ICRA : places ratings of PMP Auto Components Private Limited on 'rating watch with developing implications'

June 08, 2017

PMP Auto Components Private Limited

Summary of Rated Instruments

Instrument*	Rated Amount (in crore)	Rating Action
Term loans	35.03	[ICRA]BBB& / placed on watch with developing implications
Fund Based Limits	47.00	[ICRA]BBB& / placed on watch with developing implications
Fund Based/ Non Fund Based Limits	27.00	[ICRA]BBB& / [ICRA]A2& / placed on watch with developing implications
Non Fund Based Limits	26.00	[ICRA]A2& / placed on watch with developing implications
Short Term - Unallocated Limits	48.52	[ICRA]A2& / placed on watch with developing implications

*Instrument Details are provided in Annexure-1

& - Rating under watch with developing implications

Rating Action

ICRA has placed the long term rating of [ICRA]BBB (pronounced ICRA triple B)1outstanding on the Rs.

35.03 crore2term loans and Rs. 47.00 crore fund based facilities, the short term rating of [ICRA]A2 (pronounced ICRA A two) outstanding on the Rs. 26.00 crore non fund based facilities and Rs. 48.52 crore unallocated facilities and rating of [ICRA]BBB / [ICRA]A2 outstanding on the Rs. 27.00 crore fund based/non fund based facilities of PMP Auto Components Private Limited (PMP) on watch with developing implications.

Rationale

ICRA notes that PMP has entered into an exclusive and binding agreement with Pricol Limited (Pricol) to sell the entire wiping business of the auto components division for an undisclosed amount. The wiping system business will be sold to Pricol. Once the transaction is completed, both, the Indian and the overseas wiping system businesses will be transferred to Pricol. PMP is also in advanced stages for the sale of the non-wiping auto components business as well. The cutting tools business will continue to operate under PMP.

While reaffirming the rating earlier, ICRA had taken into consideration improvement in performance of overseas subsidiary, PMP PAL International (PAL), over the last two years. ICRA had expected the subsidiary to upstream funds to PMP. Further, the Indian operations of the auto components division had reported healthy revenue growth in FY2016.

The ratings, in the past, remained constrained by weak revenue performance of the cutting tools division and resultant impact on margins. In addition to lower sales, the cutting tools division also suffered by inventory losses during last year. Though the company is one of the leading cutting tools manufacturers in India, slowdown across industries as well as in key export markets like Europe affected the performance

1 For complete rating scale and definitions, please refer to ICRA's websitewww.icra.in or other ICRA Rating Publications

2 100 lakh = 1 crore = 10 million

last year. The revenue performance of the cutting tools division has improved in FY2017 as per provisional number shared by the company; however overall business and financial risk profiles are still be assessed.

The debt level on balance sheet of the company is expected to reduce once the transaction is completed. The cash flow position of the cutting tools division is expected remain sensitive to working capital management due to high working capital intensity, and ICRA will continue to monitor the same going forward. ICRA has requested for additional information regarding the latest company performance as well as the transaction details. The ratings will continue to remain under watch until assessment of impact of the transaction on performance of the company can be ascertained.

Key rating drivers of the last rating exercise Credit Strengths

• Financial flexibility being part of the Ashok Piramal group which has presence in diversified sectors

• Improvement in performance of overseas subsidiary for last two years; expected payout to provide support to the parent company

• Healthy revenue growth of the auto components division due to increasing sales from new customers

• Geographical and customer diversification

• Comfortable capital structure with low gearing

  Credit Weakness

• Stagnant revenues and pressure on profitability impacting financial risk profile

• Weak performance of the cutting tools division over last four years on account of slowdown in macroeconomic environment

• Cutting tools division is susceptible to unfavourable changes in High Speed Steel price fluctuations

• Stretched working capital profile due to high inventory requirements of the cutting tools division

• Working capital debt for the subsidiary in Mexico is likely to put pressure on capital structure in the near term

Description of key rating drivers highlighted above:

The company, being part of Ashok Piramal group, enjoys financial flexibility. The domestic auto components division of the company, after stagnant performance for last few years, reported healthy revenue growth in FY2016. The overseas subsidiary also reported profitable operations in FY2015 and FY2016 after losses in the previous two years. So improvement in performance of auto components division negated underperformance of the cutting tools division during FY2016. Due to high inventory requirements of the cutting tools division, the company remained susceptible to raw material price fluctuations and the working capital profile remained stretched. Going forward, though the overall debt level is likely to reduce after sale of auto components division, the working capital profile will need to be monitored closely.

Analytical approach

ICRA has taken a consolidated view of PMP and overseas subsidiary (PAL) - which is a wholly owned subsidiary of PMP.

Links to applicable Criteria

Corporate Credit Ratings: A Note on MethodologyAuto Component Manufacturers

About the Company:

PMP Auto Components Private Limited (PMP), a part of Ashok Piramal Group, was founded in 1962 for the manufacture of switches, relays, regulators and horns. It was taken over by the Piramal family in 1981. The company ventured into windshield washer system in 1993 and starter motors in 2002.

The company was previously named as PMP Components Private Limited (PCPL). Another group company named Miranda Tools - founded in 1945, taken over by Piramal group in 1978 and a division of Piramal Healthcare Limited (PHL) till April 2008 - was engaged in manufacturing of cutting tools. In April 2009, PCPL and Miranda were amalgamated into PMP Auto Components Private Limited. The company acquired two European companies, Bakony Wiper Systems (2007) and PAL International (2008), engaged in wiper systems manufacturing.

Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable

S.No	Name of Instrument	Current Rating			Chronology of Rating History for the past 3 years
		Type	Rated amount (Rs. Crores)	Month-year & Rating	Month- year & Rating in FY2017	Month- year & Rating in FY2016	Month- year & Rating in FY2015
				June 2017	June 2016	July 2015	February 2014
1	Term Loans	Long Term	35.03	[ICRA]BBB &	[ICRA]BBB	[ICRA]BBB	[ICRA]BBB+
2	Fund Based Limits	Long Term	47.00	[ICRA]BBB &	[ICRA]BBB	[ICRA]BBB	[ICRA]BBB+
3	Fund Based/Non Fund Based Limits	Long Term/ Short Term	27.00	[ICRA]BBB &/ [ICRA]A2&	[ICRA]BBB/ [ICRA]A2	NA	NA
4	Non Fund Based Limited	Short Term	26.00	[ICRA]A2&	[ICRA]A2	[ICRA]A2	[ICRA]A2+
5	Unallocated	Short Term	48.52	[ICRA]A2&	[ICRA]A2	[ICRA]A2	[ICRA]A2+

Rating History for last three years: Table: Rating History Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the websitewww.icra.in

Annexure-1 Details of Instrument

Name of the instrument	Date of issuance	Coupon rate	Maturity Date	Size of the issue (Rs. Cr)	Current Rating and Outlook
Term Loans	Apr-14	-	Mar-20	35.03	[ICRA]BBB&
Fund Based Limits	-	-	-	47.00	[ICRA]BBB&
Fund Based/Non Fund Based Limits	-	-	-	27.00	[ICRA]BBB& / [ICRA]A2&
Non Fund Based Limits	-	-	-	26.00	[ICRA]A2&
Unallocated	-	-	-	48.52	[ICRA]A2&