Ace Designers Limited

April 05, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long term fund based facilities 5.00 15.00 [ICRA]AA- (Stable); Reaffirmed
Short Term fund based facilities 30.00 30.00 [ICRA]A1+; Reaffirmed
Total 35.00 45.00
*Instrument details are provided in Annexure-1

Rating action
ICRA has reaffirmed the long-term rating of [ICRA]AA- (pronounced ICRA double A minus) outstanding on the Rs. 15.00
crore (revised from Rs. 5.00 crore) long term fund based facilities of Ace Designers Limited (ADL/the company). ICRA has
also reaffirmed the short-term rating of [ICRA]A1+ (pronounced ICRA A one plus) outstanding on the Rs. 30.00 crore
short term fund-based limit of ADL. The outlook on the long-term rating is ‘Stable’.

Rationale
The ratings takes into account the longstanding experience of management in the Indian lathe industry, strong market
position in the domestic CNC lathe industry, healthy growth in ADL’s sales volumes of 23.5% in FY2017 and 27% in
H1FY2018, backed by strong demand from its customers primarily in the domestic automotive sector (including job
work). ADL’s financial profile remains healthy characterized by strong cash accruals, and comfortable debt indicators.
Being the flagship company of Ace Micromatic group, ADL benefits from factors like better bargaining power with its
vendors, sourcing of key components, marketing and after sales services from group entities.

The ratings, however, continue to be constrained by the significant exposure of the company to the cyclical automotive
sector which accounted for a substantial portion of the company’s sales in FY2017. That apart, the company faces
competition from domestic players in the standard machine segment and from foreign players in the customized
machinery segment. ICRA also takes note of the capital expenditure (capex) of the company towards increasing the
manufacturing capacity from 4,000 units per annum to 10,000 units per annum by FY2020; while the scaling up of capex
is expected to be done in stages based on demand environment, timeliness of the project and extent of debt funding
needs to be seen. Also, ADL's ability to ramp up sales in line with the increased capacity while maintaining the
profitability and return indicators in the backdrop of intense competition will be the key rating sensitivities.

Outlook: Stable
ICRA believes ADL will continue to benefit from the strong parentage support from Ace Micromatic group which has
diversified presence in the machine tools industry. Given the stable demand outlook and its established presence, ADL is
well positioned to meet the expected uptick in demand. 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 capitalization and coverage indicators are considerably affected by the debt
funded 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 liquidity position.

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Key rating drivers

Credit strengths
Leading player in the domestic CNC Lathe segment - ADL is one of the largest players in domestic lathe industry in India
in FY2017. 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 act as key differentiating factors for ADL.

Healthy volume growth in FY2017 and H1 FY2018 - ADL’s sales volume witnessed healthy growth of 23.5% in FY2017
and 27% in H1FY2018, 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 a
good order book, the company is sanguine of achieving over 30% growth in FY2018.

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.
21.2 crore and with minimal utilization of working capital borrowings (29.5% average utilization against sanctioned lines).
ADL has a comfortable gearing of 0.2x, interest coverage ratio and TOL/TNW of 9.3x and 0.8x respectively as on March
31, 2017. However, with the planned debt funded capex programme, the debt protection metrics is expected to
deteriorate, although the operating accruals and scheduling of capex based on market conditions is likely to cushion the
impact.

Credit challenges
High exposure to the automotive sector – While the company has presence across various industries, namely defence,
general engineering, education, aerospace etc., with ~50% of the FY2017 sales of the company was accounted for by the
automotive sector (including job work). While any demand slowdown in the automotive sector can adversely impact the
revenues of the company, as witnessed in the past, the company’s foray across the commercial vehicles, passenger
vehicles, two wheelers, three wheelers, tractors, construction equipment, aerospace, defence, general engineering etc,
mitigates the risk to a large extent.

Intensely competitive nature of Indian lathe 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.

Capex for enhancement of capacities- ADL’S current capacity is ~4,000 CNC lathe machines per annum against which
ADL operated at 72% utilisation in FY2017 supported by strong demand. To meet the expected rise in demand over long
term, ADL intends to invest about Rs. 250 crore over three years in a phased manner to enhance its capacities to about
10,000 machines per annum. ADL had already acquired 80 acre of land at a cost of Rs. 30 crore during FY2012. About Rs.
130 crore would be incurred on constructing manufacturing and assembly shop civil structure and the balance would be
incurred on setting up the machinery and other infrastructure. 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 and take
appropriate rating action.

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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 three promoters having worked for over ten years at Central Manufacturing Technology
Institute ventured into their own business through ADL. During the initial 2-3 years, the company was wholly engaged in
machine tool designing and later in FY1982 the company entered into manufacturing of CNC lathes with initial support
from Kar Mobiles Limited. 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, education,
defence, etc. with around 30% market share in the domestic CNC lathe manufacturing.

Key Financial Indicators (Audited)

FY 2016 FY 2017
Operating Income (Rs. crore) 437.4 525.9
PAT (Rs. crore) 18.6 22.4
OPBDIT/ OI (%) 8.5% 8.7%
RoCE (%) 10.7% 13.1%

Total Debt/ TNW (times) 0.3 0.2

Total Debt/ OPBDIT (times) 1.8 0.9
Interest coverage (times) 4.8 9.3
NWC/ OI (%) 21.7% 18.4%
Source: company and ICRA research

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:
Chronology of Rating History for the
Current Rating (FY2019) past 3 years
Date & Date & Date &
Date & Rating in Rating in Rating in
Amount Amount
Rating FY2017 FY2017 FY2016
Rated Outstanding
Instrument Type (Rs. crore) (Rs Crore) April 2018 Feb 2018 Dec 2017 July 2016
1 Fund based Long 15.00 [ICRA]AA- [ICRA]AA- [ICRA]AA- [ICRA]AA-
facilities Term (Stable) (Stable) (Stable) (Stable)
2 Fund based Short 30.00 [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
facilities Term

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

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Annexure-1: Instrument Details
Date of Amount
Instrument Issuance / Coupon Maturity Rated Current Rating and
ISIN No Name Sanction Rate Date (Rs. crore) Outlook
Fund based
NA NA NA NA 15.00 [ICRA]AA- (Stable)
facilities
Fund based
NA NA NA NA 30.00 [ICRA]A1+
facilities
Source: company

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ANALYST CONTACTS
Subrata Ray Pavethra Ponniah
+91 22 6114 3408 +91 044 45964314
subrata@icraindia.com pavethrap@icraindia.com

Srikumar Krishnamurthy Faizan Ahmed

+91 044 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
naznin.prodhani@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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