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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 5.75 | ACUITE BB+ | Stable | Upgraded | - |
| Bank Loan Ratings | 24.25 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 30.00 | - | - |
| Rating Rationale |
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Acuité has upgraded the long-term rating to ‘ACUITE BB+’ (read as ACUITE double B plus) from 'ACUITE BB' (read as ACUITE double B) and reaffirmed the short-term rating of ‘ACUITE A4+’ (read as ACUITE A four plus) on the Rs.30.00 Crore bank facilities of Lido Commercial Company Limited (LCCL). The outlook is ‘Stable’
Rationale for rating upgrade The rating upgrade factors in the overall improvement in operating and financial performance of LCCL marked by significant improvement in operating income, operating profitability and financial risk profile. The revenue of the company grew by 59% in FY2023 (prov) as it stood at Rs.252.51 Crore in FY2023(prov.) as against Rs.158.33 Crore in FY2022. The Company generated operating profits in FY2023 as it reported operating margins of 1.26 percent in FY2023 (Prov.) as against (0.58) percent loss in FY2022. The rating also draws comfort from the established track record of operation and experience management, above-average financial risk profile and moderately efficient working capital management. However, the rating is constrained due to its thin profitability margins and intense competition from other auto dealers and susceptible to cyclicality in the auto sector. |
| About the Company |
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Lido Commercial Company Limited (LCCL) is a New Delhi-based company incorporated in 1983. The company is promoted by Mr. R.K. Singhania along with his other family members. The company is engaged in retail and wholesale trading of all passenger vehicles of Mahindra automobiles and has one showroom, 2 workshops and one body shop. The Company's working under the name of Sri Durga Automobiles (A division of Lido Commercial Company Ltd.) The operations of the company are currently handled by Mr. Kirti Singhania, Mr. Ashish Singhania, and Mr. Alok Singhania.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of Lido Commercial Company Limited (LCCL) to arrive at the rating.
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Key Rating Drivers
| Strengths |
| Established track record of operation and experience management
The promoters of Lido Commercial Company Limited (LCCL) have long experience in the trading of automobiles. The company is promoted by Mr.R.K. Singhania, who started the business in 1995. In 1995, the promoters moved to New Delhi and started the dealership business of Daewoo Motors. In 2001, the company discontinued the association with Daewoo motors and started a dealership of Mahindra and Mahindra. Since then, the LCCL have been associated with Mahindra automobiles. Mr.R.K. Singhania have an experience of more than two decades in the automobiles retail industry. Presently, the operations of the company are handled by sons of Mr. R.K. Singhania, i.e. Mr. Kirti Singhania, Mr. Ashish Singhania and Mr. Alok Singhania who are ably supported by a strong line of mid-level managers. The experienced management have supported to its scale of operations of the company. Improved operating performance LCCL have shown growth of 59.48 percent in sales in FY2023 (prov) with reported revenue of Rs.252.51 crore as compared to Rs.158.33 crore in FY2022. The operating margin improved and stood at 1.26 percent in FY2023 (prov) as against (0.58) percent in FY2022. The negative operating margin in FY2022 and FY2021 is mainly due to the of inventory liquidation of BS IV vehicles at low prices. The PAT margin of LCCL stood at 2.01 percent in FY2023(prov.) as against 2.89 percent in FY2022. Acuité believes that LCCL will sustain its existing business profile on the back of experienced management and its improving scale of operations year on year. Moderate financial risk profile The Company has a moderate financial risk profile marked by improving tangible net worth and comfortable debt protection metrics and gearing ratios. The net worth of the LCCL stood of Rs.37.32 crore as on 31 March, 2023(Prov) as against Rs.32.25 crore as on 31 March, 2022. The gearing level of the company is low at 0.29 times as on 31 March, 2023(Prov) as against 0.32 times as on 31 March, 2022. The total debt outstanding of Rs.10.81 crore consists of working capital borrowings of Rs.8.17 crore, long term debt of Rs.1.10 crore and maturing portion of long term borrowings of Rs.1.54 crore as on 31 March, 2023 (prov). The coverage ratios of the company remained comfortable with Interest Coverage Ratio (ICR) of 5.11 times for FY2023(prov.) against 4.89 times for FY2022. Also, the Debt Service Coverage Ratio (DSCR) stood at 2.39 times