Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL A-/Stable’ corporate credit rating to Unimech Aerospace and Manufacturing Limited (UAML, Part of Unimech group).

 

The rating reflects the group's established market position, extensive industry experience of the promoters, strong product portfolio and healthy financial risk profile. These strengths are partially offset by Exposure to cyclicality in the end user industries, customer concentration and working-capital-intensive operations.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of UAML and its wholly owned subsidiary, Innomech Aerospace Toolings Private Limited (IATPL), together referred to as ‘The Unimech group’. Both these entities are in the similar line of business with common management & treasury and has operational and financial linkages

 

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:

• Extensive industry experience of the promoters and established market position in the niche precision tooling and complex component manufacturing segment: Promoters have over 2 decades of experience in the segment; with extensive engineering, manufacturing, and commercial backgrounds. Their strong understanding of the market dynamics, and strong relationship with various stakeholders has benefited the group in acquiring reputed clientele, maintain stringent quality standards required in the segment and scale up the business with strong profitability.

 

The unimech group has a presence across Aerospace, Defence, Power generation and Semi-Conductor sectors with majority revenue contribution from the Aerospace industry. The company has established itself as a reliable manufacturing partner for gas turbine and airframe/airport tooling used in maintenance, repair and overhaul (MRO) and line maintenance activities for number of reputed Aircraft and Aircraft engine manufacturers such as Air Bus, Boing, Dessault Aviation, GE, Rolls Royce etc. Further the group has also forayed into complex component manufacturing for Defense, Power Generation, and Semiconductor sectors. The business profile of the group is expected to further grow backed by further addition of clientele, growing product portfolio, planned capacity expansion and incremental orders from existing clientele.

 

• Strong product portfolio offerings strong profit margins: Unimech currently manufactures over 2500 Sku’s for major international clients which has seen traction in the past few years and expected to contribute significantly to the overall growth profile of the group.  This along with a diverse product offering across engine tooling, airframe toolings, airport ground handling tooling and precision components, has enabled the company to achieve CAGR of 70% over the past four years ended in fiscal 2024; clocking revenue of Rs 215 crore in fiscal 2024. Operating margins has improved significantly over the years; backed by scale up in revenue and complexity of products being offered, to around 40% on a consolidated level in fiscal 2024 and likely to be strengthened over medium term.

 

• Healthy financial risk profile: The group  capital structure have been at healthy level due to lower reliance on external funds yielding gearing of 0.53 and low total outside liabilities to adj tangible networth (TOL/ANW) of 0.53 for year ending on 31st March  2024. The group is also in the process of raising around Rs 250 crores of equity by way of private placements; which should further enhance the capital structure and financial flexibility. The group’s debt protection measures have also been at healthy level due to low leverage and healthy profitability.  The interest coverage and net cash accrual to total debt (NCATD) ratio are at 39.1 times and 2.27 times for fiscal 2024. The group debt protection measures and leverage levels are expected to remain strong over the medium term.

 

Weaknesses:

• Exposure to cyclicality in the end user industries and customer concentration: The group has significant exposure to the Aero tooling segment and any material cyclicality in the industry can impact the business performance. However diversified product offering under different segments of the Aero tooling segment and increasing contributions from complex component manufacturing should partially mitigate the risk.

 

The group is also exposed to customer concentration risk since over 80% of the revenue is contributed by two large customers and their affiliates; any downturn in business profiles of these customers or any adverse change in their sourcing policies may have an impact on Unimech group’s credit profile. However, the group has added many customers over the past few years and expected to further increase the customer base over the medium term from both Aero as well as complex component manufacturing segments. Growing revenue contribution from these larger customer base should partially mitigate the risk. Sustained revenue growth and diversification of the customer base with increasing revenue contribution from relatively new customers will remain a key monitorable.

 

• Working-capital-intensive operations: Business of Unimech group continues to remain working capital intensive, marked by its high gross current asset (GCA) days of around 200 days as on March 31, 2024 The same is due to high inventory levels which is generally common to the space/defence industry and moderately higher receivable days. However; reputed clientele and highly value added and customized products partially mitigate the risk.

Liquidity: Strong

Bank limit utilisation is moderately high at around 88.35 percent for the past twelve months ended in March 2024. However significant cash holding of over Rs 31 crore provides strong liquidity buffer. Expected capital infusion of Rs 250 crore in the near term should significantly enhance the financial flexibility once completed.  Cash accruals are expected to be over Rs 81-170 crore per annum over the medium term against nominal term debt obligation over the medium term. In addition, it will be act as cushion to the liquidity of the company. Current ratio is healthy at 3.72 times on March 31, 2024. Low gearing and moderate net worth support it’s financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believe the group  will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward factors

• Sustained improvement in scale of operations, improvement in customer diversity and product portfolio coupled with operating margins sustained over 40% strengthens net cash accruals to over Rs 100 crore
• Timely completion of the ongoing capital infusion exercise and sustenance of strong financial risk profile and liquidity

 

Downward factors

• Any large customer attrition or shrinking product portfolio leads to significant reduction in revenue or operating margins falling below 30% weakens net cash accrual.
• Any large debt funded capex or material stretch in the working capital cycle significantly weakens the leverage levels and overall financial flexibility of the group

About the Company

UAML was incorporated in 2016. UAML is engaged in manufacturing Aero tooling, complex precision components and mechanical assemblies for companies in the aerospace, defense, power generation, and semiconductor sectors, including a number of aerospace and power generation OEMs. It’s manufacturing unit is located at Peenya, Bangalore. UAML is promoted & managed by Mrs. Rashmi Anil Kumar, Mr. Ramakrishna Kamojhala, Mr. Mani Puthan, Mr. Rajanikanth Balaraman and Mr. Preetham Shimoga.

 

About the subsidiary company

IATPL was incorporated in 2018. It is a wholly owned subsidiary of UAML. It is engaged in the same business as its parent.

Key Financial Indicators

As on / for the period ended March 31		2024	2023
Operating income	Rs crore	215.26	100.14
Reported profit after tax	Rs crore	62.45	27.27
PAT margins	%	29.01	27.23
Adjusted Debt/Adjusted Net worth	Times	0.25	0.42
Interest coverage	Times	38.42	22.28

 

Any other information: Not applicable

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	NA	NA	NA	NA	NA	NA	NA

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Unimech Aerospace and Manufacturing Limited	Full	Parent company
Innomech Aerospace Toolings Private Limited	Full	Wholly owned subsidiary