| Munjal Showa Limited | ||||
| Long-term rating downgraded to 'CRISIL AA- / Negative'; Commercial paper rating reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its rating on long term bank facilities of Munjal Showa Limited (MSL) to ‘CRISIL AA-/Negative’ from ‘CRISIL AA/Negative’ while reaffirming the rating of ‘CRISIL A1+’ on the company’s commercial paper programme.
The rating action follows the continued sluggish business performance due to weak two-wheeler sales, and rising competitive intensity, resulting in MSL’s revenues stagnating at below Rs.1100 crore in fiscal 2022 (estimated) as well (Rs.1077 crore in fiscal 2021, a decline of 16% over fiscal 2020 levels). With domestic two-wheeler sales witnessing negative growth for third year in a row, MSL’s revenues have also been impacted, after peaking at ~Rs.1650 crores in fiscal 2019. Rising competitive intensity, with addition of new suppliers to MSL’s existing customers have added to pressure on fresh orders, impacting revenues. Lower operating leverage due to fall in production volume of shock absorbers, along with steep increase in input costs, which though are passed on with a lag, as well as higher employee costs, have impacted operating profitability since fiscal 2020. MSL’s operating profitability is expected at under 2% in fiscal 2022 (2.4% in fiscal 2021 and 5% in fiscal 2020), impacting cash generation.
With the two-wheeler segment expected to fare better in fiscal 2023 and MSL’s initiative to diversify its revenue base and add customers from the electric two-wheeler segment, its revenues are expected to register an increase of 5-10% over the medium term but remain below fiscal 2019 levels. Operating profitability too is expected to improve gradually to 4-7% over the medium term, but cash generation is expected to remain modest, given average scale of operations.
The ratings nevertheless benefit from MSL’s almost debt free balance sheet, unutilised bank lines, and cash surplus of over Rs.240 crores. With limited capital spending, no significant debt raising is expected over the medium term, leading to continued healthy financial risk profile.
The ratings continue to reflect MSL’s established business linkages with customers, average scale of operations, and healthy financial risk profile supported by almost debt free balance sheet. These strengths are partially offset by limited segmental and geographical diversification, leading to low bargaining power with, and pricing pressure from, original equipment manufacturers (OEMs), and modest operating efficiencies. |
Key Rating Drivers & Detailed Description Strengths:
Scale of operations remains average. The company’s revenues peaked at ~Rs.1650 crores in fiscal 2019, but due to demand sluggishness and increasing competition, have dropped to under Rs.1100 crores in last two fiscals. Better demand prospects and attempts to diversify customer base is expected to lead to modest increase in revenues over the medium term.
Weaknesses:
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Liquidity: Strong Cash surplus was around Rs 243 crore as on September 30, 2021 and part of the same may be used to fund modest capex in fiscal 2022, due to low cash accruals. Fund-based limit of Rs 25 crore largely remained unutilised in the 12 months through December 2021. Annual cash accrual is expected at around Rs 20-25 crore from fiscal 2023 against absence of any term debt obligation. Better accruals, sizeable liquid surplus, and unutilised bank limit should be more than sufficient to meet capex (annually Rs.10-15 crore) and incremental working capital requirement over the medium term. |
Outlook: Negative CRISIL Ratings believes MSL’s performance while improving, will remain modest over the medium term, given its high customer concentration, especially on OEMs. Financial risk profile will, however, continue to be healthy, supported by better accrual and modest capex needs. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company MSL was established by the erstwhile Hero group in 1985 as part of a technical and financial collaboration with Showa Corporation. Following a family arrangement in May 2010, MSL continues to be vested with Mr. Yogesh Chander Munjal, within the late Mr. Satyanand Munjal faction. Mr Yogesh Chander Munjal and family, through Dayanand Munjal Investments Pvt Ltd and Showa Corporation, had equity holdings of 40.10% and 24.90%, respectively, as on December 31, 2021. The main products are front forks and shock absorbers for the two-wheeler segment, and struts and window balancers for four-wheelers.
For the first six months of fiscal 2022, profit after tax (PAT) was Rs 4 crore (Rs.3 crore in corresponding period of fiscal 2021) on revenue of Rs 498 crore (Rs.421 crore). |
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)
@ 20 Crore Sublimit to CC, 10 Crore Sublimit to BG |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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This Annexure has been updated on 01-Feb-2022 in line with the lender-wise facility details as on 01-Feb-2022 received from the rated entity.
Criteria Details
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