April 10, 2017

Kalyani Motors Private Limited

Instrument* Rated Amount Rating Action
(in crore)
Fund Based 25.00 [ICRA]BBB- (Stable); Revised from
[ICRA]BBB (Stable)
Total 25.00
*Instrument Details are provided in Annexure-1

Rating action
ICRA has revised the long-term rating assigned to the Rs. 25.00-crore fund-based facilities of Kalyani
Motors Private Limited (KMPL) from [ICRA]BBB (pronounced as ICRA triple B)1 to [ICRA]BBB-
(pronounced as ICRA triple B minus). The outlook on the long-term rating is Stable.

Rationale

The rating takes into account the deterioration in KMPL’s financial profile as reflected by decline in
operating and net margins due to high operational expenses on the recent expansion of business in
Bangalore and Hyderabad. The company’s capital structure and coverage indicators deteriorated during
FY2016 and 6MFY2017 due to debt funding for the above expansion, although equity infusion in January
2017 supported the capital structure to some extent. The company recorded net losses during 6MFY2017,
which led to a steep decline in its cash accruals although its repayment obligations remained moderately
high in the near to medium term. Besides, significant capital expenditure undertaken during the current
fiscal, the cash flows are expected to remain under pressure in the near to medium term. The rating is also
constrained by the company’s low bargaining power, wherein pricing policies are determined by the
OEM (Original Equipment Manufacturer). ICRA notes the company’s exposure to the inherent cyclicality
of the passenger vehicle industry from its linkages to the macro-economic environment. The rating also
considers the high competitive pressure faced by KMPL from a number of established dealers of MSIL
(Maruti Suzuki India Limited) and other OEMs mainly in Hyderabad and Bangalore, leading to pressure
to pass on price discounts to customers, which limits profitability.

The rating, however, takes into account the healthy growth in KMPL’s turnover during FY2016 and 6M
FY2017, led by opening of several new sales and service outlets mainly in Hyderabad along with healthy
demand for MSIL vehicles, the leader in the Indian PV industry. The rating also takes into account
KMPL’s strong market presence in Bangalore, established relations with MSIL, which helped the
company acquire new outlets in Hyderabad and the extensive experience of the promoters in auto-
dealership business.

Going forward, the company’s ability to stabilise its operations in Hyderabad amid intense competition,
improve profitability, capital structure and coverage indicators would be the key rating sensitivities.

1
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications
Key rating drivers

Credit strengths
 Established relations with MSIL, which helped the dealership acquire new outlets in
Hyderabad and thus, increase its scale of operations
 Authorised dealer of MSIL, the market leader in the passenger car segment in India;
platinum dealer rating assigned by MSIL reflects strong sales and service performance of KMPL
 Extensive experience of the promoters in the auto-dealership business; strong market
position in Bangalore region with eight sales outlets and nine workshops
 Favourable domestic demand outlook for MSIL, the market leader in the passenger
vehicle segment in India support growth prospects

Credit weaknesses
 Decline in operating and net profitability during FY2016 and 6MFY2017
 Leveraged capital structure and weak debt-coverage indicators due to debt-funded capex
and high working capital requirements
 Low bargaining power due to trading nature of business and margins being controlled by
MSIL; inherently low operating margins and return indicators in the auto-dealership business;
high fixed expenses relating to leased showrooms put further pressure on margins
 High competitive intensity of operations from other MSIL dealers as well as from other
OEMs
 Exposure to cyclical nature of the Indian passenger vehicle industry

Description of key rating drivers:

The company reported a strong revenue growth in the last four fiscals on the back of increase in the
number of showrooms and service network mainly in Bangalore. It has recently expanded its business to
Hyderabad in March 2016. The operating margin, however, remained weak as in any dealership business
and declined in FY2016 primarily on account of high rentals and high discounts offered to boost demand
in five new showrooms and three service facilities that were opened during FY2016. The operating
margin declined further during 6MFY2017 due to high administration expenses mainly on account of
opening of two new showrooms and workshops each and one true-value outlet in Hyderabad where the
company is at its nascent stage of operations. The total debt for the company increased during FY2016
and 6M FY2017 on account of increase in both short and long-term borrowings to fund its growing scale
of operations. Going forward, the company’s free cash flows are likely to remain under pressure due to
low operating profitability and significant capital expenditure incurred in the current fiscal.

Links to applicable Criteria

Corporate Credit Rating –A Note on Methodology
< http://www.icra.in/Files/Articles/Rating%20Meth%20Mar%202017.pdf>

Rating Methodology for Automobile Dealerships

< http://www.icra.in/Files/Articles/Automobile%20Rating%20Methodology,%20Mar%202016.pdf >

About the company:

Established in 2006 by Late Sri S Anantha Raju in Bangalore, Karnataka, Kalyani Motors Private Limited
is an authorised dealer of Maruti Suzuki India Limited . The promoters have prior experience in
commercial and residential real-estate development market for over 40 years. At present, Mr. A Mohan
Raju is the MD of KMPL, which has more than ~2500 employees and has presence in Bangalore and
Hyderabad markets with 11 sales outlets including two Nexa outlets, five True Value outlets, 11
workshops, and two Maruti Driving Schools. It has seven 3S outlets in Bangalore and one in Hyderabad.

The company recorded a net profit of Rs. 2.69 crore on an operating income of Rs. 839.35 crore for the
year ending March 31, 2016.

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years:

Table: Rating History

Current Rating Chronology of Rating History for Past 3 years
Rated
Name of Type Amount FY2018 FY2017 FY2015 FY2014
Instrument
(Rs. cr)
Apr-17 Apr-16 - -
Long [ICRA]BBB- [ICRA]BBB
Cash Credit 25.00 - -
Term (Stable) (Stable)

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly
Complex". The classification of instruments according to their complexity levels is available on the
website www.icra.in
 Annexure-1
Details of Instrument

Name of the Date of Coupon Maturity Size of the issue Current Rating and
instrument issuance rate Date (Rs. Cr) Outlook
Cash Credit 25.00 [ICRA]BBB- (Stable)

Name and Contact Details of the Rating Analyst(s):

Mr. K Ravichandran Mrs. Ritika Mundhra

+91-44-4596 4301 91-80-4922 5562
[email protected] [email protected]

Mr. R Srinivasan Ms. Ankita Deambi

+91-44-4596 4315 +91-80-4922 5567
[email protected] [email protected]

Name and Contact Details of Relationship Contacts:

Jayanta Chatterjee
+91 80 4332 6401
[email protected]

About ICRA Limited:

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financial services companies as an independent and professional investment Information and Credit
Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a
Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock
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shareholder.
For more information, visit www.icra.in

© Copyright, 2017, ICRA Limited. All Rights Reserved

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