PR

Press Release
KINECO KAMAN COMPOSITES INDIA PRIVATE LIMITED
May 24, 2023
Rating Downgraded and Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	34.25	ACUITE BBB \| Stable \| Downgraded	-
Bank Loan Ratings	5.75	-	ACUITE A2 \| Reaffirmed
Total Outstanding Quantum (Rs. Cr)	40.00	-	-

Rating Rationale

Acuité has downgraded its long-term rating to ‘ACUITE BBB’ (read as ACUITE Triple B)’ from ‘ACUITE BBB+’ (read as ACUITE Triple B plus) and reaffirmed its short-term rating of ‘ACUITE A2’ (read as ACUITE A Two) on the Rs.40.00 Cr bank facilities of Kineco Kaman Composites India Private Limited (KKCI). The outlook is 'Stable'.

Reason for downgrade
The rating downgrade reflects the continued deterioration in the business risk profile of the company marked by the stagnating operating income and the declining profitability. The revenue of the company stood at Rs.52.48 crore in FY22 compared to revenue of Rs.48.67 crore in FY21 as against revenue of Rs.54.40 crore in FY20. Further the revenue stood at Rs.51.06 crore for FY23 (Est). The EBITDA level of the company declined from the peak level of Rs.17.34 crore in FY2020 to Rs.13.23 crore in FY2021 further declining to Rs.10.85 crore in FY2022. The rating downgrade also reflects the weaking of the parental business profile i.e., Indo-National Limited and Kineco Limited. KKCI’s ability to increase its scale of operations by maintaining a healthy order book execution pace while maintaining its liquidity position without any significant stretch in its working capital, shall remain a key rating sensitivity.

About the Company

KKCI, incorporated in 2012, is a joint venture (51:49) between Kineco Limited (KL), subsidiary of Indo National Limited (INL) and KAGI, a subsidiary of KC, USA. KKCI commenced its operations in FY15 and is engaged in manufacturing of advanced composite structures for aerospace, defence, medical imaging and other industries using the latest carbon fibre materials and autoclave curing technology. Its products include composite structural parts for modern aircrafts and helicopters along with parts for space crafts. The manufacturing unit is located in Goa.

Analytical Approach

Acuité has considered the standalone business and financial risk profiles of KKCI for arriving at the rating.

Key Rating Drivers

Strengths

Experienced management and long track record of operations
KKCI, incorporated in 2012 is a joint venture between KL and the US-based KAGI. The management team consists of directors nominated from KL and KAGI. Mr. Shekhar Sardessai from KL is the Chief Managing Director, while Mr. Sanjay Asher, Mr. Pottipati Adithya and Mr. Richard Barnhart are the other directors. The management team collectively possesses more than 3 decades of experience in the manufacturing of composite products for railways, telecommunication, water treatment, aerospace and defence industries. The management is ably supported by qualified and experienced professionals. The extensive experience of the promoters has helped the company to maintain a healthy order book position. The company has an order book of ~Rs.129 crore as on 31st March 2023. The company has reputed clientele base like BAE Systems Ltd, Vikram Sarabhai Space Centre, etc. Acuité believes that KKCI is expected to benefit on account of experienced management in procuring the orders from the customers.

Moderate financial risk profile
The company has a moderate financial risk profile marked by tangible net worth of Rs.41.21 crore as on 31 March 2022 as against Rs.33.87 crore as on 31 March 2021. The gearing level of the company stood low at 0.36 times as on 31 March 2022 as against 0.51 times as on 31 March 2021. The total debt of the company stood at Rs.14.89 crore which consists of long-term debt of Rs.5.29 crore and short-term debt of Rs. 7.69 crore as on 31 March 2022. The company has placed an order for few machineries which will be installed by August 2023. The total cost of the capital expenditure is Rs.11 crore for which the company will avail a term loan of Rs.8 crore and the balance will be funded by the cash accruals. The capex is expected to help the company to procure orders from large players in the aerospace industry. The coverage ratios of the company stood moderate with Interest Coverage Ratio (ICR) of 19.27 times for FY22 against 17.85 times for FY21. The Debt Service Coverage Ratio (DSCR) stood at 4.32 times for FY22 against 1.22 times for FY21. The total outside liabilities to tangible net worth (TOL/TNW) of the company stood at 0.61 times for FY22 as against 0.84 times in FY21. Acuité believes that KKCI is likely to maintain a moderate financial risk profile in the medium term.

Weaknesses

Working capital intensive nature of operations
The company’s operations are working capital intensive as evident from Gross Current Asset (GCA) of 201 days as on March 31, 2022 as against 178 days as on March 31, 2021. The inventory levels have improved and stood at 57 days for FY22 compared against 93 days for FY21. Average inventory holding period for the raw materials is around 70-80 days. The debtor days stood at 56 days for FY22 against 42 days for FY21. The average credit period allowed to the customers is around 40-50 days. The creditor days of the company stood at 116 days for FY22 as against 114 days for FY21. The average credit period received from the customers is around 100 days. The average utilization of the CC limits of the company is utilized ~61 percent in last six months ended March’23. Acuité believes that the working capital management of the company will continue to remain a key rating sensitivity going ahead.

Weakening of the parental profile
KKCI is a joint venture (51:49) between Kineco Limited (KL), subsidiary of Indo National Limited (INL) and KAGI, a subsidiary of Kaman Corporation, USA. The business profile of the parent companies have weakened as per the information available in the public domain. Acuité believes that the business risk profile of the parent companies will remain a key rating sensitivity going ahead.

