Rating Rationale
August 29, 2022 | Mumbai
Yazaki India Private Limited
Rating outlook revised to 'Stable', Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.84 Crore
Long Term RatingCRISIL A-/Stable (Outlook revised from 'Negative'; Rating Reaffirmed)
Short Term RatingCRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its rating outlook on the long term bank facilities of Yazaki India Private Limited (YIPL) to ‘Stable’ from 'Negative' while reaffirming the long term rating at ‘CRISIL A-’. The short term ratings have been reaffirmed at CRISIL A2+.

 

The outlook revision is based on significant recovery in the business risk profile supported by better than expected operating performance in fiscal 2022 driven by higher realizations and uptick in volumes. Volume growth is expected to sustain going forward owing to expansion of customer base as well as increasing wallet shares from existing customers.  Higher revenues leading to better fixed costs absorption, which coupled with cost plus model of the company and cost rationalisation measures undertaken will help in improved profitability with operating margins expected to sustain at 7-8% over the medium term.

 

The company is expected to have healthy revenue growth of 45-50%  in fiscal 2023, up from Rs 2,357 crore in fiscal 2022 on the back of increasing orders from Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable/CRISIL A1+’) and the two-wheeler segment, expected growth of Tata Motors (mainly PV) and supply of SMT meters. Revenue has grown by 62% for FY22, mainly supported by strong volume growth in both automotive and industrial applications across all customer segments. Despite increase in copper (key raw material for YIPL) prices, operating margin saw a sharp increase in FY22 from 2.62% in FY 21 to 6.95% in FY22 due to complete pass through of raw material prices.

 

Company’s financial risk profile remains moderate marked by average capital structure, resulting from networth expected at Rs. 150-170 core as on March 31, 2023 and total debt of ~Rs. 1330 crore. Debt levels increased to Rs. 1332 crore as on March 31, 2022, however ~30% of the debt consists of unsecured loans from parent, to help fund the ongoing capacity expansion plans. Loans from the parent are expected to remain within the company over the medium term as well.  The company has no reliance on external long term debt as on date.

 

Improving profitability is expected to benefit networth and cash generation levels, which if utilized for deleveraging, will result in improvement of debt protection metrics over the medium term. YIPL also benefits immensely from the financial flexibility of its parent YC who are expected to provide need based support as evidenced in the past also.

 

Liquidity continues to remain adequate with liquid surplus expected to remain at Rs. 50-70 crores over the medium term.. The entire outstanding debt is also backed by corporate guarantee from the parent—Yazaki Corporation, Japan (YC). Support from the parent and timely enhancement in limit will help the company to recover and maintain adequate liquidity. 

 

The ratings continue to factor in increasing support to YIPL from YC, by way of equity infusion and loans, as well as operational and technical support. However, the ratings are constrained by labour-intensive operations, which in turn will impact profitability and may lead to working capital mismatches during slowdown in the industry. The company also faces significant competition in the wiring harness industry and has limited pricing power against OEMs.

Analytical Approach

CRISIL Ratings has applied its criteria for preference share capital and accordingly treated preference capital of Rs 100 crore from YC as partly debt and partly equity. CRISIL Ratings has also applied the parent notch-up framework to factor in the strong financial and business support from the parent.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong operational and financial support from the parent: YIPL benefits from technological support received from the parent for establishing its manufacturing facilities, and for continuous upgrade of systems and processes.

 

YC has extended corporate guarantees for YIPL’s entire debt and the latter’s bank lines are carved out of the parent’s global limits. The parent is shifting its global information technology support segment to India. Ramp-up of this segment will enhance the strategic importance of YIPL to YC over the medium term. YC, a leading auto components company globally, has healthy market share in the wiring harness business. It clocked revenue of Yen 1,612 billion during June 2021 from Yen 1,716 billion in June 2020, with adjusted gearing at 0.62 time.

 

  • Healthy market position in the Indian wiring harness segment: YIPL is the second-largest manufacturer of wire harnesses in India after Motherson Sumi Systems Ltd (‘CRISIL AA+/Stable/CRISIL A1+’) and supplies to major OEMs, including Tata Motors Ltd (‘CRISIL AA-/Stable/CRISIL A1+’), MSIL, Toyota Kirloskar Motors Ltd, Honda Siel Cars Ltd and Ford India Pvt Ltd (Ford India).

 

Diversified customer profile and expected improvement in the product range with ramp-up of operations in new segments will benefit the business over the medium term. YIPL is likely to undertake capex to increase capacity for their component and wire harness system to accommodate new clients, which in turn will improve YIPL’s market position over the medium term.

 

Operating margin is expected to improve and sustain at 7-8% over the medium term. The operating margin is directly linked to prices of their key raw material, copper, and remains a key sensitivity factor.

 

Weaknesses:

  • Labour-intensive operations and exposure to volatility in raw material prices: The manufacture of wiring harnesses involves a series of manual processes, and hence is labour intensive. The slowdown, because of the pandemic, has exacerbated the situation as employee costs and job contract costs are the company’s largest cost heads after raw material, accounting for 20-21% of revenue. Profitability is vulnerable to fluctuations in the prices of raw materials and foreign exchange rates.

 

  • Limited pricing power due to dependence on OEMs: Intense competition in the wiring harness industry leads to pressure on realisations. Furthermore, high dependence on OEMs limits pricing power. While there is flexibility to pass on increase in input cost to customers, the extent and timing is uncertain. Besides, the ability to pass on increases in other manufacturing overheads is restricted.

