The rating on the long-term and short-term bank facilities have been reaffirmed at ‘CRISIL A’ and ‘CRISIL A1’, respectively.
CRISIL Ratings stated that the ratings were placed on watch, following the announcement by RML at the stock exchanges on February 9, 2024, that its board of directors has approved a scheme of arrangement wherein two listed entities of the Rane group, Rane Engine Valve (REVL) and Rane Brake Linings (RBLL) will be merged with RML on a share-swap basis, subject to approval from the National Company Law Tribunal (NCLT).
The merger of the listed operating companies of the Rane group is expected to provide synergistic benefits in the form of common raw material procurement and logistics, better negotiations leading to better procurement strategy, besides streamlining of administration and other cost including insurance premiums for its product warranties. The merger will also create a larger entity, with better revenue and product diversity, and healthy operating margin of 8-10%.
Operating margin will also benefit from sale of the erstwhile loss-making subsidiary, Rane Light Metal Castings, USA Inc (RLMC).
The balance sheet is also likely to strengthen due to modest debt at REVL, zero debt at RBLL and no further requirement to support RLMC. The combined entity is expected to have a networth of more than Rs 650 crore, compared to Rs 250 crore estimated (at RML) as on March 31, 2024.
Consolidated debt is projected to be Rs 822 crore, resulting in gearing of 1.26 times, compared to 2.8 times estimated (at RML) as on March 31, 2024.
RML has obtained the no-objection certificate (NOC) from all lenders and stock exchanges. The scheme will be filed with NCLT, and the final approval is expected by end of fiscal 2025. The reorganisation should be able to unlock synergies and optimise support functions to improve efficiency in the Rane group.
CRISIL Ratings will resolve the watch post receipt of necessary approvals and completion of necessary documentation for the merger, and receipt of necessary information from the management of RML. CRISIL Ratings believes that upon resolution of the watch, the ratings may improve, should the companies sustain the improvement in business performance.
The ratings continue to reflect the healthy market position of RML in the domestic automotive steering components segment, its diversified revenue profile and benefits from being part of the Rane group. The ratings also factor in the moderate, though improving, financial risk profile.
These rating strengths are partially offset by sizeable investment in the domestic and overseas diecasting business and modest though improving operating profitability. RML also remains exposed to cyclicality in demand and pricing pressure arising from large exposure to original equipment manufacturers (OEMs) in the automobile industry.
Rane (Madras) is the flagship company of the Rane group. It is engaged in the manufacturing of manual steering gears, hydrostatic steering systems, and steering and suspension linkages which together account for about 80% of overall revenues. The balance comes from its high-pressure aluminum die casting division.
The scrip had zoomed 7.13% to end at Rs 900.85 on the BSE on Friday.