Rationale

 The reaffirmation of the ratings outstanding on the bank lines of Sundaram Brake Linings Limited (SBLL) considers ICRA’s expectation of a sustained financial performance in the near to medium term, supported by the company’s established market position in the friction material industry, its healthy domestic-export mix, comfortable capital structure and financial flexibility, stemming from being a part of the T S Krishna Group (part of the larger TVS Group of Companies). The company has reputed tier-I automobile suppliers as its customers in the domestic original equipment manufacturers (OEM) segment and distributes through established pan-India players in the aftermarket segment. Apart from this, it derives a material portion of its revenues from exports (35.8% of revenues in 9M FY2024), which provides diversification. Further, SBLL has a conservative capital structure (gearing of 0.4x as on December 31, 2023), supported by moderate working capital borrowings and low long-term debt. Its liquidity position remains adequate with a comfortable buffer of Rs. 45.7 crore in working capital lines as of December 31, 2023. The ratings also favourably consider the strong financial flexibility it enjoys with lenders/investors by being a part of the T S Krishna Group (part of the larger TVS Group of Companies – an established name in the domestic auto ancillary industry). The ratings, are however, constrained by the company’s moderate scale of operations and low accruals, despite improvement in the last one to two years. The company reported an operating income of Rs. 264.3 crore in 9M FY2024 and Rs. 357.4 crore in FY2023, and its cash accruals stood at Rs. 14.1 crore during 9M FY2024, despite improvement from FY2023 levels. ICRA notes that SBLL has introduced new product lines, the scale-up of which is expected in FY2025. Its various revenue and margin improvement measures are also likely to improve accruals going forward. However, the extent of improvement remains to be seen, given the weak outlook for auto component exports in FY2025 and muted domestic CV demand expected in FY2025. The company also faces intense competition from the industry incumbents and unorganised players in the aftermarket segment. Also, while the coverage metrics improved in 9M FY2024 (Total debt/OPBDITA of 1.4 as on December 31, 2023) aided by improvement in accruals, sustenance of the same remains to be seen, amid debt-funded capex plans in FY2025 and FY2026. The Stable outlook on the long-term rating reflects ICRA’s expectation that the company will be able to sustain its credit profile, supported by its established business position, comfortable capital structure and adequate liquidity.