|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 9.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 118.92 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 44.50 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding | 172.42 | - | - |
|
Rating Rationale |
|
Acuité has reaffirmed its long-term rating of ‘ACUITE BBB’ (read as ACUITE Triple B ) and short-term rating of ACUITE A3+' (read as ACUITE A Three 'plus') to the Rs.163.42 Cr bank facilities of Lokesh Machines Limited (LML). The outlook is ‘Stable’.
Acuité has assinged its long-term rating of ‘ACUITE BBB’ (read as ACUITE Triple B ) to the Rs.9.00 Cr bank facilities of Lokesh Machines Limited (LML). The outlook is ‘Stable’. Rationale for Reaffirmation: The rating reaffirmation considers LML’s improvement in operational performance during FY2023 and same being sustained during the first 6 months of FY2024. The company has reported revenue of Rs.272.54Cr in FY2023 registering a growth rate of ~19.06 percent against the previous year. During the current year the company has already achieved revenue of Rs.126Cr till September 2023. Further, the company is currently undertaking a capex to improve its production capacity from 900 to 1200 machines which will lead to significant improvement in revenue from FY2025 onwards. The operating margins ranged between 14.91- 12.09 percent for the last two years ended FY2023. The financial risk profile of LML continues to be healthy with comfortable debt protection metrics and low gearing. The overall gearing of the Company stood at 0.56 times as on March 31, 2023 as against 0.58 times as on March 31, 2022. The interest coverage ratio stood at 3.20 times in FY2023 as against 2.51 times in FY2022. Further, the rating continues to derive strength from the company's long-term presence in the market for more than two and half decades, its established relations with the customers which fetches repeated orders. The clientele of the company includes Ashok Leyland Limite, Kirloskar Oil Engines Limited Mahindra and Mahindra Ltd , Seimens Financial Services Pvt Ltd, Oswal Pumps Limited and International Tractors Limited among others. The rating is however constrained by working capital operations intense competition in industry. |
| About the Company |
|
Incorporated in 1983, LML is promoted by Mr. M. Lokeshwara Rao and Mr. B. Kishore Babu and started commercial production from 1986. The company has six manufacturing locations with five in Hyderabad and one in Pune. The company’s operations are segregated into two divisions namely Machines and Components division. The company is engaged in the design, development and manufacture of custom built Special Purpose Machines (SPMs), General purpose CNC Machines (GPMs), Jigs & Fixtures and Machining of automobile Cylinder Blocks, Heads and Connecting Rods, Defense systems and Precision Engineering Components among others. LML also executes job work majorly for Mahindra & Mahindra Limited (M&M). The company's shares are listed at NSE & BSE
|
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
|
Acuité has considered the standalone business and financial risk profile of LML to arrive at the rating.
|
| Key Rating Drivers |
| Strengths |
The company’s long-standing presence, spanning nearly four decades in the machine tools segment has helped it develop strong expertise in design and manufacturing capabilities, enable it to provide customised machines to customers. Further, fourdecade-long experience of the promoters, in the Machines Tools industry helped build healthy relationships with customers (automotive original equipment manufacturers) and suppliers, and a diversified distribution network which helps it in getting repeat orders to an extent. The company ranks in the top 5 CNC Machine Manufacturers in India. Acuité believes that the promoter’s experience, understanding of the market dynamics and established relationships with suppliers and customers will continue to support the business profile over the medium term.
The company’s order inflows improved significantly in FY2023 because of demand revival in the end-user sectors (primarily auto), procurement of CNC machines by customers for productivity and technology improvement initiatives, and consolidation in the industry. This resulted in significant growth with YOY of 19.06 percent in FY2023 as compared to FY2022. Revenues stood at Rs.240.30 Cr in FY2023 as against Rs.201.84 Cr in FY2022. The EBITDA margin is continued to be reported healthy but marginally declined in FY2023 to 12.09 percent from 14.91 perecent in FY2022. Acuite believes that going forward; the margins would remain in the range of 13-14 percent and revenue’s upward trajectory is likely to continue.
