April 09, 2021
WIL Car Wheels Limited: Ratings downgraded; outlook on the long-term rating revised to stable from negative
Summary of rated instruments Previous Rated Amount Current Rated Amount Instrument Rating Action (Rs. crore) (Rs. crore) Downgraded to [ICRA]BBB+ from Term loan 65.00 65.00 [ICRA]A- and outlook revised to stable from negative Short term – Fund based Downgraded to [ICRA]A2+ from 45.00 45.00 facilities [ICRA]A1 Total 110.00 110.00 *Instrument details are provided in Annexure-1
Rationale The ratings downgrade considers the downgrade in the parent, Wheels India Limited’s (WIL) long-term rating, and weakening of WIL Car Wheels Limited’s (WCWL) performance compared to ICRA’s earlier expectation. The long-term rating downgrade for Wheels India Limited (WIL) from [ICRA]A+ (Negative) to [ICRA]A (Stable) was on account of the substantial increase in its debt levels and consequent deterioration in capital structure and coverage metrics compared to ICRA’s earlier expectation.
WCWL witnessed revenue decline of 34.8% on a YoY basis in 9M FY2021, weaker than ICRA’s earlier estimates. Further, WCWL reported operating losses of 0.4% for 9M FY2021 (9M FY2020:1.4%) given its underutilization of capacities, limited bargaining power sandwiched between OEMs and large suppliers and competitive pressures. The weaker absorption of costs also cascaded into cash losses of Rs. 5.1 crore for the company in 9M FY2021. The company’s debt levels were relatively high for its scale of operations at Rs. 124.9 crore as on Dec 31, 20201, over 30% higher than ICRA’s earlier estimates. The high debt and operating losses in 9M FY2021 have resulted in deterioration in coverage metrics for the company. WCWL’s ability to put the passenger car steel wheel rims business on a focused growth path, scale up its revenues by harnessing the technology skills and global relationships of Topy Industries Limited, Japan (Topy) and breakeven at the net level would be critical from the credit perspective. Also, significant improvement in coverage metrics in FY2022 would be imperative.
The ratings positively factor in WCWL’s strong parentage with 74% stake held by WIL (rated [ICRA]A (Stable)/MA+ (Stable)/[ICRA]A1), an established steel wheel rim manufacturer in India belonging to the larger TVS Group of Companies – a reputed name in the domestic auto ancillary industry, and the T S Santhanam arm within that. The remaining 26% stake is held by Topy Industries Limited, Japan (Topy). WCWL receives operational and technological support from both its partners, while financial support is predominantly from WIL on the working capital front. ICRA expects WIL to extend timely financial support to WCWL, if required going forward. WCWL’s Board is chaired by Mr. Srivats Ram, WIL’s Managing Director, fourth generation TVS family member and past president of The Automotive Component Manufacturers Association of India (ACMA). The company’s executive management team comprises of professionals with a few decades of experience in the wheel rim industry. The ratings also draw comfort from WCWL’s strong customer relationships with several passenger vehicle (PV) original equipment manufacturers (OEMs) including Maruti Suzuki India Limited (MSIL) and Hyundai Motors India Limited (HMIL) to name a few, its healthy market share and locational advantage of manufacturing facilities.
1 Includes purchase bills discounted and sales bills discounted with recourse
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Key rating drivers and their description
Credit strengths Strong parentage and technological support from strategic partners, WIL and Topy Industries Limited, Japan – WCWL is a 74% subsidary of WIL (rated [ICRA]A(Stable)/MA+(Stable)/[ICRA]A1) and is part of the T S Santhanam arm of the TVS Group. The remaining 26% stake is held by Topy Industries Limited, Japan (Topy). The company benefits from its strong parentage with operational and technological support from both its stakeholders. WIL is among the largest steel wheel rim manufacturers in India in the automotive segment and among the largest steel wheel rim manufacturers globally for earth movers. On the other hand, Topy is also a leading manufacturer of steel wheels globally. Currently, WCWL receives working capital support from WIL. Going forward, ICRA expects WIL to financially support WCWL, if required.
