India Ratings & Research (Ind-Ra) has affirmed Greaves Cotton (GCL) long-term issuer rating at 'AA'. The outlook is stable.

The ratings reflect GCL's strong credit metrics in FY14 (year end March), despite a fall in EBITDA margins, due to near zero working capital use and absence of any balance sheet debt. Net debt/EBITDA has been negative since FY10.

Also, EBITDA interest coverage remained robust, even after declining to 42.08x in FY14 (FY13: 216.3x). Ind-Ra expects the credit metrics to remain strong due to the absence of debt-led capex.

The ratings factor in the company's strong liquidity. Cash and cash equivalents were Rs 1,883 million at FYE14, with positive cash flow from operations since FY09. The company also has undrawn fund-based limits of Rs 650 million. Working capital cycle is also likely to improve in FY15, after increasing to 62 days in FY14 as GCL is strengthening its credit policy. Receivable days increased in FY13 due to year-end sales and a longer credit period allowed to dealers.

The ratings continue to be supported by GCL's leadership position in India’s three-wheeler engine market. The company has a market share of around 80% at FYE14. It supplies engines to around 50 original equipment manufacturers in the Indian market, namely Piaggio Vehicle, Tata Motors, Mahindra & Mahindra, Scooters India and Atul Auto. During FY14, GCL entered into a partnership with TVS Motors to supply engines for their three-wheeler segment.

The ratings are also supported by GCL's presence mainly in the less cyclical low commercial vehicle and three-wheeler segments of the domestic auto industry. Also, the company continuously focus on research and development, which has helped it to expand its engine portfolio.

Shares of the company gained Rs 1.75, or 2.1%, to trade at Rs 84.95. The total volume of shares traded was 94,665 at the BSE (3.08 p.m., Tuesday).