Craftsman Automation Limited's Ratings upgraded to 'CRISIL A / Stable / CRISIL A1

CRISIL Ratings has upgraded its ratings on the bank facilities of Craftsman Automation Limited (CAL) to 'CRISIL A/Stable/CRISIL A1' from 'CRISIL BBB+/Stable/CRISIL A2'. CRISIL Ratings has also withdrawn rating on CAL's proposed long term bank loan facility for 300.37 crores. The withdrawal is based on client's request and is in line with CRISIL's policy on withdrawal of ratings.

The upgrade reflects the sustained improvement in CAL's business risk profile stemming from its established customer base, diversified segment exposure and healthy operating capabilities. Further, the company's financial risk profile has also significantly improved due to healthy cash generation, and a sharp reduction in debt levels, including through funds raised from initial public offering (IPO) during March 2021. Debt metrics have improved significantly in fiscal 2021, and are expected to further improve with only moderate capital spending over the medium term.

During fiscal 2021, CAL's revenues increased by 5% despite difficult business conditions, and were supported by higher share of business, mainly with existing medium and heavy commercial vehicle (MHCV) manufacturers. Operating profitability also improved to 28.9% compared to 26.9% during fiscal 2020 driven by better capacity utilization, improved product mix and cost optimization measures.

During March 2021, CAL completed its IPO of ~Rs.824 crores, of this Rs 142 crore (net of issue costs) was infused into the company and the balance was utilised by existing stakeholders to pare stake. The IPO proceeds and sizeable portion of cash accruals, including due to working capital savings, were used to pare down debt of over Rs.300 crore in fiscal 2021. This led to the company's gearing declining to a comfortable 0.72 times at March 31, 2021 (1.44 times at March 31, 2020), while the ratio of debt to earnings before interest, tax, depreciation, and amortisation (EBITDA), also improved to 1.57 times in fiscal 2021 (2.61 times in fiscal 2020).

Continuing steady business performance is expected to resulting in cash accruals in excess of Rs 300 crore per annum. The company also completed sizeable capex of ~Rs. 1200 crores between fiscal 2017 and 2020, which will ensure limited need for capacity expansion until fiscal 2023. Steady cash generation, moderate capex spend and prudent working capital management, therefore, is likely to help debt metrics further improve over the medium term; debt to EBITDA ratio is expected at 1.2-1.3 times over the medium term.

The ratings continue to reflect CAL's strong position in the engineering contract-manufacturing sector, established customer relationships, and healthy operating efficiency. Its financial risk profile is also improving over time. These strengths are partially offset by high capex needs and working capital intensity, besides vulnerability to any sharp slowdown in the automobile industry.

Source : Equity Bulls

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