December 08, 2017

Rockman Industries Limited

Summary of rated instruments
Instrument* Rated Amount Rating Action
(Rs. crore)
Cash Credit Facilities 88.00 [ICRA]AA(Positive); Reaffirmed and
outlook revised from ‘Stable’
Term Loans 28.00 (revised from 38.96) [ICRA]AA(Positive); Reaffirmed and
outlook revised from ‘Stable’
Short Term Non-Fund Based 46.00 (revised from 57.83) [ICRA]A1+; Reaffirmed
Commercial Paper 25.00 [ICRA]A1+; Reaffirmed
Unallocated 70.00 (revised from 47.21) [ICRA]AA(Positive)/A1+; Reaffirmed
and outlook revised from ‘Stable’
Total 257.00
*Instrument details are provided in Annexure-1

Rating action
ICRA has reaffirmed the long-term rating of [ICRA]AA (pronounced ICRA double A) to the Rs. 257
crore1 bank facilities and a short-term rating of [ICRA]A1+ (pronounced ICRA A one plus) to the non-
fund based bank facilities and commercial paper of Rockman Industries Limited (RIL or the company)2.
The outlook on the long-term rating has been revised to ‘Positive’ from ‘Stable’.

Rationale
The outlook change to ‘Positive’ from ‘Stable’ reflects expectations that RIL’s business profile is likely to
strengthen over the medium-term driven by ongoing diversification plans within the automotive space
besides robust credit metrics that are supported by strong cash flow generation and limited debt levels.
The reaffirmation of ratings is underpinned by RIL’s strong business position with its principal customer
– Hero Motocorp Limited (rated [ICRA]AAA/Stable/A1+) by virtue of being key supplier of aluminium-
based die-casting components. Given company’s strong business and operational linkage, the company
commands high share of business with HMCL for components such as alloy wheels, crank case, cylinder
head, flange panels among others.

However, the company’s business profile is characterised by high concentration on HMCL and
accordingly on the Indian two wheeler industry. In FY2017 almost 85% of the total net sales (standalone)
were derived from HMCL, while more than 90% of net sales were from the two wheeler industry. The
client concentration risk is somewhat mitigated by HMCL’s position as one of the leading two wheeler
OEM in India and track record of RIL’s strong share of business with HMCL. This is reflected in the
company’s plan of setting up a new plant in Gujarat in line with HMCL’s expansion in the state. This
plant will entail significant capital expenditure which will be funded by an equal mix of long term debt
and internal accruals. Although the 50% debt-funded capital expenditure would result in higher borrowing
levels in the medium term, the debt servicing indicators of RIL are likely to remain at a comfortable level.

1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications
Over the years, RIL has been taking both organic and in-organic measures to reduce its dependence on the
two wheeler industry. For instance, in Jan 2017 it acquired 51% stake in Moldex Composites Private
Limited (MCPL), which is engaged in manufacturing carbon composite parts for super luxury vehicles
and race cars. At present, RIL manufactures aluminium die cast products such as engine components and
oil pans for some passenger vehicle (PV) OEMs. However, the company’s share of revenues from the PV
segment continues to be low.

Going forward, the company is planning to manufacture alloy wheels for the PV segment and is in the
process of setting up a new dedicated plant in Andhra Pradesh. Accordingly, the company will be taking
sizeable capital expenditure in the next three years. As a result of ongoing and proposed capital
expenditure plans, ICRA estimates the company’s leverage levels to increase but remain at comfortable
level. Besides rise in debt levels, the project viability will critically depend upon (a) successfully
receiving orders to achieve optimum capacity utilization, and (b) continuation of anti-dumping duty
(ADD) imposed by India on imported alloy wheels. Accordingly, removal of ADD on alloy wheels could
adversely impact the profitability indicators. Nonetheless, the inherent project related risk are mitigated to
some extent by company’s technical collaboration with a global alloy wheel supplier, which is expected
to help in securing business from PV OEMs in India. The new plant is expected to start production from
FY2020 onwards.

On a consolidated level, the company also derives revenues from the PV and CV segment from its wholly
owned subsidiary Rockman industries Chennai private Limited (RICPL), which manufactures aluminium
die casting products for OEMs and tier 1 suppliers based in south India. At present RICPL is a loss
making entity and depends on RIL to service its external debt obligations and fund its capital expenditure.

Over the past few years, RIL has also invested in the non-auto business via its 27% stake in Hero
Electronix Private Limited (HEPL), which is the group’s investment vehicle in non-automotive
businesses. Going forward, ICRA expects minimal investments from RIL into HEPL which are unlikely
to impact RIL’s credit metrics.

Although RIL is making significant investments in the near term, the credit indicators are expected to
remain strong supported by healthy cash accruals and favourable terms on long term borrowings. ICRA
will continue to monitor the extent of investments and its impact on RIL’s credit metrics.

Key rating drivers

Credit strengths
 Well established relationship and strong business linkage with key customer HMCL (rated
[ICRA]AAA(Stable)/[ICRA]A1+/IrAAA(Stable)) – RIL supplies aluminium-based die casting
components to HMCL and enjoys a strong share of business.
 Leading manufacturer of 2W alloy wheels in India – RIL is one of the top manufacturer of alloy
wheels in India and is the largest domestic supplier of alloy wheels to HMCL
 Strong financial risk profile reflected by a comfortable capital structure and strong debt
protection metrics – RIL has strong capitalization and coverage indicators supported by healthy cash
accruals and low debt levels.
 Ongoing diversification strategies to reduce dependence on two-wheeler business in the medium
term – The company is making sizeable investments in its non two-wheeler business, which are
expected to improve business diversification
Credit weaknesses
 High client concentration risk and dependence on the two wheeler industry – 85% of the
company’s business is derived from direct and indirect sales to HMCL. However, the risk is mitigated
to an extent given HMCL’s strong market position in the domestic two-wheeler market and RIL’s
strategic importance as a key vendor of aluminium die-cast components to HMCL
 Near-term proposed capacity expansions to result in increased debt levels – Near term capacity
additions and financial support to its subsidiaries are to result in increased debt levels. The scale up of
the plants and its subsidiaries will remain key sensitivities.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated
below.

