| Hind Rectifiers Limited | ||||||
| Rating outlook revised to 'Stable'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Hind Rectifiers Ltd (HRL) to ‘Stable’ from ‘Positive’ and reaffirmed the rating at ‘CRISIL BBB-’. The rating on the short-term bank faiclities has been reaffirmed at ‘CRISIL A3’.
The revision in outlook is owing to flattish operating performance in fiscal 2021. While revenue grew at a sluggish pace from Rs 299.6 crore in fiscal 2020 to estimated Rs 305 crore in fiscal 2021, profitability has moderated to around 7% as against 13% a year before. Operating performance was subdued due to the Covid-19 pandemic-led economic slowdown. This has led to moderation in interest coverage ratio estimated at 2.4 times for fiscal 2021 (as against 4.9 times in fiscal 2020). HRL’s large working capital requirements in fiscal 2021 has resulted in increased bank limit utilisation levels averaging around 75% (as against 62% previously). However, rating remain supported by comfortable financial profile, and adequate liquidity. Sustenance of revenue growth and operating margin will remain key monitorable over the medium term.
CRISIL Ratings on the bank facilities of HRL continues to reflect the extensive experience of the promoters in the power electronic equipment industry, established relationship with customers, a strong order pipeline providing revenue visibility, and an above-average financial risk profile. These strengths are partially offset by end-user industry concentration in revenue and large working capital requirement. |
Key Rating Drivers & Detailed Description Strengths: * Extensive experience of the promoters: Benefits from the promoters’ experience of over five decades, their in-depth understanding of the dynamics of the market, development of new products in keeping with changing market demands, and a strong relationship with customers and suppliers should continue to support the business. The company has been able to cater to major players such as Indian Railways and Bharat Heavy Electricals Ltd (BHEL), resulting in repeat orders from them and increase in revenue.
* Strong order pipeline: Orders of more than Rs 340 crore to be executed in the next 18 months, provide revenue visibility for the near term and will help sustain the revenues. The substantial orders are driven by continuous development of new products through research and development (R&D) activities and addition of customers.
* Above-average financial risk profile: HRL has moderate networth, estimated at Rs 90 crore leading to a comfortable capital structure, with estimated gearing and total outside liabilities to adjusted networth ratio of 1.0 time and 1.5 times, respectively, as on March 31, 2021. Debt protection metrics too are adequate, with the interest coverage ratio estimated at 2.4 times and the net cash accrual to adjusted debt ratio estimated at 0.12 time, for fiscal 2021. The financial risk profile is expected to remain above-average over the medium term despite debt-funded capital expenditure planned in fiscal 2022 owing to strong networth and accruals.
Weaknesses: * Large working capital requirement: Despite improving, operations remain working capital intensive as reflected in gross current assets (GCAs) estimated at 207 days as on March 31, 2021, driven by debtors and inventory of 95 days and 90 days, respectively. With increase in revenue, the working capital requirement would be higher and management of working capital will be a key rating sensitivity factor.
* Industry concentration in revenue: The railway industry accounts for 70-80% of revenue, thus making revenue growth and profitability dependent on the prospects of this industry. Any slowdown in the industry, or stretch in receivables may impact the performance of the company. |
Liquidity: Adequate Cash accrual, expected at Rs 14-16 crore, should comfortably cover repayment obligation of Rs 5.6 crore annually in fiscals 2022 and 2023. The fund-based limit of Rs 73.4 Cr was utilised at an average of 74% over the 12 months through April 2021. The cash and bank balance is estimated at Rs 4.5 crore as on March 31, 2021. Internal cash accrual, unutilised bank lines, and cash and bank balance are likely to be sufficient to meet incremental working capital requirement and repayment over the medium term. |
Outlook: Stable CRISIL Ratings believes HRL will continue to benefit from the extensive industry experience of the promoters, established clientele, and healthy order book. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company HRL, incorporated in April 1958, is promoted by late Mr S K Nevatia and is currently managed by Mr Saurabh Nevatia and Mr Suramya Nevatia. The company manufactures power electronic equipment such as traction transformers for locomotives and electrical multiple units, converters, rectifiers, power semiconductors and railway transportation equipment such as switch board cabinets, regulated battery chargers, and inverters. The manufacturing facilities are in Mumbai, Nasik (both in Maharashtra) and Dehradun (Uttarakhand). The company is listed on the Bombay and National Stock Exchanges. |
Key Financial Indicators
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Any other information: Not applicable |
| 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)
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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 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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