Precision Camshafts Limited

Transcription

1 Ratings Precision Camshafts Limited Facilities Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities CARE BBB+ (Triple B Plus) Long-term / Short-term Bank Facilities CARE BBB+ / CARE A3+ (Triple B Plus / A Three Plus) Short-term Bank Facilities CARE A3+ (A Three Plus) Total Bank Facilities Revised from CARE BBB (Triple B ) Revised from CARE BBB / CARE A3 (Triple B / A Three) Revised from CARE A3 (A Three) Rating Rationale The revision in the ratings of bank facilities of Precision Camshaft Limited (PCL) factors in increase in the scale of operations and improvement in the profitability margins during FY14 (refers to period from April 1 to March 31) and H1FY15 (refers to period from April 1 to September 30). The ratings continue to derive strength from the long track record and experienced promoters in the field of manufacturing of camshafts, long standing relationships and reputed client base within the auto industry, widespread geographic presence as well as moderate capital structure and debt coverage indicators. The ratings, however, continue to remain constrained by the sector concentration risk, product concentration risk along with moderate customer concentration as well as susceptibility of margins to fluctuations in input prices and foreign exchange rates. The ability of the company to increase its capacity utilization levels and reduce customer concentration in light of the subdued outlook of the domestic auto industry and further improvement in the capital structure are the key rating sensitivities. To arrive at the ratings, CARE has taken a combined view including Precision Camshaft Limited and Cams Technology Limited (CTL; an associate company of PCL) as both the companies operate under the same management and have business lines. Background Precision Camshafts Limited (PCL) is promoted by Mr Yatin S Shah for the manufacturing of camshafts. Established in 1992 at Solapur as Precision Camshafts Pvt Limited, PCL is one of the leading manufacturers of various types of camshaft, which is a key component in internal combustion engines of automobiles and locomotives to operate valves. It manufactures more than 150 ranges of camshafts for small and mid-sized car, tractor and locomotive engines with an engine capacity ranging from 1 Litre to 2 Litres. PCL has set up four manufacturing units located at Solapur, Maharashtra, out of which two units are 100% Export Oriented Units. It has a set up of five foundry units (four under EOU division and one under domestic division) for the manufacturing of casting camshafts and three machine shops (two under the EOU division and one under the domestic division) for the manufacturing of machining camshafts. PCL has a manufacturing capacity of 1.34 crore units per annum of casting camshafts and around 0.21 crore units per annum of machined camshaft. The products of PCL are supplied worldwide including North America, China, Russia, Europe, UK, Korea, etc. Exports contribute around 77% of the net sales in FY14 (refers to period from April 01 to March 31) [71% of the net sales in FY13]. PCL is expanding its presence in China and has a subsidiary named PCL Shanghai Co Ltd which is engaged in the trading and distribution of camshafts, manufactured by PCL. The promoters of PCL have formed an associate company named Cams Technology Limited (CTL) in June CTL is engaged in the business of designing and developing of camshafts, fabrication, buying and selling and distribution of various types of camshafts. During FY14, CTL purchased the stake of Tata Capital in PCL for Rs.62 crore. CTL currently holds 19.65% of stake in PCL. Credit Risk Assessment Long track record and experienced top management PCL was promoted by Mr. Yatin Shah, Managing Director, for the manufacturing of camshafts. Mr Shah has a vast experience in the field of engineering. Ms. Suhasini Shah heads the legal department of PCL and is the founder director of PCL. The top 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 management of the company includes qualified and experienced managers associated with PCL for more than 15 years. PCL supplies camshafts throughout the world and has developed its exports division drastically over the years. Widespread geographical presence PCL is specialised in the manufacturing of different varieties of camshafts and it caters to the automobile markets on the global level. PCL is primarily engaged in the exports of camshafts to various international OEMs covering Europe, UK, China, Brazil, Russia and North America. The company has two facilities operating under EOU units with exports contributing to around 77% of the total net sales of the company during FY14. PCL has been expanding its geographic presence over the years with Europe and South Korea as the major exports markets for the company. PCL has appointed sales representative for capturing new clients and orders. PCL had also entered into a joint venture contract with Shenglong Automotive Power Train Co, Ningbo, China in February 2012 for setting up a machining facility for the manufacturing of machine camshafts in China. Established relationships with reputed OEMs PCL has developed strong relationships with large OEMs both within the domestic and international markets having a clientele base of over 40 large OEMs. The key customers included in the clientele base of the company are Tata Motors Ltd, Ford India Ltd, Maruti Suzuki India Ltd, Mahindra & Mahindra Ltd, New Holland Fiat India Pvt Ltd, Simpson & Co Ltd, Leewon Precisions Pvt Ltd, etc. PCL is the preferred supplier of camshafts to General Motors Company Inc (GM) and Ford Motor Company worldwide. Within the exports market, General Motors Powertrain Germany, Germany; Ford Motors Co Ltd, UK, Gm Daewoo Auto & Technology Company, Korea; Cnaic Chengdu Auto Parts Co-Ltd, China and Daimler Ag, Germany are the major customers of the company. PCL has set up a separate machine line for GM and Ford and has been an authorized supplier of camshafts to them. It manufacturers camshafts for GM plants located in various regions viz Europe, US, Uzbekistan, Brazil, Korea, China, India and for Ford located in Europe, UK, China and India. State of the art and highly developed manufacturing facilities The manufacturing facilities of PCL have installed strong quality systems and are certified with ISO TS 16949:2009, ISO 14001:2009 and ISO18001:2007. It includes the latest technology equipments which enables it to manufacture camshafts as per the needs of various international OEMs. The technical collaboration with the European and Chinese companies has enabled PCL to implement highly technology machinery, which aids in lowering the cost per piece. Increase in the scale of operations The company currently has an installed manufacturing capacity of 1.34 crore units per annum of casting camshafts. It increased the manufacturing capacity of machined camshafts from 0.17 crore units per annum during FY14 to 0.21 crore per annum during H1FY15. The capacity utilization levels of casting camshafts increased to 68% during FY14 and around 74% in H1FY15. The utilization level of machined camshafts was at around 76% in FY14. The sale of casting camshafts accounted for around 68% of the total sales during FY14. The total operating income of the company has grown by 29% during FY14 to Rs crore as compared to Rs crore n FY13. Strategic tie-ups with world s leading camshafts manufacturers PCL has entered into two joint ventures with Shenglong Automotive Powertrain Company Ltd named Ningbo Shenglong PCL Camshafts Co. Ltd., and Shenglong (Huzhou) Specialised Casting Company Ltd. in China for setting up a machine shop and a foundry in Huzhou, China for manufacturing and distributing camshafts in the markets of China. PCL invested Rs.8.21 crore towards setting up the new foundry in China primarily for Ford during FY14. Further, in June 2014, PCL entered into technical alliance with EMAG Germany to introduce assembled camshaft technology in India. By entering into the manufacturing of assembled camshafts in India, PCL will become one stop shop for chilled cast iron, ductile iron induction, hardened and assembled camshafts for mid sized passenger vehicles. Moderate customer concentration GM and Ford remained the primary customers of PCL, together accounting for around 56% during FY14 compared to 42% during FY13. PCL has been associated with GM since the past 16 years and with Ford for the past 9 years. Also, it receives open orders from them and prices are quoted every month aiding PCL in transferring the increased costs to GM and Ford. Also, in case of any major fluctuations in the raw material prices, PCL has the ability to transfer the increase in the material costs to other customers. 2

3 The contribution of top 10 customers towards total sales of PCL reduced to 79% in FY14 as compared to 85% in FY13. PCL is concentrating on further expanding its customer base in various geographies. During FY14, it added Toyota within its clientele base. Susceptibility of profitability to raw material prices and exchange rate fluctuations The exports of PCL increased to around 77% in FY14 as compared to around 70% of the total income in FY13. While, its imports are only 2% of the total raw material costs. On account of this, the exports of the company are exposed to any adverse fluctuations in the exchange rates. The major raw materials for the manufacturing of camshafts are resin coated sand, MS scrap and pig iron. PCL primarily procures them from the domestic markets from the reputed manufactures including Mangalore Minerals Pvt Ltd and Shilpa Sands Pvt Ltd for sand, Kirloskar Ferrous Industries and Sesa Goa for pig iron, MS Metals and Steels Pvt Ltd for MS Scrap. Fluctuations in the prices of these input materials affect the margins of the company. However, PCL has the ability to transfer the increased costs in case of any major fluctuations in the cost of raw materials. The External Commercial Borrowings (ECB) taken by the company are un-hedged and this exposes it to the risk of an increase in the interest costs and term loan repayments due to rupee depreciation. However, significant sales in the export market lead to cash flow in foreign currency, thus reducing the risk of foreign exchange fluctuations risk with respect to ECBs to a certain extent. Moderate financial risk profile marked by growth in total income, improved profitability margins and moderate capital structure along with comfortable liquidity position The performance of PCL improved during FY14 despite the slowdown in the auto sector on account of an increase in the geographic presence and depreciation of rupee. The consolidated total operating income increased by 29.05% y-o-y in FY14 to Rs crore. The group achieved a total income of Rs crore during H1FY15. The PBILDT margin improved to 19.05% during FY14 as compared to 18.70% in FY13. The company generated a PBT of Rs crore (25.17% of total income). The PAT margin remained in line with that in FY13. The combined overall gearing level was at 1.92x as on March 31, 2014 due to reduced net worth by Rs.62 crore as the group bought back the stake of Tata Capital of 26% in PCL. The debt coverage indicators remained comfortable during FY14 with improvement in interest coverage ratio to 7.42x and total debt to GCA at 3.58x on the back of improved cash accruals. Prospects The ability of the company to increase the capacity utilization of the enhanced manufacturing capacity and maintain the profitability margins amidst any adverse fluctuations in the exchange rates as well as further improvement in the capital structure of the company would remain critical to its prospects going forward. Financial Performance (Rs. Cr) For the period ended / as at March 31, (12m, A) (12m, A) (12m, A) Working Results Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity Capital Networth Total Debt

4 Total capital employed Key Ratios Growth Growth in Total Op. income (%) Growth in PAT (after D.Tax) (%) Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total Op. income (%) ROCE (%) Solvency Long Term Debt Equity ratio (times) Overall gearing (times) PBILDT/Interest (times) PBIT/Interest (times) Term debt/gross cash accruals (years) Total debt/gross cash accruals (years) Liquidity Current ratio (times) Quick ratio (times) Turnover Average collection period (days) Average inventory period (days) Average creditors period (days) Operating cycle (days) A: Audited Analyst Contact Name: Shilpi Kochar Tel: (This follows our brief rational for entity published on 22 December 2014) Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4

5 CONTACT Head Office Mumbai Mr. D.R. Dogra Mr. Rajesh Mokashi Managing Director Dy. Managing Director Mobile: Mobile: Ms. Meenal Sikchi Mr. Ankur Sachdeva Vice President - Bank Loan & Instrument Rating Vice President - Bank Loan & Financial Services Mobile: Mobile: meenal.sikchi@carerating.com ankur.sachdeva@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Other Office: 503, Kaledonia, Sahar Road, Near Andheri Railway Station, Andheri (E), Mumbai Tel: Fax: AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Tel: saikat.roy@careratings.com JAIPUR Mr. Harsh Raj Sankhla 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 harshraj.sankhla@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC