Rationale

 The assigned ratings factor in the healthy market position of SKH M India Private Limited (SKH M) as a supplier of sheet metal components to leading passenger vehicle (PV) original equipment manufacturers (OEMs), which provides healthy earning visibility for the company. SKH M has acquired the chassis and body parts manufacturing segment (Cosma) of Magna Automotive India Private Limited (Magna) w.e.f. July 1, 2024, and is a subsidiary of SKH Sheet Metals Components Private Limited (SKH SMC), the flagship company of the SKH Group (metals arm of the Krishna Group, which is headed by Krishna Maruti Limited, rated [ICRA]AA(Stable)/[ICRA]A1+). Even as the SKH Group has acquired an 85% stake in the Cosma division, Magna continues to hold a 15% stake; accordingly, SKH M would continue to have access to technological support from Magna’s engineering centre, which would aid its product development capabilities, and provides comfort. The ratings also favourably factor in the established presence of the SKH Group, aided by the experience of its promoters and management in the auto components industry. SKH M is likely to benefit from some synergies as a part of the SKH Group, which should support its earnings over the medium term. The Cosma division has a healthy scale of operations (~Rs. 1,800 crore for FY2024), which has grown exponentially in the past three years with substantial business additions from several major automobile manufacturers in the Indian market. The segment serves multiple major OEMs like Tata Motors Limited (TML), Mahindra & Mahindra Limited (M&M), Hyundai Motors India Limited (HMIL), Kia Motors India (Kia) and Skoda Volkswagen (S-VW). Although the revenues are mainly generated (~75- 80%) by TML and M&M, the company enjoys a healthy share of business in supplies of various sheet metal parts (chassis and BIW parts), which mitigates the risk to an extent. The SKH Group (SKH SMC and its group firm, SKH Strategic Management Services LLP, or SKH LLP) has acquired 85% stake in SKH M at an estimated consideration of Rs. 648 crore, which was paid to Magna on July 1, 2024. Magna continues to hold a 15% stake in the form of optionally convertible redeemable debentures (OCRD) for a minimum of three years. Events related to Magna’s eventual decision (three years down the line) to take an exit from the entity and the funding mix for any such transaction would remain monitorable. Despite the same, ICRA takes comfort from the strong credit profile of the Krishna Group, which is expected to lend healthy financial flexibility to SKH M. The ratings are, however, constrained by the leveraged capital structure, characterised by external debt of about Rs. 500 crore and a loan of about Rs. 170 crore from SKH LLP (in the form of OCRD; subordinated to bank debt). The company would have substantial repayment obligations from FY2026, after completion of the moratorium period of one year. Even as the OCRDs extended by the parent entity entail an interest coupon of 10%, ICRA takes comfort from the stated management guidance of interest being accrued for the first three years, and flexibility to pay the interest thereon, based on the company’s cash flows. The company is expected to maintain a steady operating margin of 9-10%, which should help it maintain moderate debt coverage indicators (DSCR likely to range at 1.4-1.7 times over the medium term).