Rane Engine Valves' CP rating upgraded

By Our Corporate Reporter

CHENNAI, NOV. 25. ICRA has upgraded the rating of the Rs. 5 crore commercial paper programme of Rane Engine Valves (REVL) to A1 plus (A one plus) indicating highest safety in the short term and has retained the MAA minus (M double A minus) rating assigned to its fixed deposit programme, indicating high safety.

REVL continues to be the market leader in the engine valves business in both the OEM as well as the replacement segment, and it also has a significant export market. About 54 per cent of REVL's revenues come from the domestic OEMs, the balance is contributed equally by export and replacement market segments. While REVL is dependent to a large extent on the Indian automobile industry for its revenues (about 5 per cent of its revenues coming from the industrial machines segment), it caters to diversified segments of the automotive industry - commercial vehicles, passenger cars, two wheelers, tractors in both the OE as well as replacement market. This limits the susceptibility of REVL to recession in any one particular segment. With the Euro II norms coming into place, the demand for valves from the existing passenger car and two wheeler markets is likely to increase (on account of conversion to MPFI/four-stroke engines).

REVL has a technology tie up with TRW Inc. of the U.S. for its valves manufacturing facilities. TRW Inc is also an equity partner in REVL holding about 10 per cent of equity in REVL. This enables the company to access the latest technology in valves, and will enable it to maintain its thrust on the export market as well as retain its domestic market position.

REVL's operating income increased by 4.8 per cent to Rs. 96.5 crores in 2000-2001 from Rs. 92.5 crores in 1999-2000. However, REVL's falling operating margins (operating margins dropped to 11.47 per cent in FY 2001 from 12.45 per cent in the previous year) is a cause for concern. The decline in operating margin is mainly on account of the low capacity utilisation of its other products (camshafts, tappets and castings - acquired on reverse merger with Engine Components in 1998-99). The primary concern post the merger, was whether the loss making business of ECL would cause a negative impact on REVL's cashflows and increase the financial risk of REVL. These concerns have been mitigated to a large extent and REVL has consolidated its market position and the outlook for the future is stable. High employee costs of REVL also contributed to the decline in operating margin.

REVL has also taken steps to reduce its employee costs, and has offered a VRS to its employees in FY 2001. The company is also in the process of implementing TQM in order to increase its efficiency and improve operating margins. These measures are expected to restrict the fall in operating margin over the medium term.

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