Links to applicable criteria:

Corporate Credit Rating Methodology
Rating Methodology for Auto Component Manufacturers

About the company:

Established in 1961, Rockman Industries Limited in one of the leading auto component manufacturing
entities of Hero group with presence in aluminium-die cast based components. RIL is the major supplier
of key engine components and alloy wheels to Hero Motocorp Limited ([ICRA]AAA (Stable)/A1+),
which accounts for nearly 85% of its turnover. Over the past few years, the company has put in place a
strategy to diversify its exposure and has made investments both organic and in-organic to secure
business outside the two-wheeler industry. In FY 2014, the company acquired majority stake in South-
India based Sargam Die-castings (now known as Rockman Industries Chennai Private Limited), which is
also engaged in the aluminium die casting business and caters to customers such as Ford and Bosch. RIL
has also recently acquired 51% stake in Moldex Composites Private Limited that manufactures carbon
composites for super luxury and racing vehicles. Over the past few years, the company has also made
investments in non-automotive businesses with focus in the areas of electronics and semi-conductor
testing facilities. These investments are held by its 27% stake in group company – Hero Electronix
Private Limited. RIL is currently unlisted and the promoters (Hero Group) own 100% stake in the
company.

With a manufacturing facility each at Ludhiana (Punjab), Bawal (Haryana) and Haridwar (Uttaranchal),
RIL manufactures a range of aluminium-based die-cast components using high-pressure, low-pressure
and gravity die-casting technologies. Additionally, RIL has a dedicated auto-chain manufacturing plant at
Mangli (Punjab). Some of the key components manufactured by the company include crank cases, crank
case covers, wheel hubs and cylinder heads. The company is currently in the process of setting up a new
Greenfield facility in Gujarat in close proximity of HMCL’s facility.

RIL was formerly known as Rockman Cycle Industries Limited and was established in 1961 as a
partnership firm. It was converted into a private limited company in 1981 and became a deemed public
company in 1988, finally getting converted into a public limited company in 2001. Till October 2005, the
company had two divisions—a cycle parts manufacturing division where bicycle chains and bicycle hubs
were manufactured and an auto parts manufacturing division where auto chains, hubs, crank case covers,
crank cases, panels and other parts of two-wheelers were manufactured. The cycle parts division was
closed down in October 2005, owing to stiff competition from imports from China.
Key Financial Indicators (Audited)
FY2016 FY2017
Operating Income (Rs. crore) 2,164.5 2,105.4
PAT (Rs. crore) 126.7 130.1
OPBDIT/ OI (%) 12.0% 12.2%
RoCE (%) 22% 21%

Total Debt/ TNW (times) 0.1 0.1

Total Debt/ OPBDIT (times) 0.3 0.2
Interest coverage (times) 26.7 38.9
NWC/ OI (%) 11% 12%
OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest,
Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth + Deferred Tax Liability -
Capital Work - in Progress);
NWC: Net Working Capital

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years:

Table:
S. Instrument Current Rating (FY2018) Chronology of Rating History for the
No. past 3 years
Type Amount Amount Date & Date & Date & Date &
Rated Outstan Rating in Rating in Rating in Rating in
(Rs. ding FY2018 FY2017 FY2016 FY2015
crore) (Rs Dec 2017 Dec 2016 Jan 2016 Dec 2014
Crore)
1 Cash Credit Long 88.00 [ICRA] [ICRA] [ICRA] [ICRA]
Term AA AA AA AA(Stable
(Positive) (Stable) (Stable) )
2 Term Loans Long 28.00 28.00 [ICRA] [ICRA] [ICRA] [ICRA]
Term AA AA AA AA(Stable
(Positive) (Stable) (Stable) )
3 Short term Short 46.00 [ICRA] [ICRA] [ICRA] [ICRA]
non-fund Term A1+ A1+ A1+ A1+
based
4 Unallocated Long 70.00 ICRA]AA [ICRA]AA [ICRA]AA [ICRA]A
Term/ (Positive)/ (Stable)/ (Stable)/ A (Stable)/
Short [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1
Term +
5 Commercial Short 25.00 [ICRA] [ICRA] [ICRA] [ICRA]
Paper Term A1+ A1+ A1+ A1+
Programme

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
website www.icra.in
Annexure-1
Instrument Details
Instrument Date of Coupon Maturity Amount Current Rating and
Issuance / Rate Date Rated Outlook
Sanction (Rs. crore)
Cash Credit 88.00 [ICRA]AA (Positive)

Term Loans FY2020 28.00 [ICRA]AA (Positive)

Short term non-fund 46.00 [ICRA]A1+

based
Unallocated 70.00 [ICRA]AA (Positive)/
[ICRA]A1+
Commercial Paper 25.00 [ICRA]A1+
Programme
Source: the company; BPS – basis points
 Contact Details
Analyst Contacts
Subrata Ray Shamsher Dewan
+91 22 6114 3408 +0124-4545 328
subrata@icraindia.com shamsherd@icraindia.com

Sreejan Dutta Sruthi Thomas

+0124-4545 396 +0124-4545 822
sreejan.dutta@icraindia.com sruthi.thomas@icraindia.com

Relationship Contact
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

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