­Acuité has taken consolidated business and financial risk profiles of Top Gear Transmission Private Limited (TGPT) and Top Gear Transmission (TGT) together referred to as ‘TG Group’ to arrive at the rating. The consolidation is mainly on account of similarity in the line of business, strong operational and financial synergies and common management.

­Experienced management, and established track record of operations
TG group is promoted by Mr. Shashikant Pawar and Shrikant Pawar, who manages the day to-day operations of the group. The promoter's experience of more than two decades in the mentioned business, is also reflected through the healthy revenue growth over the last 3 years through FY 2020- 22. Further, the group caters to reputed clientele in both public sector and private sectors namely - Action construction equipment, Escort construction equipment, Spartan engineering industries private limited, to name a few. Acuité believes that the group will continue to benefit in medium term on account of the extensive experience and reputed client base.

­Below average financial risk profile
The TG group has a below average financial risk profile marked by low networth, high gearing levels and moderate debt protection metrics. The tangible net worth of the group stood at Rs.15.49 crore as on March 31, 2023 (Prov), as against Rs.11.26 crore as on March 31, 2022. The gearing of the group stood at 2.31 times as on March 31, 2023(Prov), as against 2.14 times as on March 31, 2022. The group has done debt-funded capacity expansion in FY23 and FY24. The total project cost was Rs.7.60 Cr which is funded by debt. The total debt of the group consists of long-term debt of Rs.8.53 crore, unsecured loan of Rs.5.12 crore and short-term debt of Rs.19.66 crore as on March 31, 2023. The interest coverage ratio stood at 2.49 times as on March 31, 2023(Prov), as against 2.33 times as on March 31, 2023. The DSCR stood at 1.50 times as on March 31, 2023(Prov), as against 2.33 times as on March 31, 2022. Acuité believes the financial risk profile of the group will remain a key sensitivity in the medium term.

Working capital intensive operations
The group’s working capital operations are intensive as evident from the GCA days of 155 days as on March 31, 2023 (Prov) as against GCA days of 191 days as on March 31, 2022. The inventory days stood at 83 days for FY23(Prov) as against 102 days for FY22. Average inventory holding period is of around 100 days. The process of conversion from raw material to the gear box takes around 3-4 months. The debtors’ days stood at 63 days for FY23(Prov) as against 79 days for FY22. The average credit period allowed to the customers is around 60 days. The creditors days stood at 82 days for FY23(Prov) against 148 days for FY22. The average credit period received from the supplier is around 70-80 days. The average utilization of the bank limits are high at around 98 percent for TGT and 99 percent for TGPT. Acuité believes the working capital management of the group will remain a key sensitivity in the medium term.

Susceptibility of margins to raw material price fluctuation
As the group is into the manufacturing of gear boxes, the major raw material is steel, the price of which is volatile in nature. There exists a risk of susceptibility of the margins due to the raw material price fluctuations.