| Suprajit Engineering Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA / Stable / CRISIL A1+ '; rated amount enhanced for Bank Debt | ||||||
| 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 ratings on the bank facilities Suprajit Engineering Limited (SEL; part of the Suprajit group) at ‘CRISIL AA/Stable/CRISIL A1+’.
The rating continues to reflect an established market position in India, diversified revenue profile, and strong operating efficiency along with a strong financial risk profile. These rating strengths are partially offset by susceptibility to volatility in raw material prices and cyclicality in end-user industries. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of SEL and its wholly owned subsidiaries, Luxlite Lamps and Trifa Lamps, Suprajit Automotive Private Limited, Suprajit Europe Limited, Suprajit USA Inc, and Wescon. That’s because all these entities, collectively referred to as the Suprajit group, have high management, operational, and financial integration |
Key Rating Drivers & Detailed Description Strengths: Established market position in India, diversified revenue profile, and strong operating efficiency: The group is one of the largest manufacturers of mechanical control cables with a presence in both automotive and non-automotive segments. Revenue growth has been healthy in the past few years, driven by steady offtake and diversification into aftermarket and exports segments. The group has entered segments such as lamps, and started catering to non-automotive segments, through acquisitions, and augmented capacities in the cables business. The operating margin has been healthy at 14-15%, over the four fiscals through 2022.
For the first quarter of fiscal 2023, the group has reported a revenue of Rs.645 crore with an operating profitability of around 8%. Recent acquisition of low duty cable business of Kongsberg Automotive ASA under Suprajit USA INC has led to increased quarterly revenue. However, increased expenses incurred during this transition has led to moderation in operating margin. Going forward, with around Rs.600 crore incremental yearly revenue from Kongsberg where margin remains around 8-10%, overall margin for the group is expected to be in the range of 11-12%. Margin for standalone entity continues to remain steady at around 15% during first quarter FY23. Over the medium term, revenues and profitability are expected to be driven by benefits from economies of scale, higher productivity, and the leadership position allowing for passage of any hike in key raw material prices to customers.
Strong financial risk profile: The net worth and total outside liabilities to tangible net worth (TOLTNW) ratio were healthy at Rs 886.88 crore and 0.73 time, respectively, as on March 31, 2022, aided by steady accretion to reserves. The company has undertaken debt of around Rs.150 crore for funding the acquisition. Further, apart from regular annual capex, there are capex plans of around Rs.100 crore spread over the next two fiscals towards improving operating efficiencies of the facilities, around 75% of which is expected to be funded by external debt. However, the additional debt is not expected to impact the capital structure adversely aided by a strong net worth. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 19.24 times and 0.66 time, respectively, for fiscal 2022
Weaknesses: Susceptibility to volatility in raw material prices and cyclicality in end-user industries: The group remains susceptible to volatility in raw material prices and pricing pressure from OEMs, as the domestic automobile industry contributes to around 60% of revenue. In the exports segment, the group faces competition from other large automotive component players across the globe. Raw material cost also accounts for a large portion of overall cost of sales. As raw materials are commoditized in nature, their prices tend to fluctuate widely, and thus impact the operating margin. |
Liquidity: Strong Average month end bank limit utilization remains moderate at less than 60% for the 12 months ended July 2022. Net cash accruals are expected to remain at more than Rs.190 crore per annum over the medium term which is expected to remain sufficient against repayment obligations in the range of Rs.50-60 crore. Healthy unencumbered cash and bank balance maintained of around Rs.80-100 crore, provides additional support to liquidity. Current ratio remains comfortable at around 2 times as on 31st March, 2022. |
Outlook Stable CRISIL Ratings believes Suprajit group shall continue to benefit over the medium term from its established market position in India, diversified revenue profile, and strong operating efficiency |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Group SEL was incorporated at Bengaluru in 1985, promoted by Mr Ajith Kumar Rai. The company manufactures mechanical control cables used in two- and four-wheelers and by non-automotive segments, and equipment such as speedometers, tachometers, and fuel and temperature gauges for the automotive sector. It also produces halogen lamps for the automobile industry, and is a dominant player, catering to the two- and four-wheeler, passenger, commercial vehicle, and after-market segments. Merger of Phoenix Lamps Ltd with SEL became effective from April 1, 2016. In fiscal 2017, SEL has also acquired Wescon, a leading player in manufacture of non-automotive cables, particularly in North America. The company, is listed on the National Stock Exchange and the Bombay Stock Exchange Ltd. |
Key Financial Indicators Consolidated
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: 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.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| 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 21-Oct-2022 in line with the lender-wise facility details as on 04-Feb-2022 received from the rated entity.
Criteria Details
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