Press Release

Milestone Gears Private Limited

March 09, 2020
Ratings
Facilities Amount Rating1 Ratings Action
(Rs. crore)
Long term Bank Facilities 176.20 CARE BBB; Stable Reaffirmed
(reduced from Rs. 186.85 crore) (Triple B; Outlook: Stable)
Short term Bank Facilities 25.00 CARE A3+ Reaffirmed
(A Three Plus)
Total 201.20
(Rs. Two Hundred One crore and
Twenty lakhs only)
Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers

The ratings assigned to the bank facilities of Milestone Gears Private Limited (MGPL) continue to derive strength from the
experienced promoters & management team, long track record of operations and established relationship with reputed
clientele. The ratings, further, derive strength from the comfortable profitability margins, satisfactory debt coverage
indicators, diversified product portfolio and integrated nature of business.
The ratings are, however, constrained by the leveraged capital structure with elongated operating cycle, customer
concentration risk, susceptibility of profitability margins to raw material price variations and susceptibility of business to any
downturn in the industries being catered to.

Rating Sensitivities
Positive Factors
 Sustained improvement in the PBILDT margins to around 14% in the medium term
 Improvement in overall gearing to below 1.5x on a sustained basis
 Improvement in prospects for the automobile industry especially the farm equipment sector
Negative Factors
 PBILDT margin falling significantly to below 9% on a sustained basis
 Any major debt funded capex resulting in deterioration of overall gearing ratio to above 2.7x

Detailed description of the key rating drivers

Key Rating Strengths
Experienced promoters & management team along with long track record of operations: MGPL is founded and promoted
by Mr Ashok Tandon (Chairman) who has an overall experience of more than three decades in the industry. Mr Ashok
Tandon is assisted by his son, Mr Aman Tandon (Managing Director) who has an overall experience of around two decades
through his association with the company. Moreover, the promoters of the company are supported by well-qualified
professionals with separate head for each department.

Established relationship with reputed clientele: MGPL has been in the automotive components business for around 34 years.
This has led to a well-established and reputed customer base both in domestic and export markets.

Diversified product profile catering to various segment types: MGPL is engaged in the business of manufacturing of various
types of axles, shafts & gears which diversify its product profile. These products find application in various automotive
segments viz. tractors, commercial vehicles and off-road vehicles.

Comfortable profitability margins: In FY19, on the back of increased sales volume and better realizations, the operating
income of the company grew at a healthy rate of ~31% on a year-on-year (y-o-y) basis. The increase in volume was primarily
on account of increased orders from the customers, especially in the tractor segment. The PBILDT margins also stood
comfortable at 12.17% in FY19 (Previous Year: 12.93%) on account of integrated nature of business.
In 9MFY20 (Prov.), the total operating income of the company declined by ~22%, on a y-o-y basis to Rs. 225.32 crore from Rs.
287.56 cr. in 9MFY19 (Prov.). This was mainly on account of slowdown in the domestic automobile industry (especially
tractors segment, which has remained a major contributor to the total income of the company). Also, due to decline in raw
material prices during the period, the sales realization achieved by the company declined in 9MFY20 (compared to the
corresponding period last year) which also had an impact on the operating income. However, the PBILDT margins remained

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Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.
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 Press Release

at a comfortable level of 12.39% during 9MFY20 [12.78% in 9MFY19 (Prov.)]. The PAT margins stood at 1.82% in 9MFY20
(Prov.; PY: 3.36%).

Satisfactory debt coverage indicators: The debt coverage indicators of the company continued to remain satisfactory as
reflected by interest coverage ratio of 2.97x in FY19 (PY: 2.83x in FY18) and total debt to GCA ratio of 6.63x, as on March 31,
2019 (6.87x as on March 31, 2018). The interest coverage ratio stood at 2.66x in 9MFY20, however, moderated from 3.13x in
9MFY19 (Prov.) on account of lower profitability at the PBILDT level.

Key Rating Weaknesses

Customer concentration risk: Top-5 customers accounted for ~65% of the total operating income in FY19 (~86% in FY18),
exposing the company to customer concentration risk. However, the risk is mitigated to some extent as the major revenue
contributors of the company are well established players in the auto industry. Furthermore, MGPL has established
relationships with its clients and receives regular orders from them.

Leveraged capital structure: The overall gearing ratio of the company deteriorated to 2.71x, as on March 31, 2019 (2.55x, as
on March 31, 2018). This was on account of new term loans availed by the company for capacity enhancement in FY18-FY19
period and for setting-up of new heat treatment plant coupled with higher utilization of working capital borrowings at the
end of the year. Any new capex and funding mix for the same, impacting the credit profile of the company, will remain a key
rating sensitivity going forward.

Susceptibility of margins to raw material price fluctuations: The operations of the company are raw material intensive in
nature with the raw material cost constituting around 45% of the income in FY17-FY19 period. The company manufactures
large variety of products for different types of customers with major variations in the raw material prices being passed on by
the OEMs periodically. However, the minor variations are borne by the company itself on account of large inventory holding.

