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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 77.11 | ACUITE BBB | Stable | Upgraded | - |
| Bank Loan Ratings | 40.89 | - | ACUITE A3+ | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 118.00 | - | - |
| Rating Rationale |
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Acuité has upgraded the long-term rating to ‘ACUITE BBB’ (read as ACUITE Triple B) from 'ACUITE BBB-' (read as ACUITE Triple B minus) and the short-term rating to 'ACUITE A3+' (read as ACUITE A three plus) from 'ACUITE A3 (read as ACUITE A three) on the Rs.118.00 Cr bank facilities of Prerana Motors Private Limited (PMPL). The outlook is 'Stable'.
Rationale for the rating The rating upgrade factors in the established track record of operations of the company driven by experienced management, established relationship with Tata Motors Limited (TML) and, the operations of the company that are spread across 60 units comprising of outlets/showrooms/yards/workshops, in Bangalore and Mysore. The ratings also takes into account the efficiently managed working capital cycle and comfortable financial risk profile of the company. Acuite has taken into account the scope of growing automobile industry and the growth in the operating revenue of the company along with improvement in financial risk profile. |
| About the Company |
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PMPL was initially established as a partnership firm in 1991, and was later converted into a private limited company in 1999. The company is an authorized dealer for the entire range of vehicles of TML, comprising small commercial vehicles (SCVs), light commercial vehicles (LCVs), medium & heavy commercial vehicles (M&HCVs), and passenger vehicles (PVs). Moreover, it also provides allied services and spare parts related to the aforementioned vehicles. The company operates various outlets, showrooms and workshops in Bangalore, Mandya and Mysore, whereas the overall operations are currently looked after by Mr. Premanand Shenoy and Mr. Navin Shenoy. The company's registered & corporate office is located at Lalbagh Road in Bangalore.
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| Analytical Approach |
| Acuité has considered the standalone financial and business risk profile of PMPL to arrive at this rating. |
Key Rating Drivers
| Strengths |
| Established t rack record of operations driven by experienced management
PMPL possesses an established track record of more than 3 decades of operations in the automobile dealership business. The company was initially established as a partnership firm in 1991, and was later converted into a private limited company in 1999. The overall operations of the company are currently looked after by the Mr. Premanand Shenoy (Managing Director) along with his brother – Mr. Navin Shenoy (Director), who possess a total experience of over 35 years and 28 years respectively in the automobile dealership business. The company benefits from its experienced management in the form of established relationship with its customers, suppliers, channel finance partners, and other stakeholders. Acuité believes that PMPL shall continue to benefit from the experienced management who shall enable growth impetus to the company in the medium-term.
Long-term sourcing arrangements with Tata Motors and diversified operations Ever since its inception, PMPL has been an authorized dealer of TML across its segments viz. SCVs, LCVs, M&HCVs, and PVs. CVs comprise 60-65% of the annual revenues of the company, whereas the balance comprises PVs. Given this, the company has been able to reap the benefits of TML being the market leader in the CV segment and being one of the topmost players with increasing market share in the PV segment, thereby leading to a sustained business flow for the compan over the years of its operations. Moreover, the operations of the company are diversified across 60 units comprising outlets/showrooms/yards/workshops, spread across various locations in Bangalore, Mandya and Mysore. Acuité believes that PMPL shall continue to benefit from its long-standing relationship with TML whose established market presence shall help the company to benefit in the medium- term.
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| Weaknesses |
| Stiff competition from other dealers and brands
TML’ focus on expanding its dealership network is expected to increase competition among its own dealers. Moreover, TML itself is also exposed to intense competition from other automobile players viz. Honda, Hyundai, Maruti, Toyota, etc. in the PV market, although it is a consistent market leader in the CV market. Besides, the launch of new models by other players at competitive prices eats into the market share of TML, which in turn, affects dealers including PMPL. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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The liquidity profile of PMPL is adequate marked by comfortable net cash accruals vis-à-vis debt repayment obligations, efficiently managed working capital, moderate unutilized working capital limits and moderate free cash & bank balance. The working capital of the company is efficiently managed with gross current assets days and working capital cycle of 101 days and 83 days respectively in FY22 as against 91 days and 59 days respectively in FY21. Given this, the average working capital utilization in the last 10 months ended January 2023 stood moderate at 66.60%. Moreover, the net cash accruals improved to Rs. 16.02 crore in FY 22 as against Rs. 8.81 crores in FY 21 as against comfortable debt repayment obligations worth Rs. 0.50 crore and Rs.1.26 crore in those respective years. Furthermore, the free cash & bank balance stood moderate at Rs. 13.80 crore as against Rs. 9.49 crore as on March 31, 2021.
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| Outlook: Stable |
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Acuité believes that PMPL 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 along with an improvement in the overall financial risk profile, while maintaining the liquidity position. Conversely, the outlook may be revised to 'Negative' in case the company registers lower-than-expected revenues and profitability or if the overall financial risk profile and the overall liquidity position deteriorates due to higher-than-expected working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 767.77 | 561.85 |
| PAT | Rs. Cr. | 13.55 | 6.02 |
| PAT Margin | (%) | 1.77 | 1.07 |
| Total Debt/Tangible Net Worth | Times | 0.30 | 1.89 |
| PBDIT/Interest | Times | 3.92 | 2.61 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| 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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