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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 39.50 | ACUITE BB | Stable | Assigned | - |
| Bank Loan Ratings | 5.50 | - | ACUITE A4+ | Assigned |
| Total Outstanding Quantum (Rs. Cr) | 45.00 | - | - |
| Rating Rationale |
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ACUITE has assigned its long-term rating of ‘ACUITE BB’ (read as ACUITE double B) and the short-term rating of 'ACUITE A4+' (read as ACUITE A four plus) on the Rs.45.00 Cr bank facilities of Shivam Motors Private Limited (SMPL). The outlook is ‘Stable’.
Rating Rationale The rating assigned to SMPL derives strength from long track record of operations, extensive experience of promoters in the dealership and manufacturing of automobiles, longstanding association with Tata Motors Limited (TML) and wide distribution network across various districts of Chhattisgarh. The rating, however, remains constrained by below average financial risk profile marked by weak debt protection metrics and working capital intensive nature of operations. The stretched liquidity marked by low net cash accruals to debt repayment obligations, further restricts the rating. Acuite notes that the incremental requirement to fund the debt obligation timely is met by unsecured loan from the promoters. The rating also remains constrained by susceptibility of operating margins to volatility in raw material prices and limited bargaining power with the suppliers. |
| About the Company |
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Incorporated in 1983, Shivam Motors Private Limited (SMPL) is an authorised dealer of commercial vehicles of Tata Motors in Chhattisgarh. It operates five 3S and four 1S showroom across Chhattisgarh region. The company is promoted by Mr Kailash Gupta, Mrs Rekha Gupta and Mr. Mukesh Kumar Shrivastava. In addition to sale of vehicles and spare parts, the company provides a broad portfolio of value-added services including hire-purchase, insurance, registration, refinance, annual maintenance contracts and reconditioned engines. SMPL has also set up body building unit including tip trailer which is operational since FY2013.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of SMPL while arriving at the rating.
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Key Rating Drivers
| Strengths |
| Experienced management and established relationships with Tata Motors
SMPL has over three decades of operational track record in auto dealership industry. Further, the promoter, Mr. Kailash Chand Gupta has over five decades of experience in in automobiles and manufacturing of truck and bus bodies. The extensive experience of the management has helped the company to establish long-term relations with the Tata Motors. Their strong relationship with Tata Motors has also helped the company to build strong reputation in the market. Acuité believes that the long operational track record of SMPL, promoters’ extensive understanding and expertise and established relationship with Tata Motors will benefit the company going forward, resulting in steady growth in the scale of operations. Moderate business risk profile SMPL posted revenue of Rs.170.69 Cr in FY2022 registering an y-o-y growth of ~35 per cent from Rs.126.79 Cr in FY2021. Further, the company registered a revenue growth of ~59 per cent with Rs.271.41 Cr in FY2023 (Prov). The increase in revenue is on account of increased sales volume and average realisation of almost all the models. However, the company ceased to operate in M/HCV segment since January’22 due to low margins and high working capital requirement in this segment. Going forward, Acuite believes, the revenue of the company will sustain at the healthy level backed by increasing demand for commercial vehicles. The operating margin of the company improved moderately to 5.59 per cent in FY2022 from 5.13 per cent in FY2021 on account of cost rationalisation. However, the operating margin declined to 4.04 per cent in FY2023 (prov) on account of attractive discount provided to its customers due to intense competition from other auto dealers. The PAT margin stood at 0.90 times in FY2022 as against 0.07 times in FY2021 and further improved moderately to 1.05 per cent in FY2023 (prov). Acuite believes that the revenues derived from the higher margin segments including workshop income, sale of spares and accessories shall support the profitability to an extent. |
| Weaknesses |
| Below average financial risk profile
