| Hero Ecotech Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank facilities of Hero Ecotech Limited (Hero Ecotech; a part of the Hero Eco group). |
| Analytical Approach |
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As part of this rating exercise, CRISIL has applied its criteria for 'rating entities belonging to homogenous corporate groups'. The credit risk profiles of Hero Ecotech and its group entity, Hero Exports (together referred to herein as the Hero Eco group), have therefore been combined, in view of the common promoter holding and significant operational, financial, and managerial linkages. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established market position and extensive experience of the promoters The Hero Eco group manufactures bicycles under the brand, Kross, for the domestic market. Sales volumes have grown steadily in recent years. Furthermore, it has exclusive rights to manufacture bicycles for a leading sports goods retailer. The group is likely to maintain steady growth in the domestic market through increasing penetration of the Kross brand, supplies to a leading sports goods retailer, and orders from the state governments. It also exports bicycles under the brand, Hero. The market position should further be enhanced by the extensive experience of the promoters. * Comfortable financial risk profile The networth is moderate and debt protection metrics comfortable. Gearing should remain below 0.8 times and an interest cover is expected to remain above 3.5 times going forward. Healthy cash accrual, modest capital expenditure (capex) plans, and negligible long-term debt obligation should continue to support the financial risk profile. However, any further withdrawal of capital by the partners in Hero exports will remain a key rating sensitivity factor. Weaknesses: * Uncertainty in government orders Revenue from government orders increased significantly to around 27% of Hero Ecotech's revenue in fiscal 2019, whereas it has been much lower in the first half of fiscal 2020. Such institutional sales from government tenders is not predictable. Thus, high dependence on government orders, to ensure steady revenue and profitability, is maintained. * Increasing working capital requirement Although revenue from government orders increased significantly in fiscal 2019, realisations from such orders are slow and a substantial portion is yet to be received. Furthermore, there were credit s exports of non core products to African customers by Hero Exports in fiscals 2018 and 2019 where receivables were stretched leading to the group's higher working capital requirement. The working capital position remains stretched and any correction in the same will remain monitorable. * Exposure to intense competition from Indian and Chinese players China is the world's largest producer of bicycles, most of which are exported. Chinese products are cheaper and, hence, constrain the sales of Indian manufacturers. Though the group operates in the mid-to-premium ranges, competition from cheaper Chinese bicycles continues to impact domestic and export sales. |
| Liquidity Adequate |
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Liquidity has been adequate and should remain so going forward as well. Group's cash accruals are expected to be healthy in the range of Rs 22-30 crores going forward as against minimal long term debt. The cash and cash equivalents stood at Rs 23 crore as at 31 March 2019. The bank limits were utilised moderately at an average of 65% for the 12 months ended October 2019. Promoters have historically provided financial support in the form of capital infusion and unsecured loans. Internal accruals should be sufficient to cover minimal debt repayments and moderate capex plans over the medium term. |
| Outlook: Stable |
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CRISIL believes the Hero Eco group will continue to benefit from an established market position and the extensive experience of the promoters. The financial risk profile should remain comfortable, backed by healthy cash accrual, moderate capex plans, and timely financial support from the promoters. |
| About the Group |
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Hero Exports was set up in 1993 as a partnership firm by the Munjal brothers of the Hero group. Following the business re-arrangement among the Munjals, Hero Exports continued to be managed by Mr Vijay Munjal, representing the Dayanand Munjal group. Currently, the firm has three partners: Mr Vijay Munjal and his sons, Mr Naveen Munjal, and Mr Gaurav Munjal. It continues to focus on export of bicycles and bicycle components and spares. |
| Key Financial Indicators (The Hero Eco Group; Consolidated) | ||||||||||||||||||||||||
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| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#Fully interchangeable with Letter of Credit ^Fully interchangeable with Bank Guarantee **Fully interchangeable with Working Capital Demand Loan and interchangeable with EPC/Letter of Credit/Bank Guarantee to the extent of Rs. 10 Crore each and with Purchase Bill discounting to the extent of Rs. 20 Crore ***Fully interchangeable with WCDL/Bank Guarantee ****Fully interchangeable with Working Capital Demand Loan and interchangeable with EPC/Letter of Credit to the extent of Rs. 5 Crore each. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#Fully interchangeable with Letter of Credit ^Fully interchangeable with Bank Guarantee **Fully interchangeable with Working Capital Demand Loan and interchangeable with EPC/Letter of Credit/Bank Guarantee to the extent of Rs. 10 Crore each and with Purchase Bill discounting to the extent of Rs. 20 Crore ***Fully interchangeable with WCDL/Bank Guarantee ****Fully interchangeable with Working Capital Demand Loan and interchangeable with EPC/Letter of Credit to the extent of Rs. 5 Crore each. $Fully interchangeable with Non-Fund based limits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
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