The company’s financial risk profile is healthy marked by a healthy net worth, healthy gearing and comfortable debt protection metrics. The net worth of the company stood at Rs.158.67 Cr and Rs.149.13 Cr as on March 31, 2023 and 2022 respectively. The improvement in net worth is due to accretion of reserves. Gearing of the company stood at 0.56 times as on March 31, 2023 against 0.58 times as on March 31, 2022. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 3.20 times and 1.70 times as on March 31, 2023 respectively as against 2.51 times and 1.48 times as on March 31, 2022 respectively. TOL/TNW (Total outside liabilities/Total net worth) stood at 1.06 times and 0.97 times as on March 31, 2023 and 2022 respectively. The debt to EBITDA of the company stood at 2.57 times as on March 31, 2023 as against 2.84 times as on March 31, 2022. Acuité believes that the company will be able to maintain its healhty financial risk profile in the absence of any major debtfunded capex plan over the medium term.
|
| Weaknesses |
LML’s working capital operations is intensive marked by high gross current Asset (GCA) at 254 days as on March 31, 2023 as against 276 days as on March 31, 2022. The GCA days are impacted mainly on account of inventory days. The inventory levels of the company have been historically high owing to the lengthy order execution cycle. The Inventory days stood at 194 days as on March 31, 2023 as against 209 days as on March 31, 2022. Debtor day stood at 53 days as on March 31, 2023 as against 68 days as on March 31, 2022. Subsequently, the payable period stood at 83 days on March 31, 2023 as against 94 days as on March 31, 2022 respectively. Acuité believes that the working capital operations of the company will remain intense as evident from its high inventory levels; due to the time taken to execute the orders of machine tools operating cycle takes between 4 to 8 months (SPM is 9 -12 months & GPM is 3-4 months) and for component division the operating cycle is 2 months resulting in the large working capital requirement and staggered deliverables.
LML continues to face stiff competition from domestic players in the standardised machinery segment and from imports in case of high value-added Specialised and customised products, which limit its pricing flexibility and margins to an extent. Further, the company’s margins remain susceptible to fluctuations in raw material price as its orders are fixed price in nature. Its major raw materials include steel and steel components. Furthermore, the revenue profile is also concentrated towards auto segment; auto industry had been facing headwinds in the in the recent fiscals and thereby impacting demand for LML’s products and its profitability. However, going forward, consolidation in the industry and LML’s efforts to diversify its sectoral space are likely to support its revenues.
|
| Rating Sensitivities |
|
| All Covenants |
| None |
| Liquidity Position: Adequate |
|
LML liquidity is adequate, marked by adequate net cash accruals to its maturing debt obligation. The company has generated cash accruals in the range of Rs.18.76 Cr in FY2023, while its maturing debt obligations were Rs. 6.59Cr during the same period. Going forward the company is expected to generate net cash accruals of Rs. 26-36 Cr in FY 2024-25 against Rs.5.37-5.88 Cr debt obligations. The current ratio stood at 1.23 times as on March 31, 2023, and the limits remains utilized at 87 percent over the 6 months ended August 31, 2023 for fund based. The company maintains unencumbered cash and bank balances of Rs.0.23 Cr as on March 31, 2023. Acuité believes that the liquidity of the company is likely to improve over the medium term
|
| Outlook: Stable |
|
Acuité believes that the outlook of LML will remain 'Stable' over the medium term on account of the promoter’s extensive experience and established presence in the machine tool industry. The outlook may be revised to 'Positive' in case the company registers significant growth in revenue and profitability while effectively managing its working capital cycle. The outlook may be revised to 'Negative' in case of significantly lower than expected net cash accruals or lengthening of the working capital cycle; thereby resulting in deterioration in the financial risk profile or liquidity position of the company.
|
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 240.30 | 201.84 |
| PAT | Rs. Cr. | 9.67 | 6.35 |
| PAT Margin | (%) | 4.03 | 3.14 |
| Total Debt/Tangible Net Worth | Times | 0.56 | 0.58 |
| PBDIT/Interest | Times | 3.20 | 2.51 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| 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
|
|
| |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Contacts |
|
|
|
About Acuité Ratings & Research |
