April 29, 2020

Krishna Maruti Limited: Rating reaffirmed; outlook revised to Stable from Positive

Summary of rating action

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]AA-(Stable)/ [ICRA]A1+
Long-term/Short-term – Fund
90.00 90.00 reaffirmed; outlook revised to
based/Non-fund based**
Stable from Positive
Total 90.00 90.00
*Instrument details are provided in Annexure-1; ** Fund-based and Non-fund-based limits are interchangeable

Rationale
The revision in outlook follows the impact of the novel coronavirus (COVID-19) outbreak on the Indian auto component
industry. The pandemic is expected to adversely impact automobile demand in the near-term and constrain further
improvement in the credit profile for Krishna Maruti Limited (KML).

The automotive supply chain disruption—largely limited to China during January and February 2020—has snowballed
into a demand shock, owing to the rapid spread of the pandemic and its adverse impact on the macro-economic
environment. To contain the rapid proliferation of the disease, the Government of India imposed a 21-day lockdown,
which was recently extended till May 3, 2020. The large-scale lockdown has disrupted production of automobile OEMs
and their supply chain from March 2020 onwards.

In ICRA’s view, even after the lockdown restrictions are eased, the demand environment is likely to remain subdued,
since automobile purchase is a discretionary spend. Accordingly, auto component companies, including KML, are likely to
witness lower earnings in the near-term because of lower sales and overheads. Given the environment, the liquidity
cushion between cash balances, available lines of credit and debt servicing requirements remains key. ICRA believes that
KML remains adequately positioned from a liquidity standpoint with sufficient cash and liquid investments (Rs. 449.3
crore as on March 31, 2020) and undrawn credit facilities (buffer of ~Rs. 45.7 crore from drawing power as on February
29, 2020). Against the aforementioned liquidity, the company has no debt repayments and only needs to support its
fixed expenses. With a strong liquidity profile, the company has opted against seeking moratorium on interest or debt
repayments for the March–May 2020 period (under the ‘Covid-19 – Regulatory Package’ announced by the Reserve Bank
of India).

The rating continues to favourably factor in the strong operational performance of KML, aided by its healthy share of
business with Maruti Suzuki India Limited (MSIL) for its seat sets and door trim businesses. KML has been able to gain the
seat sets business for most of MSIL’s recent model launches, which has helped it to increase its share of business with
the OEM to over 70% in FY2020 (~60% in FY2018). The rating also factors in the favourable ownership of KML with nearly
45% of the stake held by MSIL and Suzuki Motor Corporation (SMC), Japan, along with board representation. The
availability of technical assistance from Snic Corporation, Japan, has aided the company’s product development efforts
and, hence, new business awards.

Even as the company’s liquidity remains more than adequate to tide over the current lockdown, the company’s financial
performance continues to remain exposed to any prolonged weakness in demand in the passenger vehicle (PV) industry.
KML remains significantly dependent on MSIL, which along with Suzuki Motor Corporation Gujarat (SMG), constitutes

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over 90% of its revenues. Moreover, its prospects would continue to remain linked to the demand prospects of MSIL. The
impact of the outbreak on consumer demand/sentiments over the coming quarters remains uncertain and would need
to be assessed.

The Stable outlook on the long-term rating reflects ICRA’s opinion that despite expectations of prolonged weakness in
auto demand, KML will continue to maintain a strong credit profile, benefitting from its established track record of
operations and relationship with MSIL, technical collaboration with Snic Corporation, strong return indicators and
commitment to conservative financial policies.

Key rating drivers and their description

Credit strengths
Established relationship and healthy share of business for seat sets and door trims for MSIL; favourable ownership
pattern further strengthens revenue visibility – KML is a leading auto component manufacturer servicing MSIL with seat
sets and door trims. Benefitting from the company’s technical capabilities and its established relationships, the company
has been able to maintain healthy share of business with MSIL in supplying seat sets and door trims over the years. The
ownership pattern of KML consists of SMC and MSIL, who have a combined stake of nearly 45%. The continuation of
ongoing business, coupled with business gained for upcoming product launches, provides healthy revenue visibility for
the company over the near-to-medium term.

Technical collaboration with Snic Corporation (Japan) aids in product development capabilities – KML has a technical
collaboration agreement with Snic Corporation (Japan), a supplier of seat sets to SMC internationally. The agreement
helps KML gain the required knowhow and mitigate the risk of technical obsolescence. Additionally, the technological
support aids KML in new product development, which is likely to help maintain its strong share of business with MSIL.

Healthy financial risk profile and strong liquidity profile – The company’s financial risk profile is characterised by strong
return indictors (RoCE of 33.8% in FY2019), a conservative capital structure, as evident from a gearing of 0.1 time as on
September 30, 2019, and strong debt coverage indicators. KML reported a Total Debt/OPBDITDA of 0.1 time and interest
coverage of 84.7 times in H1 FY2020. Additionally, it continues to have a strong liquidity profile with available liquid
investments and cash balances of Rs. 449.3 crore as on March 31, 2020. The liquidity profile is also supported by financial
flexibility in the form of unutilised working capital limits from banks.

