Radha Krishna Automobiles Pvt. Ltd.

Brickwork Ratings reaffirms the rating for the Bank Loan Facilities of Rs. 30.08 Crs. of Radha Krishna Automobiles Pvt. Ltd. and places it on Credit Watch with Developing Implications.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (02 Sep 2020)	Present
Fund Based	95.77	30.08	Long Term	BWR BB/Stable Assigned	BWR BB /Credit Watch with Developing Implications Reaffirmation and change in Outlook
Grand Total	95.77	30.08	(Rupees Thirty Crores and Eight lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The reaffirmation of the bank loan ratings of Radha Krishna Automobiles Pvt. Ltd. ('RKAPL' or 'the company') factors in the operational track record, experience of the promoters, support from Mithra and Radha Group Toyota Group companies, long and established relationship with Toyota Kirloskar Motors Private Limited (TKMPL), wide distribution network and average financial risk profile. However, the rating is constrained by thin profitability margins, high gearing, stretched liquidity and working capital intensive operations. The rating also factors the volume driven business with intense competition, limited pricing power inherent in dealership business and cyclicality of the industry. BWR notes the recent decline in sales in FY21 (Prov.) on account of the disruptions caused by Covid-19 and which has been an industry wide phenomena.

Brickwork Ratings (BWR) notes that the company availed Covid-19 related RBI Moratorium Package during Mar'20 - Aug'20 for all the facilities being rated. The company has been regular in honouring the debt obligations post moratorium, as confirmed by lenders. The company did not apply for one time restructuring (OTR) of any loan under RBI Resolution Framework for Covid-19 related Stress.

The rating is placed on Credit watch with developing implications to reflect the uncertainty arising out of the execution of the proposed/ ongoing restructuring of the Radha Group Toyota and the Mithra Group to implement the succession plans and clearly defined territories. The management has engaged KPMG to arrive at the restructuring of the group and according to which the business and the assets of RKAPL shall be transferred to the designated successor company through slump sale. As per the Business Transfer Agreement, the successor company shall be liable to pay the lump sum consideration to its predecessor (old) company. In the absence of clearly defined payment terms BWR expects the promoters shall honour the commitments timely as both the old and the new companies have common promoters. The successor company would be 100% owned subsidiary of Krishnapriya Automobiles India Pvt Ltd, the holding company, and RKAPL shall merge into its holding company post the settlement of the liabilities, obtention of NCLT's approval for the merger and shall cease to exist. The contract with TKMPL shall be renewed in the name of the successor companies w.e.f. 10Sep2021. BWR is closely monitoring the situation to ascertain the ability of the company to meet its debt obligations in a timely manner in the event of transfer of its business and assets to the successor companies, the impact on the company's credit risk profile and shall take appropriate rating action including resolution of the watch as and when it has greater clarity on these aspects.

KEY RATING DRIVERS

Credit Strengths:

Established operational track record and experienced promoters :
The company was established in 2005 in Vijayawada. It is part of Radha Group Toyota which consists of four companies dealing exclusively in the passenger vehicles of Toyota Kirloskar Motors Private Limited (TKMPL). This Group itself is part of a larger, Mithra Group of Hyderabad which was started in 1964 as a proprietorship concern by Mr. M. Subrahmanyam. The company is promoted by Mr. M Subrahmanyam who has over five decades of experience in trading and more than two decades of experience in the automobile industry. Mr. M V Srinivas, son of Mr. Subrahmanyam, has over two decades of experience in the automobile industry. They are the Chairman and the Managing Director respectively. The company’s operations get support from the interest-free unsecured loans from the promoters and other Group companies.
Established relationship with TKMPL and Brand Equity of Toyota Motor Corporation :
The company is an authorized dealer of TKMPL since 2005 in Telangana. The company has two Toyota showrooms at Ranga Reddy and Khammam and three service centres at Ranga Reddy and Khammam. The Radha Group Toyota has 14 showrooms and 9 service centres in Telangana and Andhra Pradesh. The Group has been one of the top dealers for TKMPL vehicles in India
Average financial risk profile :
The company’s operating income increased from Rs. 419.84 Crs. in FY19 to Rs. 467.67 Crs. in FY20. Operating profit increased from Rs.17.79 Crs. to Rs. 18.80 Crs. and net profit increased from Rs. 2.06 Crs. to Rs. 2.56 Crs. over same period. Tangible Net Worth (TNW) increased from Rs. 25.94 Crs. as on 31Mar2019 to Rs. 28.51 Crs. as on 31Mar2020. Total debt declined from Rs. 107.12 Crs. as on 31Mar2019 to Rs. 100.67 Crs. as on 31Mar2020 due to partial repayment of long term borrowings and lower working capital facilities’ utilization. Debt coverage metrics represented by ISCR and DSCR remained stable at 1.63 times and 0.93 time as on 31Mar2020, respectively. Current Ratio was adequate at 1.30 times as on 31Mar2019 which increased to 1.34 time as on 31Mar2020 due to decline in short term borrowings. On a provisional basis in FY21, the company reported operating income, operating profit and net profit at Rs. 300.64 Crs., Rs. 12.96 Crs. and Rs. 1.00 Cr., respectively. [P = Provisional]

Credit Risks:

Working capital intensive nature of operations :
The company’s operations are inherently working capital intensive with the need for external financing arising for purchase of inventory of vehicles and spare parts on a consistent basis. The company usually keeps 45 days’ inventory of cars and spares in its showrooms and service centres. The high use of working capital financing has led to high gearing of 3.80 times as on 31Mar2021 (P). Due to increase in inventory as on 31Mar2021 (P), the Cash Conversion Cycle got stretched from 46 days as on 31Mar2020 to 66 days as on 31Mar2021 (P). [P = Provisional]
Industry competition and cyclical nature of business :
The company operates in a highly competitive landscape considering the number of other automobile manufacturers and their dealers. Further, Auto dealership is low margin, high volume business with price and margin decided by the auto companies. The dealership's performance is susceptible to a large extent, on the brand equity of the auto company, performance of vehicles on roads and ability of auto companies in launching models based on the market need and trend. The company has been associated with the Toyota global brand which is one of the largest auto manufacturers of the world. Besides these, factors like fuel prices, institutional credit availability and overall growth scenario of the economy also affect the auto dealership business. In addition to the correlation with macro-economic variations, auto sales also have monthly cyclicality with the higher sales during the festive period each year. BWR takes note of the new launches during the ensuing festive season which is expected to support the overall sales of the company in FY22.
Impact of Covid-19 pandemic :
The onset of Covid-19 pandemic and the nation-wide lockdown impacted the whole supply chain of the automobile industry. Temporary closure of the manufacturing units during the lockdown, scarcity of electronic spare parts and restrictions on transportation led to supply side disruption. The showrooms also remained closed during the lockdown which led to considerable decline in demand for the automobiles. The sale of Toyota vehicles from the company's showrooms declined from 3718 units in FY20 to 1937 units in FY21 (P). The second wave of the pandemic impacted the sales in Q1FY22. The recovery in the industry remains contingent upon the pace of vaccination and discoveries of further mutations of the COVID-19 virus. [P = Provisional]

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, Brickwork Ratings has applied its rating methodology as detailed at the end of the document. The company does not have any subsidiary. BWR has taken the standalone approach towards the rating of the bank loan facilities of the company while recognizing the similar line of business, common promoters and management, intra-group support and the market brand, of the Radha Group Toyota.

RATING SENSITIVITIES

Ability of the company to improve its scale of operations and profitability on a sustained basis, manage its working capital prudently without further deterioration in the capital structure and stretch in cash conversion cycle are the key rating sensitivities. BWR notes that with the execution of the impending restructuring of the Radha Group Toyota, the company will merge with its holding company Krishnapriaya Automobiles India Pvt Ltd and cease to exist.

Positive:

Given the impending restructuring of the group and the current macro-economic environment, a rating upgrade in the near term appears unlikely.

Negative:

Delay in debt servicing to lenders on a sustained basis
Further decline in turnover as a fallout of Covid-19
Deterioration in liquidity and debt coverage ratios

LIQUIDITY INDICATORS - Stretched

The company's liquidity is stretched based on high utilization of working capital limits and stretched cash conversion cycle. The company's working capital utilization of past six months was over 95%. Net cash accruals of FY21 (prov.) covered the debt repayment obligations of FY21 (prov.). The trend is expected to continue in FY22. The current ratio remained stable at 1.34 times as on 31 Mar 2020. The cash and cash equivalents were at Rs. 9.45 Crs. as on 31Mar2021 (prov.). Cash conversion cycle got stretched from 46 days as on 31Mar2020 to 66 days as on 31Mar2021 (prov.). Further, BWR notes the availment of ad hoc facilities and Covid loans in Mar'21-Jul'21 to support the liquidity.

ABOUT THE ENTITY

Radha Krishna Automobiles Private Limited (RKAPL) was incorporated on 22Dec2005 at Vijayawada, Andhra Pradesh. It is part of Radha Group Toyota which is itself a part of the larger Mithra Group. The company is an authorised dealer of Toyota Kirloskar Motors Private Limited (TKMPL) and is engaged in the 3-S business of sales, spare parts and service of its passenger vehicles. The company has two showrooms and three service centres. Mr. M. Subrahmanyam is the dealer principal of the dealership and the Managing Director of the company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	467.67	419.84
EBITDA	Rs.Crs.	18.80	17.79
PAT	Rs.Crs.	2.56	2.06
Tangible Net Worth	Rs.Crs.	28.51	25.95
Total Debt/Tangible Net Worth	Times	3.53	4.13
Current Ratio	Times	1.34	1.30

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

CARE Ratings continued the rating of the bank loan facilities of the company in the ISSUER NOT COOPERATING* category on 05May2021.

*Issuer did not cooperate; based on best-available information

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	30.08	BWR BB/Credit Watch with Developing Implications (Reaffirmation and change in Outlook)	02Sep2020	BWR BBStable (Assigned)	NA	NA	NA	NA
Grand Total		30.08	(Rupees Thirty Crores and Eight lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Swarn Saurabh Senior Rating Analyst swarn.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Radha Krishna Automobiles Pvt. Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Canara Bank	Secured OD - Sanctioned	8.00	_	8.00
2	State Bank Of India (SBI)	Electronic Dealer Finance System (e-DFS) - Sanctioned	20.00	_	20.00
3	State Bank Of India (SBI)	Dropline OD - Out-standing	2.08	_	2.08
4	Yes Bank	Cash Credit - Sanctioned	_	_	0.00
5	Yes Bank	Trade Advance - Sanctioned	_	_	0.00
6	Yes Bank	Term Loan - Out-standing	_	_	0.00
Total			30.08	0.00	30.08
TOTAL (Rupees Thirty Crores and Eight lakhs Only)

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