The company’s below average financial risk profile is marked by modest networth, moderate gearing and weak debt protection metrics. The tangible net worth of the company improved to Rs.33.14 Cr as on March 31, 2022 from Rs.31.71 Cr as on March 31, 2021 due to accretion of profit to reserves. Further, the tangible net worth of the company increased to Rs.36.00 Cr as on March 31, 2023 (Prov). Gearing of the company stood at 1.60 times as on March 31, 2022 as against 1.75 times as on March 31, 2021. It further improved and stood moderate at 1.35 times as on March 31, 2023 (Prov). The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.97 times as on March 31, 2022, as against 2.07 times as on March 31, 2021, and remained almost at same level at ~1.95 times as on March 31, 2023 (Prov). The weak debt protection metrics of the company is marked by Interest Coverage Ratio at 1.48 times and Debt Service Coverage Ratio at 0.89 times as on March 31, 2022 as against 1.26 times and 1.01 times respectively as on March 31, 2021. With increased portion of current maturities, the DSCR further declined to 0.86 times, whereas Interest Coverage Ratio improved moderately to 1.61 times as on March 31, 2023 (Prov). The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.05 times as on March 31, 2022. Acuité believes that going forward the financial risk profile of the company will be sustained backed by steady accruals and no major debt funded capex plans. Working capital intensive nature of operations The working capital-intensive nature of operations of the company is marked by improving but high GCA days of 146 days in FY2022 as compared to 193 days in FY2021. The GCA days further improved to 101 days in FY2023 (Prov). This improvement is mainly on account of better inventory management and improved collection mechanism. The inventory period improved to 60 days in FY2022 as against 92 days in FY2021 and further improved to 34 days in FY2023 (Prov). Moreover, the debtor period improved to 85 days in FY2022 as against 92 days in FY2021and improved further to 64 days in FY2023 (Prov). The receivable from workshops generally ranges between 45-60 days. However, the company receives ~15-20 days of credit from Tata Motors. Acuité believes that the working capital requirement is likely to remain at similar levels in the near to medium term. Exposure to competition in automotive dealership segment The company's operations are dependent on Tata Motors Limited. Though, SMPL is an exclusive dealer of Tata Motor’s Limited's entire range of commercial vehicles (CVs) in Chhattisgarh, this does not prevent Tata Motors Limited from appointing any new dealer in the region. Automotive manufacturers normally encourage multiple dealers in the same area to improve market penetration. Moreover, manufacturers face competition in their respective segments, and tend to squeeze margins of dealers to reduce cost. Also, bargaining power against TML is low, which constraints operating profitability. |
| Rating Sensitivities |
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| All Covenants |
| None. |
| Liquidity Position |
| Stretched |
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The company’s liquidity is stretched marked by net cash accruals of Rs.2.67 Cr as on March 31, 2022 as against debt repayment of Rs.3.81Cr over the same period. The incremental requirement to fund the debt obligation timely is met by unsecured loan from the promoters. The current ratio stood moderate at 1.49 times in FY2022 as against 1.46 times in FY2021. Further, the fund-based limit remained moderately utilised 87.22 cent over last 6 months ended May 2023. The unencumbered cash and bank balances of the company stood at Rs.0.26 Cr as on March 31, 2022 as compared to Rs. 0.40 Cr as on March 31, 2021. The company has a fixed deposit receipt of Rs.2.36 Cr in FY2022 which is liened with SBI against cash collateral against eDFS facility. Moreover, the working capital-intensive nature of operations of the company is marked by Gross Current Assets (GCA) of 146 days as on March 31, 2022 as against 193 days as on March 31, 2021.
Acuité believes that going forward the company will maintain adequate liquidity position due to steady accruals. |
| Outlook: Stable |
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Acuité believes that SMPL will continue to benefit over the medium term from its experienced management and established association with TML. The outlook may be revised to ‘Positive’ in case the company registers a substantial increase in its scale of operations and profit margins, while effectively managing its working capital cycle. Conversely, the outlook may be revised to ‘Negative’ in case the company fails to achieve the projected scalability in revenues or in case of deterioration in the company’s financial risk profile on account of higher-than expected increase in debt-funded working capital requirements or further elongation of working capital cycle.
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| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 170.69 | 126.79 |
| PAT | Rs. Cr. | 1.54 | 0.09 |
| PAT Margin | (%) | 0.90 | 0.07 |
| Total Debt/Tangible Net Worth | Times | 1.60 | 1.75 |
| PBDIT/Interest | Times | 1.48 | 1.26 |
| Status of non-cooperation with previous CRA (if applicable) |
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ICRA, vide its press release dated July 27, 2023 had denoted the rating of Shivam Motors Private Limited as 'ICRA B+/Stable/A4; ISSUER NOT COOPERATING’.
CARE vide its press release dated 22nd Feb 2023, had rated the company to CARE B/stable/A4; Issuer Not Cooperating. |
| 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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| Rating History : |
| Not Applicable |
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