Credit challenges
High client and segment concentration risk, with revenues primarily driven by MSIL – Over the years, most of KML’s
revenues were generated by MSIL, leading to client concentration as well as segment concentration risks. Nevertheless,
the company’s favourable ownership pattern, coupled with the leadership position of MSIL in the domestic PV industry,
mitigates the client concentration risk to an extent. Even though the company has started supplying to select CV OEMs,
the revenue from MSIL is likely to dominate in the near-to-medium term and, thus, KML’s ability to diversify into the CV
segment and reduce its segment concentration risk would remain a key rating sensitivity.

High product concentration risk – The company’s product portfolio primarily consists of automotive seat sets and door
trims for PVs. While the company derives its revenues from seat sets and door trims, most of its revenues emanate from
seat sets (72.8% in Q1 FY2020), resulting in product concentration risk. The risk is, however, mitigated to an extent by
the continuous inflow of orders from MSIL. Going forward, while revenues from sale trims are expected to provide
diversification benefits, revenues from the sale of seat sets are likely to dominate over the medium term.

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Liquidity position: Strong
KML has a strong liquidity with fund flow from operations of Rs. 106.7 crore in H1 FY2020, free cash and liquid
investments of Rs. 449.3 crore as on March 31, 2020, no debt repayment obligations and low working capital utilisation.
Despite expectations of moderation in revenues in the near-term due to the COVID-19 outbreak, KML’s cash and liquid
investments are healthy enough to help it meet its fixed expenses as well as any capex related outflow.

Rating sensitivities
Positive triggers – A positive rating action could be triggered by a sustainable recovery in volumes in the PV industry,
more specifically for MSIL, which favourably impacts KML’s accruals and helps the company record a healthy revenue
growth. A maintenance of healthy share of business with MSIL (at current levels of ~70%) on a sustained basis would be
favourably considered for a rating upgrade.

Negative triggers – The rating could be negatively impacted in case of a sharp contraction in volumes in the near-to-
medium term, which leads to a deterioration in the company’s capacity utilisation levels and significantly impacts
profitability and return metrics. Specific credit metrics that could result in a downgrade would include Debt/OPBDITA
greater than 1.8 times on a sustained basis.

Analytical approach
Analytical Approach
Applicable Rating Methodologies
Parent/Group Support
Consolidation/Standalone
Comments
Corporate Credit Rating Methodology
Rating Methodology for Auto Component Manufacturers
Not applicable
The ratings are based on the standalone financial profile of the company.

About the company

KML, incorporated in June 1991 as “Sona Car Seat Ltd.”, is one of the largest suppliers of seat sets and door trims to
MSIL. In 1994, following the acquisition of 24.3% shareholding of the company by SMC and 13.1% by MSIL, the company
was renamed as KML. The present shareholding of SMC stands at 29.2% and that of MSIL at 15.8%. The company is
engaged in manufacturing seat sets and door trims for PVs, plastic injection moulded components for two-wheelers and
PVs, as well as tools, dies and moulds for manufacturing sheet metal components and plastic parts.

The company has manufacturing facilities at Gurgaon (Haryana), Manesar (Haryana), Narsinghpur (Haryana), Hansalpur
Becharaji (Gujarat) and Binola (Haryana).

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Key financial indicators (audited)
FY2018 FY2019
Operating Income (Rs. crore) 1,847.7 2,173.3
PAT (Rs. crore) 100.1 115.9
OPBDIT/OI (%) 9.6% 9.9%
RoCE (%) 40.8% 33.8%

Total Outside Liabilities/Tangible Net Worth (times) 0.9 0.7

Total Debt/OPBDIT (times) 0.4 0.3
Interest Coverage (times) 38.8 58.4
DSCR 7.5 9.9

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current Rating (FY2021) Rating History for the Past 3 Years
Rating FY2020 FY2019 FY2018
Instrument Amount Amount
Type
Rated Outstanding* 10-Nov-
29-Apr-2020 21-Nov-2019 2-Nov-2018
2017
[ICRA]AA- [ICRA]AA- [ICRA]AA- [ICRA]AA-
Fund-Based/ Non- Long Term/
1 90.0 - (Stable)/ (Positive)/ (Positive)/ (Stable)/
fund-based Short Term
[ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
Amount in Rs. crore; *As on March 31, 2020

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

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Annexure-1: Instrument details
Amount
Date of Issuance / Coupon Maturity Rated Current Rating and
ISIN Instrument Name Sanction Rate Date (Rs. crore) Outlook
Fund-based/ Non- [ICRA]AA- (Stable)/
NA NA NA NA 90.00
fund based [ICRA]A1+
Source: KML

Annexure-2: List of entities considered for consolidated analysis – Not applicable

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Analyst Contacts
Subrata Ray Shamsher Dewan
+91 22 6114 3408 +91 124 4545 328
subrata@icraindia.com shamsherd@icraindia.com

Rohan Kanwar Gupta Pradyumna Choudhary

+91 124 4545 808 +91 124 4545 342
rohan.kanwar@icraindia.com pradyumna.choudhary@icraindia.com

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

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
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For more information, visit www.icra.in

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