Cyclical nature of the automotive industry: MGPL derived major portion of its income from sales made to reputed clients in
the automobile industry, with ~88% of the income in FY19 being derived from the tractor industry. Any downtrend
experienced in the performance of these players will have an impact on the financial profile of MGPL. Further, the demand
for tractors remains vulnerable to the monsoon and farmer income along with any fluctuation in the global and domestic
economic conditions. During FY20 (April – December), tractor sales witnessed a decline of about ~11% on a y-o-y basis due to
slowdown in the domestic automobile industry (including tractors segment) (Source: CMIE).

Liquidity: Adequate - The company has repayment obligation of Rs.15.20 cr. in FY20 to be funded through internal accruals
generated during the year (cash accruals of ~Rs. 16.4 cr. in 9MFY20). The company had an unencumbered cash & bank
balance of Rs. 0.22 crore, as on March 31, 2019 (PY: Rs. 0.28 crore). The working capital utilization remained at ~89% in the
last 12 months period ended December, 2019. The operating cycle of the company stood elongated at 114 days, as on March
31, 2019 (PY: 119 days) on account of elongated inventory and collection days. The current and quick ratios of MGPL stood at
a low level of 0.97x and 0.55x, respectively, as on March 31, 2019 (PY: 0.97x and 0.57x, respectively), mainly due to higher
utilization of working capital limits. The company had undertaken capex for increasing its heat treatment unit capacities in
FY19-FY20 period at a total cost of ~Rs. 9.50 cr., funded through Rs. 7.14 cr. term loan and rest from internal accruals. The
unit came into commercial operations in June, 2019. The company is also projecting a regular capex of ~Rs. 3 cr. to be
incurred in FY20 to be funded through internal accruals.

Analytical approach: Standalone.

Applicable Criteria
Criteria on assigning Outlook and credit watch to Credit Ratings
Financial ratios – Non-Financial Sector
CARE’s policy on default recognition
CARE’s methodology for manufacturing companies
Criteria for Short Term Instruments
Rating Methodology-Auto Ancillary Companies

About the Company

Incorporated in 1984, MGPL is a private limited company promoted by Mr Ashok Kumar Tandon (Chairman) and his sons, Mr
Aman Tandon & Mr Amit Tandon. The company manufactures various automotive components such as rear axle shafts, bull
gears, internal gears, transmission gears, planetary gears, cluster gears & shafts, large gears, rock & PTO shafts, companion
flanges, epicyclic reduction assemblies, slender shafts, etc., which find application in various segments of the auto industry
including tractors, commercial vehicles and off-road vehicles. The company caters to nearly 20 reputed original equipment

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manufacturers (OEMs) spread across 9 countries around the globe. Currently, MGPL has eight manufacturing units in Punjab,
Haryana and Himachal Pradesh, with an installed capacity of 28,00,000 pieces per annum (PPA), as on December 31, 2019.

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in
Annexure-3
Brief Financials (Rs. crore) FY18 (A) FY19 (A)
Total operating income 288.85 377.43
PBILDT 37.35 45.94
PAT 5.70 8.54
Overall gearing (times) 2.55 2.71
Interest coverage (times) 2.83 2.97
A: Audited
Status of non-cooperation with previous CRA: Not Applicable
Any other information: Not Applicable
Rating History for last three years: Please refer Annexure-2

Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Rating assigned
Instrument Issuance Rate Date Issue along with Rating
(Rs. crore) Outlook
Fund-based - LT-Term Loan - - May, 2026 51.20 CARE BBB; Stable

Fund-based - LT-Cash Credit - - - 125.00 CARE BBB; Stable

Fund-based - ST-Bills - - - 25.00 CARE A3+

discounting/ Bills purchasing

Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history
No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) &
Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s)
(Rs. crore) assigned in assigned in assigned in assigned in
2019-2020 2018-2019 2017-2018 2016-2017
1. Fund-based - LT-Term LT 51.20 CARE 1)CARE BBB; 1)CARE BBB; 1)CARE BBB-; -
Loan BBB; Stable Stable Stable
Stable (03-Apr-19) (29-Oct-18) (20-Apr-17)
2)CARE BBB;
Stable
(01-Oct-18)
3)CARE BBB-;
Stable
(02-Apr-18)
2. Fund-based - LT-Cash LT 125.00 CARE 1)CARE BBB; 1)CARE BBB; 1)CARE BBB-; -
Credit BBB; Stable Stable Stable
Stable (03-Apr-19) (29-Oct-18) (20-Apr-17)
2)CARE BBB;
Stable
(01-Oct-18)
3)CARE BBB-;
Stable
(02-Apr-18)
3. Fund-based - ST-Bills ST 25.00 CARE A3+ 1)CARE A3+ 1)CARE A3+ 1)CARE A3 -
discounting/ Bills (03-Apr-19) (29-Oct-18) (20-Apr-17)
purchasing 2)CARE A3+
(01-Oct-18)
3)CARE A3
(02-Apr-18)

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Annexure-3: Detailed explanation of covenants of the rated instrument / facilities: Not Applicable

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This
classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write
to care@careratings.com for any clarifications.
Contact us
Media Contact
Mradul Mishra
Contact no. – +91-22-6837 4424
Email ID – mradul.mishra@careratings.com

Analyst Contact
Group Head Name – Mr Sudeep Sanwal
Group Head Contact no.: +91-0172-4904025
Group Head Email ID- sudeep.sanwal@careratings.com

Relationship Contact
Name: Mr Anand Jha
Contact no. : +91-0172-4904000/1
Email ID : anand.jha@careratings.com

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