| Elin Electronics Limited | ||||||
| Ratings reaffirmed at 'CRISIL A/Stable/CRISIL A1' | ||||||
| Rating Action | ||||||
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| 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 |
CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Elin Electronics Limited (EEL; part of Elin group).
EEL got listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) on December 30, 2022. The total size of the Initial Public Offering (IPO) is Rs 475 crore of which Rs 175 crore is fresh issue and Rs 300 crore is from offer for sale. This has resulted in an equity inflow of Rs 175 crore into the company through primary sale of shares. Accordingly, networth is expected to be around Rs 500 crore as on March 31, 2023 (as against Rs 303 crore as on March 31, 2022), backed by healthy accretion to reserves and increase in securities premium following the IPO. Gearing is expected to be around 0.15 time as on March 31, 2023 (as against 0.34 time as on March 31, 2022). The IPO proceeds are expected to be primarily utilized for prepayment of bank debt, funding the capital expenditure and general corporate purpose.
The ratings continue to reflect the company’s healthy business risk profile backed by diversified product portfolio, long-term relationships with key customers, and healthy financial risk profile, as reflected in low gearing and healthy debt protection metrics. These strengths are partially offset by high competitive intensity in the contract manufacturing space. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of EEL and its wholly owned subsidiary, Elin Appliances Pvt Ltd (EAPL) on account of strong business and financial linkages.
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: Diversified product range and longstanding relationships with key clients: Elin group has a wide product range covering motors, lighting, medical devices, and mouldings and sheet metal fabrication. It manufactures motors under its own brand name while other products are manufactured under contract manufacturing. Motor manufacturing has been critical to the growth of the group, with segmental contribution growing from 12% in fiscal 2018 to 23% in fiscal 2022. Group has reported an operating income of Rs 1094 crore in fiscal 2022 growing by 27% y-o-y backed by steady demand and increased realization. In current fiscal, group has already achieved a revenue of Rs 807 crore during 9M-FY23. Additionally, uptake of other key products and introduction of new products under contract manufacturing have supported strong revenue growth. Furthermore, the group has longstanding relationships of more than 10 years with its key customers that reduces the offtake risk substantially. Key clients include Signify Innovations India Ltd, Phillips India Ltd, Havells India Ltd, Eveready Industries India Ltd, Usha International Ltd and Panasonic India Pvt Ltd.
Healthy financial risk profile: The financial risk profile remains healthy due to high reliance on internal funds, resulting in healthy debt protection metrics, reflected in interest coverage ratio of around 6.2 times and net cash accruals to adjusted debt ratio of 0.52 time in fiscal 2022 (expected to be around 7 times and around 0.65 time in fiscal 2023). Networth is robust and stood at Rs 303 crore as on March 31, 2022; it is expected to be around Rs 500 crore as on March 31, 2023, backed by healthy accretion to reserves and increase in securities premium following the IPO in December 2022. Group has a healthy capital structure, reflected in gearing of 0.34 time as on March 31, 2022 (expected to be around 0.15 time as on March 31, 2023). Additionally, favorable terms of trade with customers helps manage working capital efficiently with gross current asset (GCA) days expected to be around 100-120 days (net of cash). This helps to keep in check the overall indebtedness in the form of total outside liabilities to tangible networth (TOLTNW) ratio at 0.75 times as on March 31, 2022 (expected to be around 0.40-0.45 time as on March 31, 2023). Going forward, sustained profitability and funding of capital expenditure (capex) by internal accruals will keep overall financial risk profile healthy.
Weakness: Highly competitive intensity in the contract manufacturing space: The contract manufacturing industry, wherein a company is hired to manufacture the product based on the hiring firm’s design and quality standards, is fragmented and competitive. It relies on relationships with customers, market reputation and industry experience. With value addition being relatively low by the contract manufacturer, possibility of replacement is high which can expose it to the risk of intense competition. Group’s operating margin of 7-8% is constrained by relatively lower margin in the contract manufacturing segment. But the group has demonstrated its ability to pass on commodity price and foreign exchange fluctuations to customers, which helps maintain fairly stable operating margin. Furthermore, increasing share of its own branded products helps mitigate the risk. |
Liquidity: Strong Liquidity remains strong, driven by expected net cash accrual of Rs 50-65 crore per fiscal, against scheduled term debt maturity of about Rs 17-30 crore per fiscal and estimated capex of Rs 20-25 crore over the medium term. Additionally, the utilisation of fund-based bank limits averaged at 43% in the 12 months ended December-2022, strengthening the liquidity profile. The unencumbered cash and bank balance stood at Rs 4.01 crore as on March 31, 2022 and it is expected to increase to over Rs 120 crore going ahead on account of IPO proceeds. Current ratio was 1.63 times as on March 31, 2022 and expected to be around 2.7 times as on March 31, 2023. |
Outlook: Stable CRISIL Ratings believes Elin Group will continue to post steady revenue growth and stable operating margin, backed by strong product uptake and longstanding relationships with key customers. |
Rating Sensitivity factors Upward factors: * Significant increase in scale of operations backed by volumetric growth * Material improvement in operating margin, leading to return on capital employed (RoCE) sustaining over 18%
Downward factors: * Material deterioration in operating margin to below 6% on a sustained basis * Significant debt-funded expansion thus leading to increase in financial leverage |
About the Group Incorporated in 1982, EEL manufactured electric motors. Thereafter, the company forayed into manufacturing of tape-recorders. Presently, EEL has a wide range of products, including universal motors, electrical appliances, light-emitting diodes (LEDs), sheet metals and mouldings, among others. EEL has three manufacturing facilities at Ghaziabad, Uttar Pradesh; Baddi, Himachal Pradesh; and Goa. EEL is part of the Sethia group, with the Sethia family members having a shareholding of 57.4%, as on December 31, 2022. EEL is listed on BSE and NSE.
EAPL was incorporated in August 2002. It is engaged in the manufacturing of small kitchen appliances (mixer grinders, juicer mixer grinder, bar blenders, electric iron, toasters, etc.), personal care products (hair straightener, hair dryer), lighting fixtures and modular switches. The company’s manufacturing facility is located at Baddi, Himachal Pradesh. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 28-Feb-2023 in line with the lender-wise facility details as on 5-Oct-2021 received from the rated entity
Criteria Details
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