Bharat Seats Limited: Ratings reaffirmed; rated amount enhanced
Summary of rating action
Instrument* Previous Rated Amount
(Rs. crore)
Current Rated Amount
(Rs. crore) Rating Action
Long-term Fund-based – Term
loan
20.00 76.89 [ICRA]A- (Stable); reaffirmed and
assigned for enhanced amount
Long-term– Fund-based working
capital 35.20 35.20 [ICRA]A- (Stable); reaffirmed
Short-term – Non-fund based
working capital 30.00 30.00 [ICRA]A2+; reaffirmed
Long-term/ Short-term –
Unallocated 0.80 0.00 –
Total 86.00 142.09
*Instrument details are provided in Annexure-I
Rationale
The rating reaffirmation factors in Bharat Seats Limited’s (BSL) established position as a seat supplier to Maruti Suzuki India
Limited (MSIL), and its favourable ownership structure with Suzuki Motor Company (SMC) and MSIL holding a combined equity
stake of 29.6%. Its established market position provides healthy revenue visibility and is likely to help the company generate
steady cash accruals, going forward, aiding it in maintaining its credit profile. BSL is one of the two suppliers of car seat sets
for MSIL and continues to be the sole supplier of seat sets for several key models. The company enjoys technical collaborations
with Toyo Seats Co. Ltd., Japan, for seats, and with Hayashi Telempu, Thailand, for its carpets, which has helped it adapt to the
Original Equipment Manufacturer’s (OEM’s) technological requirements. The company is also the sole supplier of two-wheeler
(2W) seats to Suzuki Motorcycle India Private Limited (SMIPL).
BSL recorded a healthy 29% YoY growth in revenues in FY2023 and 4% YoY growth (on a high base) in revenues in 9M FY2024,
supported by growing demand for MSIL’s vehicles and BSL’s steady share of business (SOB) with the OEM. The company’s
EBIDTA margins also witnessed an YoY improvement as it stood at 4.4% in FY2023 (3.9% in FY2022) and 5.5% in 9M FY24, aided
by easing in input prices and operational efficiencies. The company’s ability to further improve its profitability over the near
to medium term continues to remain a monitorable. During FY2023, the overall financial profile of the company remained
healthy supported by an improvement in OPBITDA and low debt levels (Rs. 65.7 crore, including promoter term loan of
Rs. 32.6 crore as of March 31, 2023), as evident by interest coverage and TD/OPBITDA of 12.7 times and 1.4 times, respectively.
Furthermore, the company started operations at its second plant in Suzuki Motor Gujarat’s (SMG’s) supplier park in Hansalpur,
Gujarat in April 2023, which was set up at an outlay of ~Rs. 50 crore. During FY2024, the company incurred a overall capex of
~Rs. 40-45 crore towards construction of buildings and machinery at its existing plants in Manesar (Haryana) and Gujarat; its
overall borrowings (WC and TL) increased to ~Rs. 88 crore as of March 31, 2024 (including promoter loans of Rs. 39.6 crore).
Further, the company plans to set up a new plant at Kharkhoda (Haryana) in the MSIL supplier park, at an outlay of ~Rs. 53
crore in FY2025, with commencement of its operations expected from March 2025. It also plans to spend another ~Rs. 14 crore
towards extension of building and additional production facilities at its existing plant in Bhorakalan (Haryana) and ~Rs. 30-35
crore towards new models/products of MSIL and SMIPL during the fiscal. BSL has been sanctioned fresh term debt of Rs. 60
crore in FY2024 to fund this expenditure of ~Rs. 100 crore in FY2025. Accordingly, the company is expected to witness some
moderation in credit metrics in the near term due to an increase in borrowings. Despite this, the company’s revenue prospects
over the medium term are expected to remain healthy, aided by steady demand in the passenger vehicle (PV) industry and
new business gains from the OEMs.
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ICRA notes that the ratings continue to be constrained by the company’s high dependence on the domestic market and MSIL,
given that more than 85% of its revenues are linked to the OEM’s performance. The same is mitigated to an extent by the
company’s healthy SOB with MSIL, along with the leadership position of MSIL in the PV segment.
Further, as discussed with the management, regarding the income tax search operations conducted earlier at the company’s
premises in May 2023, the business and operations of the company had continued without any disruptions and no demand
notice/tax liability was raised by the IT department as of March 2024.
The Stable outlook reflects ICRA’s opinion that despite the sizeable debt-funded capex plans in FY2025 and some weakening
of the credit metrics in the near term, the same are expected to improve over the medium
term backed by an increase in
accruals and scheduled debt repayments and remain at levels commensurate to the rating level.
Key rating drivers and their description
Credit strengths
Well-established relationship with MSIL – BSL has an established relationship with MSIL, the market leader in the PV industry,
and is one of the two suppliers of car seat sets for the OEM. The company currently caters to around one-third of the OEM’s
seat sets requirement. BSL registered a YoY growth of 16% in FY2023 and 8% in 9M FY2024 (annualised) for seat volumes sold
to MSIL and the car seat segment’srevenues grew steadily at 17% and 9% in FY2023 and 9M FY2024, respectively. The company
has recently won business for a few new models of the OEM; of which it has already started supplying for two new models in
FY2024. Moreover, the company manufactures carpet sets for some of the models of MSIL, even as the vertical forms a small
share of its overall revenues (~5% in 9M FY2024). ICRA expects BSL to maintain a healthy SOB with MSIL over the near-tomedium term and continue to remain a critical supplier for OEM.
