CRISIL has reaffirmed 'A-/Stable' ratings on the long-term bank facilities of Atul Auto (Atul). The rating continues to reflect its above-average financial risk profile, marked by low gearing and above-average debt protection metrics.
The rating also factors in the company's established business risk profile, marked by improving market share, established distribution network and efficient working capital management. These rating strengths are partially offset by the susceptibility of Atul's operating margin to volatility in raw material prices, and its exposure to intense competition from below one tonne mini truck and large three-wheeler manufacturers. Furthermore, the company is vulnerable to risks relating to geographic concentration in revenue and cyclicality in the commercial vehicle segment.
CRISIL believes Atul will maintain its financial risk profile over the medium term because of minimal reliance on debt for working capital requirement and capital expenditure (capex). The company will maintain its business risk profile in the three-wheeler industry over the period, supported by its capacity addition programme, efficient working capital management, and established distribution network.
The outlook may be revised to 'Positive' if the company substantially increases its market share and improves its profitability while it maintains its strong financial risk profile. Conversely, the outlook may be revised to 'Negative' if Atul's order flow or operating margin decline leading to lower accruals, or its financial risk profile weakens, most likely because of significant debt-funded capex, or a substantial dividend pay-out.
