ICRA downgrades ratings of Wheels India

16 Feb 2022 , 11:24 AM

ICRA said that the downgrade in the long-term and short-term ratings considers substantial increase in Wheels India Limiteds (WIL/the company) debt levels resulting in moderation in the companys debt metrics as compared to ICRAs earlier expectations and the expectation that it would remain relatively high over the medium term. The medium-term rating has not been downgraded but has been reaffirmed, as the revision in the long-term rating has been limited to one notch, in line with ICRAs rating mapping scale.

WILs debt levels increased to Rs 1346.7 crore as on September 30, 2021, about 25-30% higher than ICRAs estimates primarily owing to higher working capital requirements, stemming from higher receivable periods in non-auto segments and exports, and commodity price increase.

Lower capacity utilisation and cash losses in WILs subsidiary, WIL Car Wheels (WCWL) also contributed to increase in WILs consolidated debt. With a sharp rise in debt levels and lower-than-expected accruals, WILs consolidated coverage indicators also moderated with consolidated net debt/OPBDITA and Total outside liabilities (TOL)/Tangible networth (TNW) of 5.7x and 2.9 times respectively as of 30 September 2021.

WILs operating income stood at Rs 1,702.2 crore in H1 FY2022, in line with ICRAs expectations aided by broad-based recovery across all the segments in the domestic market and strong traction in exports. The companys diversified presence across various sub-segments in the auto and non-auto space mitigates risks arising from revenue decline from any single segment to an extent.

The operating profit margins (OPM) remained moderate at 6.8% in H1 FY2022 (1.7% in H1 FY2021 and 6.5% in H1 FY2020), marginally lower than ICRAs earlier expectations, owing to cost inflation pressures pertaining to commodity, freight and employee expenses.

The ratings remain supported by WILs exceptional flexibility by virtue of belonging to the T S Santhanam Group (a faction of the larger TVS Group- an established name in the domestic auto ancillary industry), its established position as one of the largest steel wheel rim manufacturers in the country in the automotive segment (except 2W) and globally in construction & earthmoving equipments (EME) segment and its diversified segmental and customer presence.

Going forward, WILs revenues are likely to scale up at healthy pace aided by healthy demand outlook in end user industries both in India and export markets, expanding export/non-auto presence and ramp up in volumes of recently-commenced products.

However, in the near term, the companys revenues would be exposed to risks arising from supply chain issues. WILs margins and accruals are likely to benefit from higher operating leverage and expected favourable product mix, although it will remain constrained by the limited bargaining power, competitive pressures and relatively moderate value addition.

Notwithstanding the anticipated increase in accruals, the consolidated debt levels are likely to remain relatively high for the scale of operations, given the capex of approximately Rs 470-500 crore for FY2022-FY2024 (part of which is expected to be debt funded) and WILs high working capital requirements in exports and non-auto segments.

Wheels India is among the largest manufacturers of steel wheel rims in the country and is present across automotive (except 2W), tractor and earth mover segments. Further, WIL also manufactures air suspension systems for luxury buses in India, supplies fabricated and machined parts for windmills, and produces bogie frame and bogie bolsters for Indian Railways.

The companys consolidated net profit rose 59.95% to Rs 19.37 crore on a 52.04% increase in net sales to Rs 1076.58 crore in Q3 FY22 over Q3 FY21.

The scrip rose 1.78% to currently trade at Rs 653 on the BSE.

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