Ace Designers Limited
October 05, 2018
Summary of rated instruments
Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long Term - Term Loan - 200.00 [ICRA]AA- (Stable); Assigned
[ICRA]AA- (Stable);
Long Term - Fund-based Facilities 15.00 15.00
outstanding
Short Term - Fund based Facilities 30.00 30.00 [ICRA]A1+; outstanding
Total 45.00 245.00
*Instrument details are provided in Annexure-1
Rating action
ICRA has assigned the long -term rating of [ICRA]AA- (pronounced ICRA double A minus) to the Rs. 200.00 crore term
loan facilities of Ace Designers Limited. ICRA also has long-term rating of [ICRA]AA- (pronounced ICRA double A minus)
outstanding for the Rs. 15.00 crore 1 long term fund-based facilities and the short-term rating of [ICRA]A1+ (pronounced
ICRA A one plus) to the short-term fund-based bank facilities of Ace Designers Limited (ADL/ the company)2. The outlook
on the long-term rating is Stable.
Rationale
The ratings remain supported by ADL’s healthy operational profile on the back of long-standing experience of the
promoters, ADL’s well-entrenched position in the domestic CNC lathe manufacturing industry, and diversified end-user
addressable market segments. During FY2018, ADL’s revenues grew by 43.7% supported by 34.5% growth in sales
volumes amidst favourable demand across end-user industries. ADL’s financial profile remains comfortable with strong
capital structure and coverage indicators, improving profitability and healthy liquidity profile on the back of strong cash
flow generation. The ratings continue to underpin the strong bargaining power with its vendors, support from group
entities for key components, and strong marketing and after sales services.
The ratings however, continue to be constrained by the higher exposure to the cyclical automotive sector (accounted for
~40% of sales volumes in FY2018), and competition from domestic players in the standard machinery segment and from
foreign players in the customized machinery segment.
To meet the rising demand, ADL is currently investing in capacity expansions involving a total capital expenditure of Rs.
240 crore spread over FY2018-20, of which 75% is being funded through debt and balance through internal accruals.
Upon completion of capex, ADL’s capacities will double to 10,000 units per annum. ADL's ability to complete the capex
without any cost or time overruns and achieve ramp up sales volumes while maintaining the profitability and return
indicators will be key rating sensitivities.
1
100 lakh = 1 crore = 10 million
2
For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications
1
Outlook: Stable
Given the stable demand outlook and its established presence, ADL is well positioned to meet the expected increase in
demand. ADL will continue to benefit from the strong parentage support from Ace Micromatic group which has
diversified presence in the machine tools industry. The outlook may be revised to 'Positive' if there is a significant
improvement in financial risk profile of the company supported by healthy growth in revenue and profitability. The
outlook may be revised to 'Negative' if debt indicators are considerably affected by any significant cost or time overruns
in the ongoing capex, or if the cash accruals are lower than expected, or if there is a stretch in the working capital cycle,
leading to deterioration in overall financial profile.
Key rating drivers
Credit strengths
Healthy volume growth in FY2018 - ADL’s sales volume witnessed healthy growth of 34.5% in FY2018, backed by strong
demand from its customers primarily in the domestic automotive sector (including job work) in addition to growth in
other segments such as general engineering, defence, education etc. With strong growth during H1 FY2019 and a good
order book, ADL is poised for achieving a robust 30%+ volume growth in FY2019.
Leading player in the domestic CNC Lathe segment - ADL is one of the largest players in domestic lathe industry in India
in FY2018. The company’s R&D focus and technical capabilities help in providing customized machines to the customer
as per the requirement. Presence of group companies in similar business segments support operations by being suppliers
of key components
Operational support from group companies - ADL is part of the Ace Micromatic Group, which has diversified presence in
the machine tools industry, with products such as CNC lathes, milling & drilling and grinding machines. Support from
group entities for key components, strong marketing and after sales service centre across India act as key differentiating
factors for ADL.
Strong capital structure and coverage indicators - ADL’s capital structure and coverage indicators remain supported by
lower dependence on external debt and healthy profitability. Liquidity position is comfortable with cash balance of Rs.
40.3 crore and with almost nil utilization of working capital borrowings. ADL has a comfortable gearing of 0.1x, interest
coverage ratio and TOL/TNW of 20.5x and 1.2x respectively as on March 31, 2018. However, with the planned debt
funded capex programme, the debt protection metrics shall moderate for a brief period.
