Press Release Minda Kyoraku Ltd April 01, 2019 Ratings Facility Amount (Rs. crore) Rating Rating Action Long-term Bank facilities 49.59 CARE A-; Stable Reaffirmed (Reduced from 54.55) (Single A Minus) Short-term bank facilities- Non- 1.00 CARE A2+ Reaffirmed fund based (Reduced from 1.50) (A Two Plus) Total 50.59 (Rupees Fify crore and fifty Nine lacs only) Detailed Rationale & Key Rating Drivers The rating assigned to the bank facilities of Minda Kyoraku Ltd (MKL) continue to draw strength from experienced promoters, viz Minda Industries Ltd and Kyoraku group, their reputed clientele, strong financial risk profile marked by healthy profitability margins, strong coverage indicators and comfortable gearing levels. Further, ratings take into cognizance completition of capacity expansion project at Bawal without any time or cost over-runs, and advanced stage of execution for its greenfield project in Gujarat. The ratings, however, continue to remain constrained by the off-take risk for the Gujarat plant as envisaged and the exposure to raw material price volatility risk. Further, the ratings continue to take in cognizance of the cyclical nature of auto sector. Going forward, ability to maintain profitability margins, low debt overall capital structure as well as consistent support from promoters shall be key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Experienced promoters and management: MKL is promoted by MIL, the flagship company of the Minda group, and Kyoraku Group which is one of the leading manufacturers of automotive components such as Roof spoilers, Air ducts, washer & reserve tank, EA pad, Deck Board in Japan. The Chairman & Managing Director of MIL, Mr N K Minda, has more than three decades of experience in the automotive industry. Also, the operations are well supported through group of professionals having extensive work experience. Established relationship with customers, coupled with diversified product profile: MKL has well- established relationships with leading OEMs and is well-regarded in the auto ancillaries space in India.The products manufactured by MKL are supplied to various OEMs such as Maruti Suzuki, Toyota, Nissan, Honda etc. with whom MKL enjoys 7-10 years of relationship. MKL deals in variety of blow moulded components such as spoilers, duct, EA Pad, washer bottles, reserve tanks etc. Strong financial risk profile: MKL has reported total operating income (TOI) of Rs.140.3 crore in FY18 (PY: Rs.146.33 cr) with comfortable PBILDT margins at 17.62% in FY18 (PY: 16.57%). Drop in top-line has been despite a higher volume of unit sales and is primarily on account of lower slaes realizations indexed with crude oil price movements. Overall gearing stood at comfortable level of 0.05x as on March 31, 2018 (PY: 0.14x as on March 31, 2017). Despite relatively small scale of operations, the overall financial profile of the company continues to remain robust characterized by limited reliance on debt. Advanced stage of execution in green-field project at Gujarat: MKL is in process of setting up new plant at Gujarat at total cost of ~Rs.62 cr, which will be catering to the requirements of Suzuki Motor Gujarat Pvt Ltd. The same is proposed to be funded through promoter’s fresh equity contribution of Rs.27 cr and debt of Rs.32 cr. The said plant is projected to be operational by Q1FY20. Till Feb-19, the company has incurred capex of Rs.50 cr, which has been funded through debt of Rs.22 cr and equity infusion of Rs.27 cr (already infused by Mar-18). Further, MKL is has successfully completed brown-field capex at Bawal within envisaged cost and timelines. Key Rating Weakness 1 CARE Ratings Limited Press Release Off-take risk pertaining to Gujarat plant: In light of substantial amount of investment made, timely off-take of capacities at the Gujarat plant as envisaged shall have impact on the overall financial profile of MKL and shall remain key rating monitorable going forward. Exposure to raw material price volatility risk: Major raw materials required by the company include bought- out components (nuts/ bolts/ seal etc.) and polymers (such as styrene/ ethylene etc.). Prices of polymers are directly linked to volatility in crude oil prices. Thus, any fluctuation in prices of these will have direct bearing on the profitability margins of the company. Cyclical nature of auto sector: The automobile industry is highly cyclical in nature and automotive component suppliers’ sales are directly linked to sales of auto OEMs. Furthermore, the auto-ancillary industry is highly competitive with the presence of a large number of players in the organized as well as unorganized sector. Liquidity Analysis: Liquidity profile of MKL continues to remain stable marked by healthy cash accrual generation of Rs.17.70 cr in FY18 as against annual loan repayment obligations ranging from Rs.2 cr to Rs.8 cr over the next 4 years. Further, average fund based working capital utilization has remained low at ~26.10% during past 12 months period ended Dec-18 (8% during 12 month period ended Jan-18). Analytical approach: Standalone Applicable Criteria CARE’s Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition CARE’s Criteria for Short-term Instruments CARE’s methodology for auto ancillary companies CARE’s methodology for financial ratios (Non-Financial Sector) CARE’s methodology for Factoring Linkages in Ratings About the Company Incorporated in the year 2011, Minda Kyoraku Co. Ltd (MKL) is a Joint Venture (JV) between Minda Industries Ltd holding 68% stake in MKL (as of Feb-19), Kyoraku Co. Ltd, (holding 10% stake in MKL as of Feb-19), Nagase Co. Ltd. (20% stake as of Feb-19) & Chiyoda Mfg. Corporation Japan (2% stake). The company is operating in the field of Automotive Blow moulded products such as Roof Duct, IP duct, spoilers, washer bottles, deck board and EA Pads being manufactured. The company operates from two locations across India (Bangalore & Bawal, Haryana) and is catering to various OEMs including Maruti Suzuki India Ltd, Suzuki Motor Gujarat P. Ltd, Toyota Kirloskar Motor Pvt Ltd., Nissan, Honda, GM, Ford, Mahindra etc. Brief Financials (Rs. crore) FY17 (Audited) FY18 (Audited) Total operating income 128.89 140.3 PBILDT 24.25 24.72 PAT 10.24 10.86 Overall gearing (times) 0.14 0.05 Interest coverage (times) 13.43 31.69 Status of non-cooperation with previous CRA: NA Any other information: NA Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications. 2 CARE Ratings Limited Press Release Analyst Contact Name: Nitesh Ranjan Tel: 011-45333239 Mobile: 9654107900 Email: [email protected] About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Size of the Rating assigned Instrument Issuance Rate Date Issue along with Rating (Rs. crore) Outlook Fund-based - LT-Term - - Mar-23 35.59 CARE A-; Stable Loan Fund-based - LT-Cash - - - 14.00 CARE A-; Stable Credit Non-fund-based - ST- - - - 1.00 CARE A2+ BG/LC Annexure-2: Rating History of last three years Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned in assigned in assigned in assigned in 2018-2019 2017-2018 2016-2017 2015-2016 1. Fund-based - LT-Term LT 35.59 CARE A-; 1)CARE A-; - - - Loan Stable Stable (06-Sep-18) 2. Fund-based - LT-Cash LT 14.00 CARE A-; 1)CARE A-; - - - Credit Stable Stable (06-Sep-18) 3.