earlier, HMSI had accounted for a healthy share of business (20% of revenue in fiscal 2013), but this declined as Showa India Pvt Ltd (100% subsidiary of Showa Corporation) replaced MSL as HMSI’s largest supplier. Ability to diversify revenue base and increase supplies to electric two-wheeler OEMs will be critical to revenue growth as HMCL has also been inducting new suppliers for shock absorbers.

 

  • Low bargaining power against OEMs: The company has limited flexibility to pass on any change in input cost and increase in other manufacturing overheads to customers. Moreover, high dependence on OEMs and exposure to intense competition would continue to constrain operating profitability, as seen in the last 3-4 fiscals.

Liquidity: Strong

Liquidity profile remained strong with cash surplus of around Rs 353 crore as on September 30, 2023. Further, presence of fund-based working capital limits of Rs 63.5 crore which was marginally utilised at about 2.2% in the 12 months through November 2023 provides additional cushion.  Annual Net cash accrual of Rs 23-25 crore would be sufficient to meet capex of Rs 10-12 crore per annum as well as working capital requirement.

Outlook Stable

The company’s performance will remain modest over the medium term given  high customer concentration and low product diversification. Financial risk profile will, however, continue to be healthy over the medium term, supported by sufficient accruals and modest capex spends.

Rating Sensitivity factors

Upward factors:

  • Substantial growth in revenue, including through customer and product diversification
  • Improvement in operating margin to over 4-5% benefitting cash generation

 

Downward factors:

  • Steady pressure on revenue growth coupled with operating margins sustaining below 2% on sustained basis impacting cash generation
  • Weaker-than-expected gearing led by large, debt-funded capex/acquisition, or substantial decline in liquid surplus

About the Company

MSL was set up by the erstwhile Hero group in 1985, in technical and financial collaboration with Showa Corporation, Japan. After the family arrangement in May 2010, MSL continues to be vested with Mr Yogesh Chander Munjal within the Satyanand Munjal faction.

 

The Yogesh Chander Munjal family, through Dayanand Munjal Investments Pvt Ltd and Showa Corporation, had equity holdings of 40.10% and 24.90%, respectively, in MSL as on September 30, 2023. The company’s main products are front forks and shock absorbers, which it supplies to the two-wheeler segment. It also manufactures struts and window balancers for the four-wheeler segment. Facilities are in Gurgaon, Manesar (both in Haryana), and Haridwar (Uttarakhand).

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs. cr.

1241

1060

Profit after tax (PAT)

Rs. cr.

32

12

PAT margin

%

2.6

1.1

Adjusted debt/adjusted networth

Times

0.00

0.00

Adjusted interest coverage

Times

211

63

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 level

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

10

NA

CRISIL A+/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

80.75

NA

CRISIL A+/Stable

NA

Letter of Credit@

NA

NA

NA

53.5

NA

CRISIL A+/Stable

NA

Commercial Paper

NA

NA

7-365 days

6

Simple

CRISIL A1+

@ 20 Crore Sublimit to CC 10 Crore Sublimit to BG

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 90.75 CRISIL A+/Stable 19-01-23 CRISIL A+/Stable 01-02-22 CRISIL AA-/Negative 23-02-21 CRISIL AA/Negative 28-02-20 CRISIL AA/Negative CRISIL AA/Stable
Non-Fund Based Facilities LT 53.5 CRISIL A+/Stable 19-01-23 CRISIL A+/Stable 01-02-22 CRISIL AA-/Negative 23-02-21 CRISIL A1+ 28-02-20 CRISIL A1+ CRISIL A1+
Commercial Paper ST 6.0 CRISIL A1+ 19-01-23 CRISIL A1+ 01-02-22 CRISIL A1+ 23-02-21 CRISIL A1+ 28-02-20 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 10 State Bank of India CRISIL A+/Stable
Letter of Credit& 53.5 Citibank N. A. CRISIL A+/Stable
Proposed Long Term Bank Loan Facility 60.75 Not Applicable CRISIL A+/Stable
Proposed Long Term Bank Loan Facility 20 Not Applicable CRISIL A+/Stable
& - 20 Crore Sublimit to CC 10 Crore Sublimit to BG
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
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for rating short term debt

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Anuj Sethi
Senior Director
CRISIL Ratings Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com

Poonam Upadhyay
Director
CRISIL Ratings Limited
B:+91 22 3342 3000
poonam.upadhyay@crisil.com

Aashna Aggarwal
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
aashna.aggarwal@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html