for FY2023(prov.) against 1.72 times for FY2022. The total outside liabilities to tangible net worth (TOL/TNW) of the company stood at 0.70 times as on March 31, 2023 against 0.69 times as on March 31, 2022. Further, Net Cash Accruals to Total Debt (NCA/TD) stood at 0.59 times for FY2023 (prov) as against 0.53 times for FY2022. Acuité believes that the financial risk profile of the company is likely to remain aboveaverage over the medium term on account of healthy growth in scale of operations with moderate profitability and absence of any major capex plan. Moderately efficient Working Capital Management The working capital management of the company is moderately efficient marked by Gross Current Assets (GCA) of 54 days as on March 31, 2023 (Prov.) as against 63 days as on March 31, 2022. This is because of the low debtor days of 11 days in FY2023 (prov) as against 19 days in FY2022 and inventory days of 32 days in FY2023 (prov) as against 27 days in FY2022. Low debtor days also considers due to the pre –booking and instant billing. The creditor days are 12 days as on March 31, 2023 (prov) as against 16 days as on March 31, 2022. The average utilization of bank limits for fund based limits stood low at 10.47 per cent and non -fund based limits stood moderate at 51.47 per cent in the last twelve months ending August 2023. Acuité believes that the working capital requirements will continue to remain comfortable over the medium term on account of low inventory and debtor days. |
| Weaknesses |
| Thin Profitability margins
LCCL’s operating margins stood at 1.26% in FY2023(prov.) as against (0.58)% in FY2022 . The negative operating margin in FY2022 is mainly on account of clearance of BS IV vehicle inventory at low prices due to discontinuance of sales and registration of BS IV vehicles. The company generated PAT margin of 2.01% in FY223(prov.) as against 2.89% in FY2022. Intense competition from other auto dealers and susceptible to cyclicality in the auto sector The company faces stiff competition from other auto dealers leading to increase in competition. Furthermore, the industry competition from other big automobile players in commercial and passenger car vehicle segment, launching of new models at competitive prices, results into eating the market share of Mahindra and Mahindra, which in turn also affects its dealers including LCCPL. The operations of the company are also vulnerable to the inherent cyclical nature of the automobile industry. |
| Rating Sensitivities |
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| All Covenants |
| None |
| Liquidity Position |
| Adequate |
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LCCL has adequate liquidity position marked by adequate net cash accruals against its maturing debt obligations. The company generated cash accruals of Rs.6.39 crore in FY2023(Prov) compared against maturing debt obligations of Rs.1.54 crore. The cash accruals of the company are estimated to remain around Rs.6.59 -7.72 Cr during 2024-26 period while its matured debt obligations are estimated to be in the range of 1.10 Cr during the same period. The average utilization of bank limits stood of fund based limits stood low at 10.47 per cent and non -fund based limits stood moderate at 51.47 per cent for the last twelve months ending August 2023. Furthermore, the company maintains unencumbered cash and bank balances of Rs.4.16 crore as on March 31, 2023 (prov) and the current ratio also stood moderate at 1.62 times as on March 31, 2023(prov). Acuité believes that the liquidity of the company is likely to remain adequate over the medium term on account of adequate cash accruals and the matured debt repayments over the medium term.
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| Outlook: Stable |
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Acuité believes LCCL will maintain a stable business risk profile in the medium term on account of its experienced management, moderate financial risk profile and efficient working capital management. The outlook may be revised to 'Positive' in case the company registers higher than-expected growth in revenues and net cash accruals while maintaining healthy debt protection metrics. Conversely, the outlook may be revised to 'Negative' in case the company registers lower-than-expected growth in revenues and profitability, or in case of deterioration in the company's financial risk profile or higher than expected working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 252.51 | 158.33 |
| PAT | Rs. Cr. | 5.08 | 4.58 |
| PAT Margin | (%) | 2.01 | 2.89 |
| Total Debt/Tangible Net Worth | Times | 0.29 | 0.32 |
| PBDIT/Interest | Times | 5.11 | 4.89 |
| 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 • 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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