Favourable ownership with MSIL and SMC owning stakes in BSL, beside benefits of technical collaboration – BSL has been
promoted by the Relan family and its key OEMs, MSIL and SMC. Both OEMs have a combined stake of 29.6% in BSL. Moreover,
it enjoys technical collaborations with foreign players such as Toyo Seats Co. Ltd. (Japan) for seats and INOAC Corporation
(Japan) for roof moulding and windshield components. This has aided BSL’s in-house product development capabilities and
helped in maintaining a healthy SOB with MSIL over the years.
Status as sole supplier of 2W seats to SMIPL providing diversification benefits – BSL remains the sole supplier of 2W seats for
majority of the models of SMIPL. The overall supplies to SMIPL, including the seat sets and frame assemblies, accounted for
~10% in FY2023. The company has also been awarded business for the upcoming electric vehicle (EV) of SMIPL and is also
working on launching new products for 2Ws. It has investment plans for its 2W plant in Bhorakalan in FY2025 towards setting
up additional production facilities. While the revenue share from this division remains low at present, as this share increases,
it is likely to provide greater diversification benefits to BSL over the medium term.
Credit challenges
High client concentration risk with more than 85% of revenues generated by MSIL – MSIL and SMG together accounted for
more than ~88% of BSL’s revenue in FY2023. This exposes the company to high customer concentration risk with its revenue
prospects primarily remaining linked to MSIL’s volumes. However, the same is partially mitigated by the company’s healthy
SOB with MSIL and the OEM’s stake in the company. Additionally, the leadership position of MSIL in the PV segment helps in
mitigating the risk to an extent.
Capacity expansion plans to lead to moderation in credit metrics in near term – The company has significant debt-funded
capex plans in FY2025 to set up a new plant at the MSIL vendor park in Kharkhoda, Haryana, at an outlay of ~Rs. 53 crore,
which is to be funded by debt of ~Rs. 30 crore and by internal accruals. It also plans to invest Rs. 45-50 crore, to be funded by
another debt of ~Rs. 30 crore, towards extension of the building and additional production facilities at its Bhorakalan plant
(~Rs. 14 crore) as well as for new models/products of OEMs (~Rs. 30-35 crore). This is likely to lead to some moderation in the
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debt metrics over the near term. However, expected ramp up of operations at this new plant with an increase in accruals and
scheduled debt repayments would support improvement in credit metrics over the medium term.
ESG Considerations
Environmental considerations: Though BSL is not directly exposed to climate-transition risks from a likelihood of tightening
emission-control requirements, its automotive manufacturing customers remain highly exposed to the same. Accordingly,
BSL’s prospects are linked to the ability of its customers (MSIL and SMIPL) to meet tightening emission requirements. The
company has been taking steps to reduce its carbon footprint by enhancing its reliance on renewable sources and various
energy saving efforts, such as implementing energy saving techniques on the shop floor. The company also manages effective
handling of waste. BSL’s exposure to litigation/ penalties from issues related to waste and water management remains low.
Social considerations: BSL, like most automotive-component suppliers, has a healthy dependence on human capital; and
retaining human capital, maintaining healthy employee relations and supplier ecosystem remain essential for its disruption
free operations. BSL’s annual reports indicate that the entity has been taking initiatives to support its vendors in upgrading
their operations, skills, quality, and technology. The company has also implemented monthly, zone-wise safety audit systems
for the safety of its employees and to ensure zero accident cases. Another social risk that BSL faces pertains to product safety
and quality, wherein instances of product recalls and high-warranty costs may not only lead to a financial implication but could
also harm the reputation and create a more long-lasting adverse impact. In this regard, BSL’s strong track record in catering to
leading automotive OEMs underscore its ability to mitigate these risks to an extent. Moreover, the company’s strong
technological capabilities are likely to help it align its products with any change in customer preferences.
Liquidity position: Adequate
BSL’s liquidity profile is adequate, supported by estimated net cash accruals of Rs. 40-50 crore in FY2024 and working capital
buffer of ~Rs. 13 crore as on March 31, 2024. The company has capex plans of ~Rs. 100 crore in FY2025, which are to be funded
by debt of ~Rs. 60 crore and by internal accruals. It is expected to have overall repayment obligations of ~Rs. 6 crore in FY2025
and ~Rs. 25 crore in FY2026 towards bank debt. In addition, BSL has promoter debt of Rs. 39.6 crore, as of March 31, 2024, for
which there is no fixed repayment schedule, and repayments will depend on the cash flow generated by the company.
Moreover, the company continues to enjoy healthy financial flexibility, as a part of the Rohit Relan Group.
Rating sensitivities
Positive factors – A sustained improvement in BSL’s share of business with MSIL or diversification of its clientele through new
business awards could result in a positive rating action. ICRA would also favourably consider any improvement in profitability
indicators aided by cost efficiency and backward integration measures, such that the company can generate RoCE above 18%
on a sustained basis.
Negative factors – A decline in share of business with MSIL or weakness in demand in the PV industry, leading to reduced scale
of operations and weak cash accruals for BSL, ultimately impacting its return and credit metrics, could result in a negative
rating action.
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