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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 118.63 | ACUITE A+ | Stable | Assigned | - |
| Bank Loan Ratings | 283.47 | ACUITE A+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 10.00 | - | ACUITE A1+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 412.10 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long term rating at ‘ACUITE A+’ (read as ACUITE A plus) and short term rating at ‘ACUITE A1+ (read as ACUITE A one plus)’ on the Rs. 293.47 Cr bank facilities of ‘Eastman Auto and Power Limited (EAPL)’. The outlook is ‘Stable’. Acuité has also assigned the long term rating of ‘ACUITE A+’ (read as ACUITE A plus) on the Rs. 118.63 Cr bank facilities of ‘Eastman Auto and Power Limited (EAPL)’. The outlook is ‘Stable’. Rationale for reaffirmation Rating has been reaffirmed on account of growth in operational performance, efficient working capital management, comfortable financial risk profile and liquidity of the company. Company has shown growth in scale of operations registering increment of 60% in total operating income in FY 2022. Since company is in process of increasing capacity in a phase wise manner, the growth in revenues will sustain in the near term. However, the debt funded capex may lead to moderation of financial risk profile, hence profitability and working capital management will remain key rating monitorables going forward. |
| About the Company |
| Eastman Auto and Power Limited (EAPL) is Gurgaon based company and was incorporated in 2000. The company was initially involved in trading activity till 2008. The company leased out plant in Nalagarh district, Himachal Pradesh for manufacturing of invertor Battery. In 2018, the company set up another plant (own unit) in Baddi district, Himachal Pradesh for the same. The installed capacity remained at 7,20,000 units and 12,00,000 units respectively in Nalagarh and Baddi plant respectively during FY21. The same increased to 12,60, 000 units and 14,40,000 units in FY22. The company has been engaged in increase in installed capacity in order to cater growing demand. In addition to this, the company also undertakes contract manufacturing for reputed client such as Fujiyama Systems Private Limited, Lucas Indian Service Limited and Amara Raja Batteries. EAPL also sell its batteries under brand name; ‘Addo’ and ‘Eastman’. Currently the business model of the company has evolved wherein the share of company's own brand in the sales mix has increased and company has increased its focus on B2C segment for 'Addo' and 'Eastman'. |
| Analytical Approach |
| The team has considered the standalone business and financial performance of Eastman Auto and Power Limited to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Experienced management and long track record of operations The company was initially incorporated in 2000 by Mr. Jagdish Rai Singhal, as a subsidiary of Eastman group. During the time the promoters were engaged in industrial manufacturing and automobile industry. The day to day operation of the company are currently managed by Mr. Shekhar Singhal (Managing Director) S/o Mr. Jagdish Rai Singhal. The management is ably supported by qualified and experienced professionals that has resulted in maintaining strong relationship with their clients such as Fujiyama Power Systems Private Limited, Amara Raja Batteries and Lucas Indian Service Limited to name a few. The other directors include Mr. Vineet Jain (Independent director) who is also associated with the other group companies as an independent director. Ms. Astha Bansal (Whole time director), Mr. Sanjeev Gupta (Independent director) and Mr. Surajit Sur (Whole time director). The promoters are supported by team of well qualified and experienced professionals. Acuite believes that the company would continue to benefit from experience of the Directors and long track record of the company. Improving operational metrics amid decline in profitability Company reported total operating income of Rs. 1,560.02 Cr in FY 2022 (Audited) as against Rs. 974.80 Cr in FY 2021 (Audited). Company has reported growth of 60% over FY 2021. The growth is driven by increase in sales volume of E-rickshaw batteries in FY 2022. Total volume increased from 12,51,742 units in FY 2021 to 20,99,456 units in FY 2022. Out of this e-rickshaw batteries volume increased from 4,94,585 units in FY 2021 to 12,17,208 