Strong management team – WCWL has a strong management team chaired by Mr. Srivats Ram (Managing Director, WIL), a fourth generation TVS family member with over 30 years of experience in the auto and auto component Industry. The company has one representation from Topy and has appointed three additional independent directors. WCWL has a professional management team and comprises of wheel rim industry veterans.
Strong customer relationships and healthy market share; WCWL also has locational advantage with its manufacturing facilities being in proximity to the OEM plants – WCWL’s clients comprise of reputed PV OEMs like MSIL, HMIL, Renault Nissan Automotive India Private Limited, Toyota Kirloskar Motor Private Limited and Ford India Private Limited. About 54% of the revenues in 9M FY2021 was derived from MSIL. The company has healthy market share in the passenger vehicle steel wheel rim market. However, it is not present in the fast-growing alloy wheel rim segment for passenger cars; alloy wheels now account for approximately 27% of the PV rim requirements in India. In terms of capacities, WCWL has three manufacturing plants in Bawal (Haryana), Padi (TN) and Vanod (Gujarat). While the former is closer to MSIL’s plant, the Padi facility is closer to plants of HMIL and Renault Nissan Automotive India Pvt Limited, providing logistics cost advantages.
Credit challenges Weak performance in 9M FY2021; ability to scale up revenues and improve accruals critical – The company reported revenue decline of 34.8% on a YoY basis in 9M FY2021, weaker than ICRA’s earlier estimates. Further, WCWL reported operating losses of 0.4% for 9M FY2021 (PY:1.4%) given its underutilization of capacities, limited bargaining power sandwiched between OEMs and large suppliers and competitive pressures. The weaker absorption of fixed costs and consequently lower operating margins cascaded into cash losses of Rs. 5.1 crore for the company in 9M FY2021. WCWL’s ability to put the passenger car steel wheel rims business on a focused growth path, scale up its revenues by harnessing the technology skills and global relationships of Topy and breakeven at the net level would be critical from the credit perspective.
Relatively high debt levels; weakening of coverage metrics in 9M FY2021 – The company’s debt levels were relatively high for its scale of operations at Rs. 124.9 crore as on Dec 31, 20202, contributed by debt-funded capex and discounting of purchase/sales bills to meet its working capital requirements. The relatively high debt levels and operating losses in 9M FY2021 have resulted in deterioration in coverage metrics for the company. Significant improvement in coverage metrics in FY2022 would be imperative. Liquidity Position: Adequate
WCWL’s liquidity is adequate with undrawn lines of more than Rs. 10 crore as on date as against the Board-approved working capital limits, which can be also be enhanced at short notice to enable the company to borrow more if required. The company had cash and liquid investments of Rs. 0.8 crore as on Dec 31, 2020 and its average working capital utilisation was 83.8% of
2 Includes purchase bills discounted and sales bills discounted with recourse
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sanctioned limits for the 11-month period ended Jan 2021. In relation to these sources of cash, WCWL has a total capex commitment of Rs. 4.0 crore for FY2022 and FY2023 and term loan repayments of Rs. 16.3 crore per year in FY2022 and FY2023. ICRA expects WCWL to be able to meet its medium-term commitments through internal sources of cash and debt, and timely financial support from WIL if required. Also, WCWL enjoys strong financial flexibility and lender/investor comfort by virtue of it being WIL’s subsidiary, and this is expected to continue going forward as well. Rating sensitivities
Positive factors – Significant improvement in in profit margins and leverage metrics on sustained basis could lead to an upgrade.
Negative factors – Negative pressure on WCWL’s rating could arise from weak revenues/profits and deterioration in liquidity or leverage metrices; or weakening in the parent’s (WIL) credit profile or WCWL’s operational/financial linkages with the parent, WIL.
