Rating Rationale
September 14, 2023 | Mumbai
D-Link India Limited
Rating reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.10 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable’ rating on the bank loan facility of D-Link India Limited (D-Link).

 

Operating performance was strong, with revenue growing 28% year-on-year to Rs. 1,181 crore in fiscal 2023, driven by healthy growth in volume sales and improved price realisation. The company benefitted from increased demand in networking products, driven by shift to work-from-office and easing logistics. Operating profitability improved to 9.9% in fiscal 2023 increasing from 6% seen in the past two fiscals. Increase in operating profitability was driven by improved realisations amid moderating raw material prices. Going forward, revenue is expected to grow 6-8% annually on a high base. Operating profitability is expected to stabilise at 8-9% over the medium term.

 

D-Link has continually strived to diversify its product offerings and thereby reduce its dependence on its parent, D-Link Corporation (Taiwan), which currently accounts for around 20% of the company’s sales compared to about 70% in fiscal 2014. Transactions with the parent are limited to product purchases wherein a royalty is paid for the branding. In addition, cash outflow has been restricted to the extent of dividend payout which has averaged up to 20% of profit after tax (PAT) in the past 12 years. Any significant cash payout could materially impact the financial risk profile of the company and would be a key monitorable.

 

D-Link maintains healthy liquidity position, as reflected in cash and equivalent of Rs 110 crore as on March 31, 2023. Absence of debt with no major capital expenditure (capex) provides enough financial flexibility to absorb any business shocks.

 

The rating continues to reflect the company’s established market position and strong distribution network across India, along with healthy financial risk profile. These strengths are partially offset by exposure to intense competition and volatility in input price and currency.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of D-Link and its wholly owned subsidiary, TeamF1 Networks Pvt Ltd (Team F1).

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position and strong distribution network: D-Link is the market leader in switches and wireless local area network (WLAN) products, with a significant market share. In fiscal 2019, the company introduced a series of high-end products for its enterprise business, including unmanaged long-term power over ethernet (PoE)/PoE plus switches; new generation layer 3 stackable managed switches with advance hardware and software enhancements for better performance, flexibility and ease of management; and industrial grade switches. D-Link has invested in state-of-the-art support infrastructure for both consumers and enterprises, which includes 10 D-Link-owned service centres with more than 50 experts in tier 1 cities, over 23 partner service centres with more than 40 experts in tier 2 / tier 3 cities, partner collection points in more than 105 cities and logistical support in over 190 cities. D-Link Technical Support Centres (DTSC) are manned by over 30 highly skilled engineers providing L1 to L3 support for all retail and enterprise customers.

 

  • Healthy financial risk profile: Networth was Rs 363 crore as on March 31, 2023, and is expected to increase over the medium term because of steady accretion to reserves and absence of debt repayment. Return on capital employed improved to 36% in fiscal 2023 as profitability increased. In the absence of any debt-funded capex, the financial risk profile is expected to remain healthy over the medium term.

 

Weaknesses:

  • Exposure to intense competition and risks inherent in the networking industry: D-Link mainly operates in the home and small and medium enterprise segments of the networking industry, where profitability is lower than that in the institutional sales segment. The latter is dominated by Cisco India and other new entrants. Profitability in the retail segment is constrained by intense competition and commoditised products.

 

  • Susceptibility to volatility in input price and currency: Copper, the key input for manufacturing cables is an open market commodity traded globally on exchanges, leading to volatility in its prices. Furthermore, fluctuations in currency also impact profitability, as the company imports about 30% of its traded products. Complete and immediate passing on of cost increases is difficult given the competitive pressure. The company experiences lag of 45-60 days in passing on price hikes. Hence, the operating margin will remain susceptible to fluctuations in raw material prices and currency. D-Link hedges currency exposure up to 70% of the total exposure by entering forward contracts.

Liquidity: Adequate

Cash accrual, expected at Rs 65-75 crore in fiscals 2024 and 2025, will support liquidity in the absence of any capex or debt obligation. Unutilised bank limit of Rs 10 crore will be adequate to fund the company’s fixed expenses. Cash surplus is expected to remain healthy over the medium term.

Outlook: Stable

CRISIL Ratings believes D-Link will continue to benefit from its established market position and strong distribution network. Furthermore, the financial risk profile is expected to remain healthy on account of a debt-free balance sheet and absence of any major capex.

Rating Sensitivity factors

Upward factors:

  • Sustained annual revenue growth of over 20% coupled with healthy operating margin of above 8%
  • Efficient working capital management and higher cash accrual strengthening the financial risk profile

 

Downward factors:

  • Significant decline in revenue and fall in the operating margin to below 4%
  • Stretch in the working capital cycle, weakening liquidity and the financial risk profile
  • Any significant unexpected cash outflow by way of dividend impacting the financial risk profile

About the Company

Incorporated in 2008, D-Link is a step-down subsidiary of D-Link Corporation. The company markets networking products of the parent and procures from third-party vendors. The product profile comprises network switches, wireless local area networks, routers, modems, storage devices, copper and fibre cables and cameras. In 2010, D-Link began marketing structured cabling products procured from third-party vendors.

 

In January 2014, D-Link acquired Team F1, a company that specialises in providing network and security software for embedded devices. The consideration for the acquisition was in the form of equity shares of D-Link, which resulted in the equity stake of D-Link Corporation in D-Link reducing to 51% from 60%.

 

D-Link Corporation, founded in 1986, is a multinational company that designs, markets and manufactures networking equipment and has presence across 100 countries.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs crore

1181

918

Profit after tax (PAT)

Rs crore

86

42

PAT margin

%

7.3

4.6

Adjusted gearing

Times

0

0

Interest coverage

Times

197

114

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit & Working Capital Demand Loan NA NA NA 10 NA CRISIL A/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Team F1 Networks Pvt Ltd

Fully

Common management and promoters.
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 10.0 CRISIL A/Stable   -- 27-06-22 CRISIL A/Stable 27-04-21 CRISIL A/Stable 02-06-20 CRISIL A/Stable CRISIL A/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit & Working Capital Demand Loan 10 HDFC Bank Limited CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
CRISILs Criteria for Consolidation

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