 

In case of prolonged slowdown and lower auto demand, it is not always possible for OEMs to pass on the price increase. Input cost increases are therefore absorbed by both the component manufacturers and OEMs. This has led to volatility in YIPL’s profitability over the years.

 

  • Weak financial risk profile: Financial risk profile is estimated to remain average with networth of Rs. 150-300 crores and debt of Rs. 1300-1400 crores (including parent loans of Rs. 400-450 crores) over the medium term. Capital structure is expected to remain modest with gearing of 5-8 times, NCA/AD of 15-18% and TOL/TNW of over 7 times. While capex is expected to be funded through low-cost external debt or loans from the parent, any deviation will have an adverse impact on the financial profile of the company. Parent support will remain a key monitorable over the medium term.

Liquidity: Adequate

Liquidity is likely to remain adequate over the medium term. Expected cash accrual of Rs 190-200 crore in fiscal 2023 will be sufficient to cover the debt obligation of the company. The company has adequate bank lines and parent support. YIPL also has adequate unutilised limits of around Rs 325 crore on average.

Outlook: Stable

CRISIL Ratings believes YIPL will maintain its healthy business risk profile backed by its leadership position amidst improving demand scenario. Increase in scale of operations resulting in increased cash generation and modest debt-funded capex should improve the financial risk profile over the medium term.

Rating Sensitivity factors

Upward factors

  • Increase in revenue and operating margin with recovery in demand, leading to cash accrual of over Rs 200 crore on a sustained basis
  • Improvement in the financial risk profile, driven by reduction in debt or equity infusion
  • Improvement in the credit risk profile of the parent

 

Downward factors

  • Sustained decline in operating margin to below 1-2%, resulting in lower cash loss and larger-than-expected debt
  • Large, debt-funded acquisition or capex
  • Change in the credit risk profile of the parent

About the Company

YIPL was incorporated in 1997 as an equal joint venture between Tata Auto Comp Systems Ltd (TACO; 'CRISIL AA-/Stable/CRISIL A1+') and YC. The company began commercial production in 1999. It manufactures wire harnesses for various segments of the auto industry. YC acquired TACO's 50% stake in December 2012, making YIPL its wholly owned subsidiary.


Yazaki Wiring India was established by Siemens AG (Siemens) in 1998 mainly to supply wiring harness solutions to Ford India. In 2002, YC acquired 50% stake and entered into a joint venture with Siemens, and the company was renamed Siemens Yazaki Wiring Technologies Ltd. Subsequently, in 2004, Yazaki Wiring Technologies GmbH, Germany, a wholly owned subsidiary of YC acquired the entire stake of the company through its subsidiary YGP Pte Ltd, Singapore, and renamed it as Yazaki Wiring India.


Pursuant to the scheme of amalgamation approved in the Bombay High Court, Yazaki Wiring India was merged with YIPL on April 1, 2015.

 

About YC

Set up in 1941, YC is one of Japan's largest privately held companies. It operates in 42 countries and has business ties with major auto OEMs worldwide. Japan is the company's primary market, followed by the Americas, Europe and Asia. In addition to auto components, YC and its subsidiaries manufacture a variety of items, including air-conditioning equipment, solar thermal conversion equipment, gas equipment and household electric wiring units. YC’s revenue was Yen 1612 billion and operating loss was 0.4% as on June 30, 2021, against revenue of Yen 1716 billion and operating profit of 1.5% as on June 30, 2020.

Key Financial Indicators

As on / For the year ended March 31   2022 2021
Revenue Rs crore 2357 1452
Adjusted PAT Rs crore 10 -125
PAT margin % 0.4 -8.6
Adjusted debt/adjusted networth Times 9.88 6.41
Interest coverage Times 3.23 0.75

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)

ISIN Name of
instrument		 Date of
allotment		 Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity 
levels		 Rating assigned
with outlook
NA Buyer’s Credit^ NA NA NA 30 NA CRISIL A2+
NA Working Capital Demand Loan^^ NA NA NA 24 NA CRISIL A-/Stable
NA Working Capital Demand Loan# NA NA NA 30 NA CRISIL A-/Stable

^Interchangeable with working capital demand loan

^^Interchangeable with buyer’s credit and overdraft

#Interchangeable with vendor bill discounting

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 84.0 CRISIL A2+ / CRISIL A-/Stable   -- 03-06-21 CRISIL A2+ / CRISIL A-/Negative 03-12-20 CRISIL A2+ / CRISIL A-/Negative 10-12-19 CRISIL A2+ / CRISIL A-/Negative CRISIL BBB+/Positive / CRISIL A2
      --   --   -- 29-05-20 CRISIL A2+ / CRISIL A-/Negative 25-09-19 CRISIL A2+ / CRISIL A-/Stable --
      --   --   --   -- 31-05-19 CRISIL A2+ / CRISIL A-/Stable --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Buyer Credit Limit& 29 MUFG Bank Limited CRISIL A2+
Buyer Credit Limit& 1 MUFG Bank Limited CRISIL A2+
Working Capital Demand Loan% 24 MUFG Bank Limited CRISIL A-/Stable
Working Capital Demand Loan$ 30 Mizuho Bank Limited CRISIL A-/Stable

This Annexure has been updated on 29-Aug-22 in line with the lender-wise facility details as on 20-Jul-22 received from the rated entity.

& - Interchangeable with working capital demand loan
% - Interchangeable with buyer's credit and overdraft
$ - Interchangeable with vendor bill discounting
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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