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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 71.99 | ACUITE BBB- | Stable | Upgraded | - |
| Bank Loan Ratings | 0.01 | - | ACUITE A3 | Upgraded |
| Total Outstanding | 72.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuité has upgraded the long-term rating to ‘ACUITE BBB-’ (read as ACUITE triple B minus) from 'ACUITE BB+' (read as ACUITE double B plus) and the short-term rating to ‘ACUITE A3’ (read as ACUITE A three) from 'ACUITE A4+' (read as ACUITE A four plus) on the Rs. 72.00 crore bank facilities of EGearz Private Limited (EGPL). The outlook is ‘Stable’.
Rationale for rating The rating upgrade of EGPL takes into account increase in the company’s revenue in FY24, improving market position and moderate working capital operations. It also draws comfort from the company’s experienced management and moderate financial risk profile. The above mentioned rating strengths are partially offset by EGPL’s customer concentration risk, competitive and cyclical nature of industry. Furthermore, the company completed its ongoing capex of increasing its production capacity of sintering in September, 2024 and is planning introduce pressing technology in its production process in the near term which is expected to boost the overall cost efficiency and improve its scale of operations in medium term. Going forward, the company’s ability to scale up its operations and profitability while maintaining its capital structure will remain a key rating monitorable. |
| About the Company |
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EGPL incorporated in the year 2019, is engaged into manufacturing of assemblies for electrical vehicles, hybrid vehicles and new age transmissions for automotive. The company uses latest technologies like high end sintering, banding, additive manufacturing (AM), metal Injection moulding (MIM) and 3D printing for development of sintered gear box for 3 wheelers, 2 wheelers and some systems for hybrid vehicles. The company has its manufacturing unit located at Shirwal in Satara district of Maharashtra.
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| Unsupported Rating |
| Not Applicable. |
| Analytical Approach |
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Acuité has considered the standalone view of the business and financial risk profile of EGPL to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Experienced management
EGPL is promoted by Mr. Niranjan Narkhede & his wife Mrs. Sonal N. Narkhede. The promoters have an experience of more than two decades in the field of technology and are being supported by its team of experienced professionals in managing day to day operations of EGPL. The extensive experience of the promoters has enabled EGPL to establish a healthy relationship with its customers and suppliers. Acuité believes that EGPL will continue to benefit from its experienced management. Moderate Financial Risk Profile Financial risk profile of EGPL is moderate marked by moderate networth, high gearing and moderate debt protection metrics. The tangible networth of the company stood improved at Rs.31.21 Cr. as on 31 March, 2024 as against Rs.23.12 Cr. as on 31 March, 2023 due to accretion of profits to reserves. It also includes unsecured loans from directors amounting to Rs.6.16 Cr. been treated as quasi equity as they are subordinated to bank borrowings. Despite of improvement in the company’s networth, the gearing (debt-equity) however stood increased at 1.84 times as on 31 March, 2024 as against 1.76 times as on 31 March, 2023 due to an increase in the overall debt profile during the year. The increase in the company’s debt profile is on account of the ongoing capex for increasing the production capacity. The gearing of the company is expected to increase further and remain high over the medium term on account of raising additional debt towards completion of the ongoing capex. The total debt of Rs.57.35 Cr. as on 31 March, 2024 consists of long term bank borrowings of Rs.32.80 Cr, unsecured loans from directors of Rs.0.16 Cr and short term bank borrowings of Rs.16.85 Cr. The overall gearing is estimated to remain in the range of 0.90 to 1.50 times over the near to medium term. The interest coverage ratio stood at 4.92 times for FY24 as against 5.33 times for FY23 and DSCR stood moderated at 2.47 times for FY24 as against 2.54 times for FY23. The Net Cash Accruals to total debt stood at 0.22 times for FY24 as against 0.21 times for FY23. The Total outside liabilities to Tangible net worth stood increased at 2.73 times for FY24 as against 2.63 times for FY23. The Debt-EBITDA ratio stood lower at 3.07 times for FY24 as against 3.35 times for FY23. Further, the overall financial risk profile is expected to remain moderate due to the debt funded capex which will be undertaken in near future. |
| Weaknesses |
| Customer Concentration Risk
The company is also susceptible to customer concentration risk as ~48 percent of the company’s revenue is generated through sales to their group company ‘Speciality Sintered Products Pvt Ltd’ as per the requirement of various OEMs considering EGPL’s current stage of business operations. Acuité believes that the ability of EGPL to expand its customer base in order to mitigate the revenue concentration risk will remain a key rating sensitivity factor. Cyclicality and competition associated with automotive component industry The auto component industry is highly competitive due to competition from organized and unorganized players. It is also highly cyclical in nature with growth linked to overall growth in the economy and consumption. Acuité believes that EGPL’s revenues to be exposed and tied to cyclical demand prospects of the automobile industry and the presence of other players which leads to increased competition. |
| Rating Sensitivities |
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Ability to improve scale of operations and operating margins. Ability to expand customer base in order to mitigate the revenue concentration risk. |
| Liquidity Position |
| Adequate |
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EGPL has adequate liquidity position marked by sufficient net cash accruals (NCA) to its maturing debt obligations. The company generated cash accruals in the range of Rs.4.00 Cr. to Rs.12.00 Cr. during FY22 to FY24 against its debt repayment obligation in the range of Rs.2.00 Cr. to Rs.7.00 Cr. during the same period. Going forward, the NCA are expected in the range of Rs.17 Cr. to Rs.24 Cr. for the period FY25-FY26 against its debt repayment obligation of ~Rs.8-9 Cr. during the same period. The working capital operations of the company are moderate marked by its gross current asset (GCA) days of 123 days for FY24. The average bank limit utilization for 10 months’ period ended September 2024 stood between average of 78% to 85%. Current ratio stands at 1.13 times as on 31 March 2024. The company has maintained cash & bank balance of Rs.0.03 Cr. in FY24.
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| Outlook: Stable |
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| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 141.59 | 100.26 |
| PAT | Rs. Cr. | 8.15 | 6.97 |
| PAT Margin | (%) | 5.75 | 6.95 |
| Total Debt/Tangible Net Worth | Times | 1.84 | 1.76 |
| PBDIT/Interest | Times | 4.92 | 5.33 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable. |
| Any other information |
| None. |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: 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 |
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