units in FY 2022 marking growth of 146% in terms of volume in FY 2022 over FY 2021. Company’s profitability declined in FY 2022. EBITDA margin declined from 6.05% in FY 2021 to 4.98% in FY 2022. The decline is majorly on account of increase in raw material prices, employees related expenses and rebates and discounts offered to dealers as part of marketing strategy. PAT margin has improved to 1.89% in FY 2022 as against 1.63% in FY 2021. Comfortable financial risk profile Company’s financial risk profile is healthy marked by comfortable tangible net worth and strong debt protection metrics. The capital structure as represented by debt-equity ratio continues to remain below unity as on March 31, 2022. The tangible net worth of the company improved to Rs. 200.67 Cr in FY 2022 as against Rs. 177.02 Cr in FY 2021. Total debt of Rs. 146.47 Cr in FY 2022 consists of Rs. 66.08 Cr of long term debt, Rs. 51.81 Cr working capital borrowings and Rs. 28.58 Cr of CPLTD. Interest coverage has improved and stood strong at 10.13 times in FY 2022 as against 9.39 times in FY 2021. DSCR has moderated to 2.38 times in FY 2022 as against 2.65 times in FY 2021. TOL/TNW has moderated to 2.51 times in FY 2022 from 2.18 times in FY 2021. Debt-EBITDA has moderated from 1.62 times in FY 2021 to 1.85 times in FY 2022. Going forward since company is executing debt funded capex, team expects slight moderation in financial risk profile of the company however it will remain healthy in the medium term. |
| Weaknesses |
| Debt Funded Capex Company is executing debt funded capex for capacity expansion of Rs. 106.66 Cr which has started in FY 2023 (Current Fiscal) and the entire capex will get capitalized and become operational by FY 2024. Under this capex company will expand capacity from 27,00,000 units per anum to 42,00,000 per anum in FY 2023 and further enhance the capacity to 48,00,000 units per anum in FY 2024. Total capex in FY 2023 will be Rs. 125 Cr out of which Rs. 106.66 Cr will be for capacity expansion and rest Rs. 18.34 Cr will be for maintenance/replacement capex. In FY 2024 company will do capex of Rs. 20.00 Cr for replacement/maintenance/ R&D capex. The capacity expansion is debt funded becasue of which the increment in debt portion will lead to moderation of financial risk profile. However, the impact of same is expected to be mitigated to some extent by accretion of profit to reserves. Susceptibility to changes in regulations and customer preference The battery industry remains susceptible to changes in government regulations regarding the content raw material used. Further, the industry is susceptible to changes in consumer preferences. Hence, the operational performance of the company is expected to be impacted in event of any of above event. |
| Rating Sensitivities |
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| Material covenants |
| None. |
| Liquidity Position |
| Adequate |
| Company has adequate liquidity position. In FY 2022 company has generated net cash accrual of Rs. 59.50 Cr against maturing debt obligation of Rs. 20.47 Cr. Going forward company is expected to generate net cash accrual of Rs. 99.95 Cr and Rs. 142.65 Cr in FY 2023 and 2024 respectively against maturing debt obligation of Rs. 28.58 Cr and Rs. 54.47 Cr in each respective year. Company’s unencumbered cash and bank position stood at Rs. 51.98 Cr in FY 2022 while current ratio stood at 1.14 times. |
| Outlook: Stable |
| Acuité believes that the outlook on EAPL will remain 'Stable' over the medium term on account of its experienced promoter and long track record of operations. The outlook may be revised to 'Positive' in case of significant improvement in scale of operations along with improvement in profitability. Conversely, the outlook may be revised to 'Negative' in case of any stretch in its working capital management or any significant cost or time overrun in its proposed capex leading to deterioration of its revenue stream. |
| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 1560.02 | 974.80 |
| PAT | Rs. Cr. | 29.45 | 15.85 |
| PAT Margin | (%) | 1.89 | 1.63 |
| Total Debt/Tangible Net Worth | Times | 0.73 | 0.55 |
| PBDIT/Interest | Times | 10.13 | 9.39 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None. |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
| In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in. |
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