Chennai,  A combination of factors like the deterioration in its liquidity due to long receivable cycle, increased business disruption risk due to inquiries by the government, and the expiry of eligibility for the FAME II government subsidy has led credit rating agency ICRA to downgrade Okinawa Autotech International Pvt Ltd (OAIPL, formerly Okinawa Autotech Pvt Ltd).

The ICRA has downgraded OAIPL's long term loan of Rs 4 crore to BB+ @ from BBB@ and continues to be on watch with negative implications.

The credit rating agency also downgraded the Rs 40 crore long term/short term/fund based/non-fund based facilities to BB+@/A4+@ from BBB@/A3+@ and continue to be on watch with negative implications.

According to the ICRA, there is an increased risk of business disruption due to the ongoing inquiries by the Ministry of Heavy Industries into OAIPL's eligibility for the FAME1 subsidy, with respect to the localisation requirement under the phased manufacturing programme (PMP).

Since last month end, all OAIPL's FAME subsidy-eligible electric two wheelers have become ineligible as per the Ministry of Heavy Industries.

This subsidy constitutes 25-30 per cent of the overall price of OAIPL's high-speed e2Ws (electric two wheelers), which is claimed from the Ministry of Heavy Industries within 90 days of sale.

"OAIPL has seen a build-up of these subsidy claims over the past few months (nearly Rs 375 crore as of September 2022), which has led to increased dependence on working capital borrowings," ICRA said.

This is evidenced by the increased limit utilisation levels to above 85 per cent (July-September 2022).

With limited buffer in the form of undrawn working capital lines and reduced financial flexibility for raising incremental funding (pending the resolution of the ongoing enquiries), any prolonged delays in receiving the subsidy could impact OAIPL's cash flows and remains a key monitorable, ICRA said.

In addition, exclusion of the company's products from the FAME eligibility could adversely impact the price competitiveness of its products and/or profitability and is a key rating sensitivity.

ICRA said the OAIPL also remains exposed to geopolitical developments around the globe, which may impact the procurement/prices of critical components like battery cells and constrain growth prospects.

The company plans to set up an integrated manufacturing facility over the next three years with an outlay of about Rs 560 crore, which will enable it to ramp-up production capacity to about one million units (by FY2025) and enhance its value addition via backward integration initiatives.

The financial closure of the project (estimated project debt of about Rs 350 crore) is yet to be achieved. Given the ongoing developments, the timelines associated with the plant set-up/stabilisation also remain at risk, ICRA said.

In May 2022, OAIPL entered a joint venture with Tacita, an Italian manufacturer of electric and performance motorcycles.

The new company, Okinawa Tacita Internationals Pvt Ltd, from the joint venture in June 2022, is slated to begin production from 2023. The major contribution from Tacita will be in terms of technology transfer.