High customer concentration risk
KKCI continues to be exposed to high customer concentration risk since more than 50 per cent of the operating income in FY22 is derived from a single customer viz. BAE Systems, USA. The company also caters to other players including Hindustan Aeronautics Limited, Vikram Sarabhai Space Centre, Kaman Composites - UK Limited, which operate in the defence, aerospace and marine industries. Hence, changes in procurement policy of BAE Systems or credit terms with vendors can have a significant bearing on the performance of the company and the credit rating. KCCI is expanding its customer base to other countries as well, however, revenue from BAE Systems shall continue to remain high, thereby exposing KKCI to high customer concentration risk.

Rating Sensitivities

Sustained growth in the operations with sustained improvement in the profitability margins.
Any deterioration in the financial risk profile.
Impact on liquidity profile on account of higher-than-expected working capital requirements.
Any deterioration in the financial and business risk profile of the parental companies.

Material covenants

None

Liquidity position: Adequate

The company has an adequate liquidity position marked by adequate net cash accruals against its maturing debt obligations. The company generated cash accruals of Rs.9.55 crore in FY22 compared against maturing debt obligations of Rs.1.71 crore over the same period. The cash accruals of the company are estimated to remain in the range of Rs.9.81-11.34 crore during 2023-25 period while its maturing debt obligations is estimated to be in the range of Rs.1.56-2.98 crore during the same period. The average utilization of the CC limits of the company is utilized ~61 percent in last six months ended Mar’23. The company maintains unencumbered cash and bank balances of Rs.9.25 crore as on March 31, 2022. The current ratio stood healthy at 2.27 times as on March 31, 2022.

Outlook: Stable

Acuité believes that KKCI will maintain a 'Stable' outlook in the medium term given the extensive experience of the management in the aerospace industry and established relationship with reputed customers. The outlook may be revised to 'Positive' in case of a significant improvement in net cash accruals while managing its working capital cycle efficiently. Conversely, the outlook may be revised to 'Negative' in case of a significant decline in net cash accruals or deterioration in the liquidity profile due to higher than expected working capital requirement or major un-foreseen debt-funded capex plan.

Other Factors affecting Rating

None

Key Financials

Particulars	Unit	FY 22 (Actual)	FY 21 (Actual)
Operating Income	Rs. Cr.	52.48	48.67
PAT	Rs. Cr.	7.23	5.41
PAT Margin	(%)	13.78	11.11
Total Debt/Tangible Net Worth	Times	0.36	0.51
PBDIT/Interest	Times	19.27	17.85

Status of non-cooperation with previous CRA (if applicable)

None

Any other information

None

Applicable Criteria

• 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.

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
23 Feb 2022	Term Loan	Long Term	10.00	ACUITE BBB+ \| Stable (Reaffirmed)
	Cash Credit	Long Term	9.00	ACUITE BBB+ \| Stable (Reaffirmed)
	Term Loan	Long Term	1.30	ACUITE AA- (CE) (Withdrawn)
	Proposed Bank Facility	Long Term	15.25	ACUITE BBB+ \| Stable (Reaffirmed)
	Bank Guarantee	Short Term	3.50	ACUITE A2 (Reaffirmed)
	Letter of Credit	Short Term	2.25	ACUITE A2 (Reaffirmed)
26 Nov 2020	Letter of Credit	Short Term	2.25	ACUITE A2 (Upgraded from ACUITE A3+)
	Term Loan	Long Term	10.00	ACUITE BBB+ \| Stable (Upgraded from ACUITE BBB \| Stable)
	Proposed Bank Facility	Long Term	16.95	ACUITE BBB+ \| Stable (Upgraded from ACUITE BBB \| Stable)
	Cash Credit	Long Term	6.00	ACUITE BBB+ \| Stable (Upgraded from ACUITE BBB \| Stable)
	Bank Guarantee	Short Term	3.50	ACUITE A2 (Upgraded from ACUITE A3+)
	Term Loan	Long Term	1.30	ACUITE AA- (CE) \| Stable (Reaffirmed)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
State Bank of India	Not Applicable	Bank Guarantee/Letter of Guarantee	Not Applicable	Not Applicable	Not Applicable	3.50	Simple	ACUITE A2 \| Reaffirmed
State Bank of India	Not Applicable	Cash Credit	Not Applicable	Not Applicable	Not Applicable	9.00	Simple	ACUITE BBB \| Stable \| Downgraded
State Bank of India	Not Applicable	Letter of Credit	Not Applicable	Not Applicable	Not Applicable	2.25	Simple	ACUITE A2 \| Reaffirmed
Not Applicable	Not Applicable	Proposed Long Term Loan	Not Applicable	Not Applicable	Not Applicable	15.25	Simple	ACUITE BBB \| Stable \| Downgraded
State Bank of India	Not Applicable	Term Loan	Not available	Not available	Not available	10.00	Simple	ACUITE BBB \| Stable \| Downgraded

Contacts

Analytical	Rating Desk
Aditya Gupta Vice President-Rating Operations Tel: 022-49294041 aditya.gupta@acuite.in Tanvi Kadam Analyst-Rating Operations Tel: 022-49294065 tanvi.kadam@acuite.in	Varsha Bist Senior Manager-Rating Operations Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité.