The ratings also factor SACL’s strong business associations with Hero MotoCorp Limited (HML) as SACL derives about 95% of its revenue from HML and caters to its entire requirement for fuel tanks. Though the erstwhile Hero group has been split into different factions, the overall operational and business linkages remain high among companies from different factions.
However, SACL’s standalone credit profile is constrained by its moderate size of operations and its significant revenue concentration on the two-wheeler segment. Revenues increased 26% yoy to INR6,758m in FY12 (provisional) on account of growth in two-wheeler volumes for HML. Although, the company has started supplying certain sheet metal components to consumer durable manufacturers such as Tecumseh Products India Private Limited (‘Fitch B-(ind)'/Stable), Godrej Industries Limited etc, their contribution to overall revenue remains low.
Fitch notes that HML intends to set up new facilities to expand its production capacity which could result in a large capex for SACL to enhance its capacity for products which it currently supplies to HML. However, owing to the lack of clarity on these long-term capex plans, Fitch has not factored these into the projections currently.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- financial leverage above 2x due to unexpected capex or a fall in operating profitability
- any weakening of SACL’s business linkages with HML
Set up in 2001, SACL manufactures auto components at its production facilities in Manesar (Haryana), Haridwar (Uttarakhand), and Ludhiana (Punjab). It supplies sheet metal components such as fuel tank, bottoms, fenders, frame bodies and other welded sub-assemblies to HML.
Rating actions on SACL’s bank loans are as follows:
- INR98.3m term loans (reduced from INR181.9m): affirmed at National Long-Term ‘Fitch AA-(ind)’
- INR500m fund-based working capital limits (enhanced from INR290m): affirmed at National Long-Term ‘Fitch AA-(ind)’ and National Short-Term ‘Fitch A1+(ind)'