Analytical approach:
Analytical Approach Comments Corporate Credit Rating Methodology Rating methodology for Auto Component Suppliers Applicable Rating Methodologies Rating Methodology for implicit or explicit support from parent or group on an entity’s credit rating Wheels India Limited (WIL, rated [ICRA]A (Stable)/MA+ (Stable)/[ICRA]A1) holds 74.0% stake Parent/Group Support in the company. Consolidated/Standalone Standalone
About the company: WIL Car Wheels India Limited (WCWL) manufactures of passenger car steel wheel rims, predominantly for the domestic market. Its manufacturing facilities are located at Padi (TN)3, Vanod (Gujarat) and Bawal (Haryana) and the company supplies to players like Maruti Suzuki India Limited, Hyundai Motors India Limited, Renault Nissan Automotive India Private Limited and Toyota Kirloskar Motor Private Limited to name a few. WCWL is part of the larger TVS Group (T S Santhanam arm), with 74.0% stake held by the Wheels India Limited (rated [ICRA]A (Stable)/MA+ (Stable)/[ICRA]A1)4. Topy Industries Limited, Japan, a global automobile and industrial machinery parts manufacturer, holds the remaining stake in the company. WCWL is chaired by Mr. Srivats Ram, a fourth generation TVS family member and Managing Director of WIL.
3 Contract manufacturing by WIL in this facility
4 Post the ongoing TVS Group restructuring exercise, the shares held by TVS Sons and Southern Roadways Private Limited in WIL will be transferred to Trichur Sundaram Santhanam & Family Private Limited. There is no impact on WIL’s operations because of the ongoing Group restructuring exercise. Also, there will be no change in WCWL’s shareholding/operations on account of this.
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Key financial indicators (audited) Standalone FY2019 FY2020 Operating Income (Rs. crore) 364.8 301.1 PAT (Rs. crore) -1.3 -6.7 OPBDIT/ OI (%) 2.8% 1.2% PAT/ OI (%) -0.4% -2.2%
Total Outside Liabilities/ TNW (times) 1.5 1.8 Total Debt/ OPBDIT (times) 8.0 27.7 Interest coverage (times) 2.6 0.7 Source: Company’s Annual Report, ICRA research; OPBDITA: Operating Profit before Depreciation, Interest and Taxes; PAT: Profit After Tax; RoCE: Return on Capital Employed; TNW: Tangible Net Worth
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years: Chronology of Rating History for Current Rating (FY2022) the past 3 years Date & Date & Date & Date & Date & Instrument Amount Amount Rating in Rating in Rating in Rating in Rating Type Rated Outstanding FY2021 FY2020 FY2019 FY2018 (Rs. crore) (Rs Crore) April 09, May 04, Mar 22, Jan 22, - 2021 2020 2019 2018 1 Unallocated Long - [ICRA]A- [ICRA]A- - - - - Term (Stable) (Stable) 2 Term Loan Long [ICRA]BBB+ [ICRA]A- - [ICRA]A- 65.00 50.30 - Term (Stable) (Negative) (Stable) 3 Fund based Short - facilities Term 45.00 - [ICRA]A2+ [ICRA]A1 [ICRA]A1 - 4 Unallocated Short - Term - - - - - [ICRA]A1
Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in
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Annexure-1: Instrument Details ISIN No Instrument Name Date of Issuance Coupon Maturity Amount Rated Current Rating and / Sanction Rate Date (Rs. crore) Outlook
NA Term Loans FY2019 8.5% FY2025 65.00 [ICRA]BBB+ (Stable) NA Short term fund based NA 45.00 [ICRA]A2+ facilities – Vendor bills discounting Source: WIL Car Wheels Limited
Annexure-2: List of entities considered for consolidated analysis Company Name Ownership Consolidation Approach Not applicable
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ANALYST CONTACTS Shamsher Dewan Srikumar K +91 124 4545 328 +91 44 4596 4318 [email protected] [email protected]
Vinutaa S William Charles +91 44 4596 4305 +91 44 4297 4305 [email protected] [email protected]
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