Rationale

 The reaffirmation of the ratings favourably factors in Krishna Penstone Automotive Private Limited (KPAPL) (erstwhile Krishna Ishizaki Auto Ltd.) strong business position as a major supplier of outside rear-view mirrors (ORVMs) and inside rear-view mirrors (IRVMs) to Maruti Suzuki India Limited (MSIL), the market leader in the passenger vehicle (PV) industry, and Honda Cars India Limited (Honda). KPAPL gets 65-70% share of business from MSIL and ~90% from Honda for ORVMs and IRVMs. Over the years, the company has gained incremental business for a number of new models launched by these original equipment manufacturers (OEMs), which augurs well for its future revenue visibility. Further, the ratings draw comfort from KPAPL’s strong financial risk profile with debt-free status and strong liquidity (reflected in the cash and liquid investments of ~Rs. 91.4 crore as on March 31, 2024). The company has reported strong return indicators and profitability indicators over the years, benefitting from the backward integration of critical components such as actuator line, glass-processing line and induction moulding, besides the benefits of operating leverage. ICRA notes that the company has planned a capex outlay of ~Rs. 190 crore over the next three years (evenly spread out) towards enhancing capacity at its existing plants and setting up a new plant in Kharkhoda (Haryana). The capex is expected to be funded through internal accruals and existing cash balances and liquid investments, thereby limiting any dependence on external debt. The ratings favourably factor in KPAPL’s technological support from Penstone Corporation (Penstone) that holds a 50% equity stake in the company. Penstone is a leading Japanese rear-view mirror designer and manufacturer of various PV OEMs. Technological support from Penstone underpins the company’s ability to adapt to the changing technological requirements of the Indian OEMs, thus allowing it to maintain its share of business with MSIL and Honda, and leverage its capabilities to other OEMs for new business. The above strengths are partially offset by the increased client and segmental concentration risks faced by KPAPL with ~90% of its revenues generated from MSIL. The company also faces the risk of concentration with the PV segment being its only end user. The customer concentration risk is mitigated to an extent by KPAPL’s healthy share of business with MSIL and the OEM’s status as the market leader in the Indian PV industry. ICRA notes that the company’s inability to generate revenues through exports (because of the logistics-unfriendly nature of its products) increases its reliance on the domestic customer base. Moreover, being a single-product company, its scale of operations is limited to an extent. However, the long-term prospects of the PV industry remain favourable, with personal mobility preference aiding volumes since relaxations of pandemic-related lockdowns. This is likely to ensure healthy revenue visibility for KPAPL over the medium-to-long term. The Stable outlook on the long-term rating reflects ICRA’s opinion that KIAL will continue to benefit from its technical collaboration with its parent entity and established relationships with MSIL and Honda, helping it maintain a healthy credit profile over the medium term.