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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 25.32 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 92.68 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding | 118.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE Triple B) and the short-term rating of 'ACUITE A3+' (read as ACUITE A three plus) on the Rs.118.00 Cr. bank facilities of Prerana Motors Private Limited (PMPL). The outlook is 'Stable'.
Rationale for the rating The rating reaffirmation factors the sustained improvement in operating revenue and profitability margins in FY2024(prov) and FY2023. The company reported operating revenue of Rs.1345.44 Cr. in FY2024(prov) as against Rs.1175.00 Cr. in FY2023. The increase is reflected in the growth of the automobile sector in the last two years. Further rating factors include the established track record of operations of the company driven by experienced management, the established relationship with Tata Motors Limited (TML) and the operations of the company which are spread across 80 units comprising outlets, showrooms, yards and workshops across Karnataka. The ratings also take into account the adequate liquidity and comfortable financial risk profile of the company.
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| About the Company |
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Prerana Motors Private Limited (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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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has considered the standalone financial and business risk profile of PMPL to arrive at this rating.
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| Key Rating Drivers |
| Strengths |
| Established track record of operations driven by experienced management
PMPL possesses an established track record of more than three 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 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 relationships with its customers, suppliers, channel finance partners, and other stakeholders. Acuité believes that PMPL shall continue to benefit from the experienced management who will enable growth impetus for 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 top players with increasing market share in the PV segment, thereby leading to sustained business flow for the company over the years of its operations. Moreover, the operations of the company are diversified across 80 units comprising outlets, showrooms, yards and workshops spread across various locations in Bangalore, Mandya, Mysore, Chikkaballpur, Ramanagara and Kolar. Owing to the long-standing relationship with TML and diversified operations, the operating income of the company stood at Rs.1345.44 Cr in FY2024(prov) as against Rs.1175 Cr in FY2023 and Rs.767.77 Cr in FY2022 with CAGR of 32.38 percent for the last two years ending FY2024(prov). The increase in revenue has been witnessed due to the increase in demand for both passenger and commercial vehicles in the recent timeline. Further, with the government's focus on infrastructure and construction industry development, the sale of medium and heavy commercial vehicles has increased in the last two years. Furthermore, PMPL also observed an increase in PV sales owing to the introduction of electric vehicles. The operating margins stood at 3.67 percent in FY2024(prov) and 3.77 percent in FY2023 as against 2.76 percent in FY2022. Further, the net profit stood at Rs.31.08 Cr with a profit margin of 2.31 percent in FY2024 (prov). Acuité believes that PMPL will continue to benefit from its long-standing relationship with TML whose established market presence will help the company improve its scale of operations over the medium- term. Healthy financial risk profile
The financial risk profile of PMPL is healthy marked by improving tangible net-worth, low gearing and comfortable debt coverage indicators. The tangible net-worth stood strong at Rs.120.84 Cr as on March 31, 2024(prov) as against Rs.89.76 Cr as on March 31, 2023. The total debt consists of long-term debt of Rs.0.21 Cr, USL of Rs.0.04 Cr, short term debt of Rs.80.74 Cr and CPLTD of Rs.0.65 Cr. Short term debt consists of CC limits and inventory funding. The gearing of the company improved and stood in the range of 0.50 -0.70 times for the last two years ending March 31, 2024 (prov). Further, the Debt/ EBITDA of the company is comfortable at 1.53 times as on March 31, 2024(prov). The debt coverage indicators are comfortably supported by ICR and DSCR of 6.15 times and 4.58 times respectively as on March 31 2024 (prov) as against 6.48 times and 4.74 times as on March 31 2023. The NCA/ TD stood at 0.42 times in FY2024(prov). ACUITE believes that the financial risk profile of the company continues to be healthy over the medium term owing to the nature of the industry and that no debt-funded CAPEX is planned. |
| 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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| 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 and moderate unutilized working capital limits. The working capital of the company is efficiently managed with gross current assets days of 69 days in FY2024(prov) as against 70 days in FY2023. With the efficient working capital management, the bank limit utilisation of the company stood moderate at 51.39 percent for fund-based limits and 59.36 percent for non-fund-based limits for the last 6 months ending June 2024. Moreover, the net cash accruals improved to Rs.34.35 Cr. in FY2024(prov) as against Rs.31.35 Cr. in FY2023 as against comfortable debt repayment obligations worth Rs.0.71 Cr. and Rs.0.72 Cr. in those respective years. Furthermore, the free cash and bank balance stood moderate at Rs.5.78 Cr. as on March 31, 2024(prov).
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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 24 (Provisional) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 1345.44 | 1175.00 |
| PAT | Rs. Cr. | 31.08 | 29.33 |
| PAT Margin | (%) | 2.31 | 2.50 |
| Total Debt/Tangible Net Worth | Times | 0.68 | 0.55 |
| PBDIT/Interest | Times | 6.15 | 6.48 |
| 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 • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Trading Entities: https://www.acuite.in/view-rating-criteria-61.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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