Credit challenges
High exposure to the automotive sector – While the company has presence across various industries, namely defence,
general engineering, education, aerospace etc., with ~40% of sales volume was accounted for by the automotive sector
in FY2018. While any demand slowdown in the automotive sector can adversely impact the revenues of the company,
the company’s foray across different industries (such as tractors, construction equipment, aerospace, defence, general
engineering etc) mitigates the risk to a large extent.
Intensely competitive nature of Indian lathe manufacturing industry – ADL faces high competition on price for low
value-added machinery from domestic players and competition of quality products in high value-added products from
foreign players. Despite its strong market position, ADL faces pricing pressures due to intense competition, especially
from unorganised players. The products realisation has been largely flat in the last few years, indicating the pricing
pressure despite cost inflationary trends.
2
Considerable capex outlay – ADL’s current capacity is around 5,000 CNC lathe machines per annum and is operating at
near full capacity utilisation. To meet the rising demand, ADL is currently undertaking expansion plan to double its
capacities and the commercialization of the facility is estimated to be completed by March 2020. The total project cost is
Rs. 240 crore, of which 75% shall be funded through debt. Till September 2018, ADL has invested ~Rs. 55 crore and were
funded through internal accruals. The balance portion of capex shall be funded through bank loans; the funding has been
tied up. ICRA would continue to monitor the developments on project schedule and extent of debt funding and assess
the impact of the same on ADL’s credit profile.
Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.
Links to applicable criteria:
Corporate Credit Rating Methodology
About the company:
Incorporated in 1979, Ace Designers Limited (ADL / the company) was started as a partnership firm by three technocrat
promoters viz. Mr. Shrinivas G. Shirgurkar, Mr. B. Machado and Mr. A.V. Sathe to provide technical expertise in the
designing of machine tools. The company presently specialises in manufacturing of CNC lathes with its product range
including both standard CNC lathes and customised machines equipped with tools to meet specific requirements of the
customers. The company caters to a wide number of industries including automotive, engineering, bearings, plastic,
irrigation, education, defence, etc.
Key financial indicators (audited)
FY2017 FY2018
Operating Income (Rs. crore) 525.9 755.6
PAT (Rs. crore) 22.4 42.8
OPBDIT/OI (%) 8.7% 9.6%
RoCE (%) 13.1% 25.8%
Total Debt/TNW (times) 0.2 0.1
Total Debt/OPBDIT (times) 0.9 0.4
Interest coverage (times) 9.3 20.5
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
3
Rating history for last three years:
Current Rating (FY2019) Chronology of Rating History for the Past 3 Years
Date & Date & Date & Date &
Amount
Date & Rating in Rating in Rating in Rating in
Rated Amount
Rating FY2019 FY2018 FY2018 FY2017
(Rs. Outstanding
Instrument Type crore) (Rs. crore) Oct 2018 April 2018 Feb 2018 Dec 2017 July 2016
1 Fund based Long 15.00 [ICRA]AA- [ICRA]AA- [ICRA]AA- [ICRA]AA- [ICRA]AA-
facilities Term (Stable) (Stable) (Stable) (Stable) (Stable)
2 Term Loan Long 200.00 [ICRA]AA-
- - - -
Term (Stable)
3 Fund based Short 30.00 [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
facilities Term
Note: As on September 30, 2018, the company has not availed any term loan
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
4
Annexure-1: Instrument Details
Date of Amount
Issuance / Coupon Maturity Rated Current Rating and
ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook
NA Fund Based facilities NA NA NA 15.00 [ICRA]AA- (Stable)
NA Term Loan April 2017 9.50% FY2023 200.00 [ICRA]AA- (Stable)
Na Fund Based facilities NA NA NA 30.00 [ICRA]A1+
Source: Company
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ANALYST CONTACTS
Subrata Ray Pavethra Ponniah
+91 22 6114 3408 +91 44 45964314
subrata@icraindia.com pavethrap@icraindia.com
Srikumar Krishnamurthy Faizan Ahmed
+91 44 45964318 +91 80 43326414
ksrikumar@icraindia.com faizan.ahmed@icraindia.com
RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com
Helpline for business queries:
+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)
info@icraindia.com
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and 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 Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
For more information, visit www.icra.in
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ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
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