Rationale

 The rating action considers ICRA’s expectation that Sree Krishna Automotives Hyd. Pvt. Ltd. (SKAHPL) will maintain a comfortable credit profile on the back of stable revenues, earnings and debt protection metrics in the absence of any debtfunded capex plans. The company’s operational profile remains supported by its established track record as an authorised dealer of Honda Cars India Limited (Honda), FCA India Automobiles Private Limited (Jeep), PCA Automobiles India Private Limited (Citroen) and Jaguar Land Rover Limited (JLR) passenger vehicles (PVs) and Ather Energy Limited (Ather) two-wheelers (2Ws) in Telangana. SKAHPL has over 20 touch points across Hyderabad, Nalgonda and Warangal. The company clocked a revenue growth of ~9% in FY2024 (provisional) on the back of stable demand for Honda, JLR and Citroen PVs and Ather 2Ws, while Jeep PV sales volumes declined by ~57% owing to weak demand. The company’s revenue growth is expected to be flat in FY2025 on account of expected contraction in Jeep PV volumes and lower sales in Q1 FY2025 due to the effect of adverse weather conditions and the General Elections on demand. However, volumes are expected to improve in H2 FY2025 (festive season). The company’s margins are likely to contract marginally owing to reduction in dealer commission on a few vehicles, despite which SKAHPL is expected to maintain comfortable debt metrics with proposed gearing of less than 1.0 times and interest cover of over 4.0 times in FY2025. ICRA notes that SKAHPL’s high share of revenues (21% in FY2024) from spares, services, and incentives, given its presence in the luxury car segment, supports its operating margins. The ratings, however, remain constrained by the intense competition in the automobile dealership industry in India and limited bargaining power of dealers, with pricing policies decided by principal Original Equipment Manufacturers (OEMs). The ratings also consider the subdued performance of principle OEMs such as Jeep and Honda because of limited new launches, which led to loss of their market share and impacted SKAHPL’s volume growth. Moreover, high waiting periods for JLR PVs, with demand outstripping supply, has also limited SKAHPL’s volume growth. The Stable outlook reflects ICRA’s expectation that SKAHPL will continue to record healthy earnings on the back of high share of service and spare income, which would support the company in maintaining a comfortable credit profile.