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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 36.00 | ACUITE BB | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 36.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long term rating to ‘ACUITE BB’ (read as ACUITE Double B) on the Rs.36.00 crore bank facilities of Kanchana Automobiles Private Limited (KAPL). The outlook is 'Stable'.
Rationale for Rating Reaffirmation: The rating is reaffirmed basis the experienced management, established track record of operations and long association with Hyundai Motor India Limited(HMIL), marked by stable operating income, range bound profitability levels and efficient working capital management. However, the rating is constrained due to its below-average financial risk profile and stiff competition from other dealers and brands. |
| About the Company |
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Kanchana Automobiles Private Limited (KAPL) was incorporated in 2005 and is an authorized dealer for Hyundai Motor India Limited (HMIL) for the coastal Karnataka region. It has a dealership network of 9 sales & services outlets at Udupi, Mangalore, Karwar, Puttur, Sirsi, Kundapura, Kumta and Surathkal for Hyundai passenger cars.
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| Analytical Approach |
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Acuité has considered the standalone view of the financial and business risk profile KAPL to arrive at this rating.
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Key Rating Drivers
| Strengths |
| Experienced management, established track record of operations and long association with Hyundai Motor India Limited
KAPL was incorporated in 2006 by Mr. Prasadraj Kanchan and Mrs. Sukanya Kanchan who possess more than two decades of experience in the automobile dealership business. The promoters also have dealerships for TVS Motor Company Limited, Ashok Leyland Limited and Honda Scooters & Motor Cycles Limited under their various other private limited/partnership concerns. KAPL has been an authorised dealer of Hyundai Motor India Limited (HMIL) for more than 15 years. The company benefits from its long association with HMIL. KAPL’s operating income grew to Rs.231.51 Cr. in FY22 as against Rs.223.60 Cr. in FY21 and Rs.180.01 Cr in FY20, driven by higher realisations. The operating profitability stood at 3.53 percent in FY22 as against 3.71 percent in FY21. Acuité believes that the company will continue to benefit from its experienced management and established relations with its principal. Efficient working capital management
KAPL's working capital operations are moderate with comfortable GCA days of 47 in FY22. Inventory period improved and stood moderate at 18 days in FY22 as against 23 days in FY21. Debtor realization period stood at 25 days in FY22 and FY21. Creditor days stood at 13 in FY22 as against 14 in FY21. Average bank limit utilization stood at 82.42% for the six months ended October 2022. |
| Weaknesses |
| Below-average financial risk profile
KAPL’s financial risk profile remained below average marked by moderately high gearing and modest debt protection metrics. The net worth of the firm remained at Rs.14.58 Cr and Rs.11.17 Cr as on March 31, 2022 and March 31, 2021 respectively. The gearing ratio though improving, has been moderately high as it stood at 2.07 times as on March 31, 2022 against 3.17 times in the March 31, 2021. Given the improvement in the capital structure and profitability position, the debt coverage indicators also improved with the interest coverage and DSCR having improved from 2.74 times and 1.09 times respectively in FY22 to 2.09 times and 1.14 times respectively in FY21. Stiff competition from other dealers and brands Hyundai Motor India Limited (HMIL) focus on expanding its dealership network is expected to increase competition among its own dealers. Moreover, the company is also exposed to intense competition from other automobile players viz. Honda, Tata Motors, Maruti, Toyota, to name a few. Besides, the launch of new models at competitive prices eats into the market share of HMIL, which in turn, affects dealers including KAPL.
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| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity: Adequate |
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KAPL has adequate liquidity position. In FY22 company generated net cash accrual of Rs.4.33 Cr against maturing debt obligation of Rs.3.33 Cr. Going forward company is expected to generate net cash accurals (NCA) of Rs.5.19 Cr and Rs.6.07 Cr in FY23 and FY24 respectively against maturing debt obligation of Rs.2.85 Cr and Rs.2.56 Cr in FY23 and FY24 respectively. In FY22 company had unencumbered cash and bank position of Rs.2.58 Cr. Average bank limit utilization stood at 82.42% for the six months ended October 2022.
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| Outlook: Stable |
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Acuité believes that KAPL will maintain a 'stable' outlook in the medium term on account of its experienced management and established track record of operations. The outlook may be revised to 'Positive' if the company registers higher-than-expected revenues and net cash accruals while maintaining its capital structure. Conversely, the outlook may be revised to 'Negative' in case the company registers lower-than-expected revenues and profitability or if the financial risk profile deteriorates due to higher-than-expected working capital requirements.
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| Other Factors affecting Rating |
| Not applicable |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 231.51 | 223.60 |
| PAT | Rs. Cr. | 3.40 | 2.38 |
| PAT Margin | (%) | 1.47 | 1.07 |
| Total Debt/Tangible Net Worth | Times | 2.07 | 3.17 |
| PBDIT/Interest | Times | 2.74 | 2.09 |
| Status of non-cooperation with previous CRA (if applicable) |
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ISSUER NOT COOPERATING by CRISIL as per press release dated September 14, 2022.
ISSUER NOT COOPERATING by CARE as per press release dated September 21, 2022. |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.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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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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