February 02, 2024

Mungi Engineers Private Limited: Ratings reaffirmed; outlook revised to Positive; rated
amount enhanced
Summary of rating action
Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Long Term - Fund Based – Term [ICRA]BBB+ (Positive);
Loan 193.15 228.02 reaffirmed/assigned; outlook revised
to Positive from Stable
Long Term / Short Term – Non- [ICRA]BBB+ (Positive)/[ICRA]A2;
Fund Based 29.94 56.50 reaffirmed/assigned; outlook revised
to Positive from Stable
Long term/short term- Fund [ICRA]BBB+ (Positive)/[ICRA]A2;
based working capital facility 100.0 140.00 reaffirmed/assigned; outlook revised
to Positive from Stable
Total 323.09 424.52
*Instrument details are provided in Annexure-I

Rationale

While arriving at the ratings of Mungi Engineers Private Limited (MEPL), ICRA has taken a consolidated view of MEPL and its
Group company, Mungi Metalcraft LLP (MMLLP), given the close operational, management and financial linkages between the
two entities. Both the companies operate in the auto components business, sharing common management and close financial
ties. MEPL holds a 40% stake in MMLLP and has also provided a corporate guarantee for the bank debt availed by the latter.
Together, these two entities are referred to as the Mungi Group/Group.

The revision in outlook factors in ICRA’s expectations that the Mungi Group will report healthy accrual generation over the
near to medium term, strengthening its debt protection metrics and liquidity profile. The Mungi Group posted strong growth
(44.2% YoY) in its revenue to ~Rs. 1,960 crore in FY2023 and ~Rs. 1,475 crore 1 in 9M FY2024, supported by healthy offtake
from key customers, which include various established automotive original equipment manufacturers (OEMs), enhancement
of manufacturing capacities and widening of the product base. ICRA expects flattish revenue growth in FY2024, supported by
the volume growth in business, which will be offset by lower realisation owing to decline in steel prices. However, accrual
generation is expected to remain healthy in line with FY2023, on the back of improvement in operating margins supported by
economies of scale, product mix and receipt of subsidy income. Healthy internal accrual generation, coupled with no likely
material increase in the Group’s debt levels, is expected to further strengthen its debt protection metrics and return indicators.

The reaffirmation of the ratings continues to factor in the extensive experience of the Mungi Group’s promoters in the
domestic auto component industry and the Group’s established business position in manufacturing of sheet metal components
and heavy metal fabrication, which find application in full-form PVs and CVs, tractors, construction equipment (CE), etc. The
Group also benefits from the established relationships and healthy share of business (SoB) with its reputed clientele, such as
Mahindra & Mahindra (M&M) and Tata Motors Limited (TML).

The ratings, however, remain constrained by the highly competitive intensity and limited value addition in the sheet metal
business, resulting in limited pricing flexibility and moderate operating margins over the years. Moreover, relatively high
reliance on debt to meet incremental working capital requirements and debt-funded capex incurred towards capacity
expansions in the past few years, continued to result in relatively high leverage levels, as marked by TOL/TNW of ~2.3 times
and Total D/OPBITDA of 2.7 times in FY2023. Although the same have improved in recent past and ICRA expects further
improvement in these metrics in the near to medium term. The ratings also remain constrained by the exposure of the Group’s

1 As per provisional financials

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 earnings to the cyclicality in the auto industry and the high customer concentration risk, with the top-two customers generating
~75% of revenues in FY2023. Though the Group has added new clients to its portfolio over the last few years, including from
non-auto sectors such as construction and windmills, the share of revenue from the same remains moderate as of now.
Moreover, ICRA noted that MEPL has provided corporate guarantee to some of the related parties and any crystallisation of
the contingent liability and its impact on the liquidity position will remain a key rating sensitivity.

Key rating drivers and their description

Credit strengths

Long and established track record of promoters in the auto ancillary industry – The Group has a qualified promoter and
management team with a track record in the auto ancillary industry. The Group’s promoter, Mr. Vivek Mungi, has more than
four decades of experience in this industry, which has helped drive the company’s growth over the years.

Established relationships with key OEMs; healthy share of business in most components supplied by the company - ICRA
also derives comfort from the Group’s established relationships with reputed customers, such as M&M and TML, who drive a
sizeable part of its revenues. The Group has a high share of business with M&M and TML and a presence in most of the OEMs’
product offerings in the PV and CV segments. The Group is a key supplier for many of the OEMs’ upcoming models, a testimony
to their strong relationships.

Diversified revenue profile aided by presence across various segments – The Group enjoys a comfortable business profile
across multiple automotive segments. About 51% of its revenues is driven by the PV segment, followed by the CV (24%),
thereby lending diversity to its revenue stream. The Group has also diversified its business toward heavy fabrication for non-
auto sectors, such as construction and windmills. The revenue from those sectors remains moderate at present but is expected
to grow over the medium term.

Healthy scaling up of operations supported improvement in internal accrual generation – The company’s revenue has scaled
up post the pandemic, recording YoY growth of 94.2% in FY2022 and 44.2% in FY2023. In 9M FY2024, the company recorded
revenue of Rs 1,475 crore. The healthy scale up of operations helped the company generate strong cash accruals in the last
three fiscals.

Credit challenges

Moderate debt protection metrics due to continued debt-funded capex undertaken by the Group, although some
improvement witnessed in the recent past – Given the healthy growth in scale of operations, the elevated working capital
requirements have kept the reliance on working capital debt relatively high. This, coupled with debt-funded capex incurred
towards capacity expansions, has continued to result in moderate debt protection metrics with total debt/OPBITDA of 2.7
times and interest coverage of 5.3 times in FY2023, though improving from 3.1 times and 4.0 times, respectively, in FY2022.
To support its growth momentum and achieve higher revenue diversification, the Group plans to incur capex of ~Rs. 130-140
crore over FY2024 and FY2025, primarily towards capacity expansion, widening of product base and modernisation of its
facilities. While this capex is expected to be partly funded through debt, scheduled repayment of long-term debt and higher
deployment of internal accruals for meeting incremental working capital funding requirements of a growing business, is
expected to keep debt levels under check. This, coupled with healthy accrual generation, is expected to improve the debt
protection metrics.

Moderate profit margins due to limited value addition in sheet metal product, and competitive pressures – Sheet metal
components drive most of the Group’s revenues. MEPL’s profitability remains limited by the moderate value addition in sheet
metal products and its limited bargaining power with customers. Though the Group is diversifying its product profile by adding
new, higher value-added products, the positive impact of the same is yet to be witnessed. The sheet metal component business
is also characterised by highly competitive intensity in the industry, which restricts the Group’s pricing flexibility to an extent.

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 Exposed to customer concentration risk and cyclicality inherent in the automotive industry – The Group remains exposed to
client concentration risk as M&M accounted for over 49% and TML for 23% of MEPL’s revenues in FY2023. However, the
management remains focused towards enhancing customer diversification, reflected in the increasing revenue contribution
from other clients such as Schmitz Cargobulls, Lear Automotive, and York India. However, their share is moderate at present.
The Group derives majority of its revenue from the auto sector, mainly from PVs and CVs, thereby exposing its revenues to the
demand cyclicality inherent in the auto industry. The Group has started to diversify into sectors other than automotive, such
as construction equipment and windmills for its heavy fabrication business, which limits this risk to an extent. Revenues from
the non-auto sector, however, remain minimal at present.

Liquidity position: Adequate

The Group’s liquidity position is adequate, supported by healthy internal accrual generation, cash and equivalents balance of
Rs. 4.5 crore, and undrawn working capital limits of ~Rs. 39 crore as on December 31, 2023. Although the long-term debt
repayment obligations remain relatively high (~Rs. 75-80 crore p.a.) over the medium term, the Group’s cash flows are
expected to remain comfortable in servicing the same.

Rating sensitivities

Positive factors – ICRA may upgrade the ratings if the Group demonstrates steady accrual generation, while maintaining its
debt protection metrics and adequate liquidity position on a sustained basis.

Negative factors – Pressure on the Group’s ratings could arise in case of a sharp deterioration in its credit profile and liquidity
position due to factors including pressures on revenue and accrual generation, stretch in the working capital cycle and any
material delays in receipt of incentives. A specific credit metric that could lead to a ratings downgrade is if DSCR is below 1.4
times on a sustained basis.

Analytical approach

Analytical Approach Comments

Corporate Credit Rating Methodology
Applicable rating methodologies Rating Methodology for Auto Component

Parent/Group support Not Applicable

Consolidation/Standalone The ratings are based on the consolidated financials of MEPL and MMLLP.

About the company

MEPL, the flagship company of the Mungi Group, was incorporated in 2004 and commenced commercial operations from
2006, with its first manufacturing facility at Nashik (Maharashtra). Promoted by Mr. Vivek Mungi, the company manufactures
sheet metal components, assemblies, and aggregates. MEPL’s product profile consists of door assemblies, floor assemblies,
axle tubes and banjo beam assemblies, which it supplies to OEMs such as M&M and TML. At present, the company has five
manufacturing facilities, with one each at Nashik (Maharashtra) and Zaheerabad (Telangana) and three at Chakan, near Pune
(Maharashtra).

MMLLP was incorporated in June 2016 (operational from June 2019) as a limited liability partnership, wherein MEPL holds a
40% stake and the balance is held by the Mungi family. The LLP is in the same business sector as MEPL.

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 Key financial indicators (audited)
MEPL - Consolidated FY2022 FY2023
Operating income 1367.6 1985.4
PAT 22.8 54.6
OPBDIT/OI 7.1% 7.8%
PAT/OI 1.7% 2.8%
Total outside liabilities/Tangible net worth (times) 2.3 2.3
Total debt/OPBDIT (times) 3.1 2.7
Interest coverage (times) 4.0 5.3
Source: Company, ICRA Research; All ratios as per ICRA’s calculations; Amounts in Rs. crore; PAT: Profit after tax; OPBDIT: Operating profit before depreciation,
interest, taxes and amortisation

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Chronology of rating history
Current rating (FY2024)
for the past 3 years
Amount
outstanding Date & rating Date & rating Date & rating
Instrument Amount Date & rating in FY2021
Typ as of in FY2024 in FY2023 in FY2022
rated
e December
(Rs. crore) Jan 11, Apr 14,
31,2023
Feb 2, 2024 Dec 19, 2022 Dec 22, 2021
(Rs. crore) 2021 2020

Long- [ICRA]BBB+ [ICRA]BBB+

1 Cash credit - -- - - -
term (Negative) (Negative)

Long- [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+

2 Term loan 228.02 198.01
term (Positive) (Stable) (Negative) (Negative) (Negative)

Short-
3 Fund based - -- - - [ICRA]A2 [ICRA]A2 [ICRA]A2
term

Non-fund
Long- [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+
based [ICRA]BBB+
working term/
4 56.50 -- (Positive)/ (Stable) (Negative)/ (Negative)/ (Negative)/
short
capital [ICRA]A2 / [ICRA]A2 [ICRA] A2 [ICRA] A2 [ICRA] A2
term
facilities
Fund based Long- [ICRA]BBB+ [ICRA]BBB+
[ICRA]BBB+
working term/
5 140.00 -- (Positive)/ (Stable)/ (Negative)/ - -
capital short
[ICRA]A2 [ICRA]A2 [ICRA] A2
facilities term
Long
[ICRA]BBB+
Unallocate term/
6 - - - (Negative)/ - -
d short
[ICRA] A2
term

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 Complexity level of the rated instruments

Instrument Complexity Indicator

Long-term - Fund based – Term loan Simple
Long-term / Short-term – Non-fund based Very Simple
Long-term/short-term- Fund based WC facility Simple

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details

Instrument Coupon Amount Rated

ISIN Date of Issuance Maturity Current Rating and Outlook
Name Rate (Rs. crore)
NA Term loan 1 FY2020 NA FY2028 32.22 [ICRA]BBB+(Positive)
NA Term loan 2 FY2018 NA FY2028 165.80 [ICRA]BBB+(Positive)
NA Term loan 3 FY2024 NA FY2028 30.00 [ICRA]BBB+(Positive)
NA Non-Fund based
NA NA NA 56.50 [ICRA]BBB+(Positive)/[ICRA]A2
WC facility
NA Fund based WC
NA NA NA 140.00 [ICRA]BBB+(Positive)/[ICRA]A2
facility
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis

MEPL Consolidation
Company Name
Ownership Approach
Mungi Metal Craft LLP 40.00% Full Consolidation
Source: Company

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 ANALYST CONTACTS
Shamsher Dewan Kinjal Shah
+91 124 4545 328 +91 022 6114 3442
[email protected] [email protected]

Deepak Jotwani Gaurav Kushwaha

+91 124 4545 870 +91 40 4547 4829
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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For more information, visit www.icra.in

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