OCTOBER 2024

Eco Fuel Systems (India) Private Limited

Instrument Rated
Total Bank Loan Facilities Rated	Rs.31 Crore
Long Term Rating	CRISIL BB+/Stable (Upgraded from 'CRISIL BB/Stable')
Short Term Rating	CRISIL A4+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Rating History
Date	Long Term Rating	Short Term Rating	Rating Watch/Outlook
Sep 3, 2024	CRISIL BB+	CRISIL A4+	Stable
Jul 19, 2023	CRISIL BB	CRISIL A4+	Stable
Apr 22, 2022	CRISIL BB+	CRISIL A4+	Stable
May 11, 2021	CRISIL BB	CRISIL A4+	Stable

Detailed Rating Rationale:

CRISIL Ratings has upgraded its rating on the long-term bank loan facilities of Eco Fuel Systems (India) Private Limited (EFSPL) to ‘CRISIL BB+/Stable’ from 'CRISIL BB/Stable’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A4+'.
The upgrade reflects an improved business risk profile with increase in revenue and operating margin. Financial risk profile continues to remain comfortable.

The company has reported revenue of Rs.75.09 Cr in fiscal 2024, a 60% y-o-y growth. The company was in the process of getting certification for BS6. With increase in certifications available and healthy demand sentiment for CNG/LPG kits, company’s revenue increased and is expected to continue its growth trajectory over medium term. Consequently, the company’s operating margins have increased to 15.08% in fiscal 2024 as compared to 8.73% in fiscal 2023. Improvement in operating margin supported by better realizations in BS6 vehicles and increased contribution from more diesel vehicles conversion. Company’s accruals have improved over Rs 7 crore in fiscal 2024 and capital structure continues to improve on back of healthy accretion to reserves.

The ratings reflect the extensive experience of its promoters and established relationships with principal supplier and customers. Rating also factors in comfortable financial risk profile. These strengths are partially offset by large working capital requirements and exposure to cyclicality in the end-user industry.

Key Rating Drivers:

Strengths:

• Extensive experience of the promoters and established relationships with suppliers and customers
• Comfortable financial risk profile

Weakness:

• Large working capital requirements
• Exposure to cyclicality in end-user industry

Outlook: Stable

CRISIL Ratings believes EFSPL will continue to benefit from the extensive experience of its promoters and established relationships with customers and suppliers.
Rating Sensitivity factors

Upward Factors:

• Significant growth in revenue along with operating margin leading to NCA above 12 crores.
• Improvement in working capital cycle supported by faster debtor collection and GCA below 200 days

Downward Factors:

 

• Deterioration in working capital cycle with GCAs of more than 550 days leading to stretch in liquidity
• Any large capital expenditure which may lead to weaking liquidity and financial risk profile.

About the Company

Incorporated in 2003 and promoted by Mr Virendra Vora and Ms Vibha V Vora, EFSPL is the sole distributor of Lovato Gas S.p.A. Company sells CNG and LPG kits for both commercial and passenger vehicles.

The ratings reflect EFSPL’s following strengths:

Extensive experience of the promoters and established relationships with suppliers and customers:
The promoters have been in the industry for more than two decades, resulting in strong relationships with its principal supplier (Lovato Gas S.p.A.) and its customers. EFSPL is the sole distributor in India for CNG/LPG kits for Lovato Gas S.p.A, an Italy-based company. It has 90-100 exclusive distributors across India. This has continued to support the business risk profile of EFSPL.

Comfortable financial risk profile:

Net worth is comfortable and estimated to be around Rs 59.8 crore as on March 31, 2024. Capital structure is healthy with total outside liabilities to tangible net worth and gearing at 0.45 times and 0.26 times respectively as on March 31,2024. Debt protection metrics are comfortable, with interest coverage and net cash accrual to adjusted debt ratios estimated at around 7.76 times and around 0.49 times, respectively, in fiscal 2024. Financial risk profile will remain stable over the medium term on the back of continued accretion to reserves and controlled reliance on external funds.

The above-mentioned strengths are partially offset by EFSPL’s following weaknesses: Large working capital requirements:

Working capital requirements though have improved, continue to remain intensive as reflected in
GCA days estimated at around 371 days as on March 31, 2024, driven by debtors and inventory of around 216 days and around 143 days, respectively.

Debtor days are high because of the nature of business where the company extends credit of about 90- 120 days to distributors. High inventory days is because most of the materials are imported, which takes around 45 days to reach the warehouse. Improvement in working capital cycle will remain key monitorable.

Exposure to cyclicality in end-user industry:

Company caters to automotive sector. Demand will remain cyclical in the auto industry as it is linked to monsoon and economic conditions. Hence, scale of operations has fluctuated in the last six fiscals through 2024. Company is estimated to achieve revenue of around Rs 75.09 Cr. in fiscal 2024. A track record of sustained operating performance amid cyclical demand remains a rating sensitivity factor.
Liquidity: Adequate

Liquidity is adequate with bank limit utilization at an average of 71% over the 12 months ended July 2024. Net cash accruals (NCA) are expected to be over Rs 8.8 Cr. over medium term against repayment obligation of Rs 0.13 crore in fiscal 2025. Current ratio is estimated to be around 3.86 times as on March 31, 2024.

Financial Policy: The company has conservative financial policy marked by gearing at around 0.45 times for the period ending March 31, 2024.
Hedging Policy: Company does not deal in derivatives.

Dividend Policy: Company has no plans of dividend payout over the medium term.

Annexure 1: Bank-Details of Facility Classes

1.Cash Credit

#	Bank	Amount (Rs.Cr.)	Rating
a.	Dhanlaxmi Bank Limited	19	CRISIL BB+ / Stable
-	Total	19	-

2. Bank Guarantee

#	Bank	Amount (Rs.Cr.)	Rating
a.	Dhanlaxmi Bank Limited	4	CRISIL A4+
-	Total	4	-

3.Proposed Bank Guarantee

#	Bank	Amount (Rs.Cr.)	Rating
a.		1	CRISIL A4+
-	Total	1	-

4.Import Letter of Credit Limit

#	Bank	Amount (Rs.Cr.)	Rating
a.	Dhanlaxmi Bank Limited	7	CRISIL A4+
-	Total	7	-