Volvo Group India’s consolidated revenue increased to Rs 4,250 crore in the first nine months of FY23. This is on the back of increased demand for trucks and construction equipment in line with improved industrial and infrastructure activities post Covid-19-led disruptions. The company had reported Rs 4,260 in total for FY22 and still less in FY21 when it could garner just about Rs 3,410 crore, as per data collated by India Ratings and Research.
The rating agency said that it expects the revenue to show strong improvement in FY23, owing to strong growth in the truck business, incremental shared service business, and orders in hand for construction equipment and mining equipment backed by proposed infrastructure projects in India. The operating profitability is also expected to improve and will remain healthy, supported by the increased revenue contribution from trucking and mining equipment businesses.
India Ratings and Research has affirmed Volvo Group, the long-term issuer rating at ‘IND AAA’, and highlighted its outlook as being stable.
Formed in 1996, Volvo Group India manufactures and sells premium trucks. The company also provides shared services to various AB Volvo Group companies globally. As part of the global restructuring of AB Volvo, the construction equipment business of Volvo Group India was carved out as a separate entity, Volvo CE, effective November 1, 2019. Volvo CE is into the manufacturing and selling of construction equipment.
Liquidity Indicator-Superior
On a consolidated basis, the average monthly utilisation of the sanctioned Rs 800 crore fund-based limits was only around 36 percent for the 12 months ended December 2022, and India Ratings believes it to have remained at similar levels in February 2023.
Further, Volvo Group paid a dividend of Rs 420 crore to the parent company in FY23, which has impacted the cash balance. It had a cash balance of Rs 38.9 crore at 9MFY23. To put this in context, the company had Rs 250 crore in FY22.
Volvo India’s unencumbered cash balance, which stood at Rs 38.9 crore until 9MFY23 and Rs 310 crore in FY22, supports its overall liquidity. Further, it was Rs 270 crore in FY21. “The liquidity position is further supported by credit lines, either carved out of the parent’s limits or standalone. India Ratings and Research also takes comfort from the availability of large regional credit lines at the group level,” the rating agency noted.
Volvo India’s cash flow from operations declined to Rs 20 crore in FY22 from Rs 70 crore in FY21 and Rs 730 crore in FY20 on account of a moderate decline in profitability and unfavourable changes in the working capital. This, along with a capex of Rs 85.8 crore in FY22 and Rs 32.9 million in FY21 caused the free cash flow to also turn negative at Rs 60 crore.
In FY23, India Ratings and Research expects that the cash flows from operations will get a little bit better due to changes in working capital and a decrease in the amount of inventory. “The liquidity is likely to remain strong in FY23, backed by the optimum cash balance and availability of credit lines at the group level. Moreover, Volvo India has strong financial flexibility by being a part of the Volvo group,” the research report said.