Rating Rationale
July 08, 2022 | Mumbai
Hitachi Energy India Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities RatedRs.6000 Crore (Enhanced from Rs.5000 Crore)
Long Term RatingCRISIL AAA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities of Hitachi Energy India Limited (Formerly known as ABB Power Products and Systems India Limited)

 

The ratings reflect the healthy business risk profile of the company, driven by its strong market position in the power grid segment, diversity in product portfolio and geographical reach, and a strong clientele. It also reflects the robust financial risk profile, as reflected in large networth of Rs 1,099 crore as on March 31, 2022, with no long-term debt, although company had a short-term debt of Rs 125 crore as on March 31,2022. The ratings factor in strong support from the ultimate parent - Hitachi Ltd (Hitachi) (rated ‘A/Negative/A-1’ by S&P), which holds ~80.1% stake in Hitachi Energy Ltd., which is the holding company of Hitachi Energy India Limited.

 

On July 14, 2021, S&P resolved the ‘Watch Negative’ on the ratings of Hitachi Ltd and reaffirmed the long term ‘A’ and short term ’A-1’ rating with a ‘Negative’ outlook. The rating action by S&P on Hitachi does not impact the outstanding ratings on the company as per CRISIL Ratings’ criteria.

 

Operating income stood at Rs 4,884 crore for the 15 months ended March 2022, while the operating margin was 6.4%. However, performance was impacted during fiscal 2022, on account of macro-economic factors, geopolitical issues, inflationary pressure and supply chain disruption. As a result, the company registered an operating income of Rs 1,113 crore and operating earnings before interest, taxes, depreciation and amortisation (EBITDA) of Rs 66 crore for the quarter ended March 31, 2022.

 

Despite economic and supply chain disruptions, the company has maintained a strong business risk profile, driven by its established market position and healthy order book of Rs 4,672 crore as on March 31, 2022. Liquidity too is adequate, marked by unencumbered cash equivalent of Rs 86 crore as on March 31, 2022, and access to fund-based bank limit of Rs 849 crore as on May 31, 2022, which remains largely unutilised.

 

These strengths are partially offset by susceptibility to capital investment cycles and project implementation risk, largely arising from structural issues in the power sector and intense competition in the capital goods industry.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of the company, and has applied its parent notch-up framework to factor in the extent of support available to the company from its parent, Hitachi Ltd.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong market position in the power grid segment: The strong market position of the company in the power grid equipment and automation solutions segments is backed by its established track record. The company has executed several large projects in India, over the years (as part of ABB India Ltd). Furthermore, the clientele comprises reputed players across utilities, industrial, transportation and infrastructure sectors and includes Power Grid Corporation of India Ltd (PGCIL; 'CRISIL AAA/Stable/CRISIL A1+'), which is the key customer.

 

The established market position, strong order book and favorable industry scenario, with higher investments envisaged in the power transmission and distribution (T&D) segment in India, should continue to support the business over the medium term.

 

  • Acquisition by Hitachi: In December 2018, ABB Ltd announced the divestment of its global power grids business unit into a joint venture, with Hitachi as majority shareholder with 80.1% stake, and ABB holding the balance. The acquisition was completed in July 2021 and Hitachi ABB Power Grids Ltd was renamed as Hitachi Energy India Limited. 

 

Consequently, the company started using the Hitachi brand for all external corporate communication. Furthermore, the company has access to all group-level resources of the parent.

 

  • Strong operational, technological and management support from the parent: Hitachi views India as a high-growth market, and hence, operations of the company are strategically important to the group. The company not only manufactures an extensive range of products locally for the Indian market, but also exports to group entities globally. Post the acquisition, there has been an operational integration in manufacturing, global procurement, marketing and sales functions, with application of global best practices. Furthermore, Hitachi also offers managerial support via delegates on the board of the company. Hence, CRISIL Ratings believes Hitachi will continue to extend support to the company over the long term.

 

Robust financial risk profile: The company has a robust financial risk profile, marked by healthy networth of over Rs 1,099 crore and minimal debt as on March 31, 2022. The financial risk profile should remain strong over the medium term, driven by healthy cash accrual, adequate liquidity and absence of any large capital expenditure (capex).

 

Weaknesses:

  • Susceptibility of profitability to capital investment cycles and structural issues in the power sector: Profitability remains susceptible to any downturn in demand and structural issues and volatility in the power sector. Any large-scale project deferrals can cause cost overruns for players, and adversely impact their margin, as they have limited scope to pass on the hike. While such risks have been mitigated by diversification of the revenue profile, and efficient cost and resource management, profitability remains susceptible to these structural issues.

 

  • Exposure to intense competition: The power T&D segment is intensely competitive, owing to presence of several domestic and international players. Most large orders are procured through competitive bidding, which along with the macroeconomic slowdown, has led to heightened competition and pressure on profitability. While cost optimisation measures have helped the company arrest the pressure on profitability to an extent, it will remain susceptible to intense competition over the medium term.

Liquidity: Superior

Liquidity remains adequate, as reflected in unencumbered cash equivalent of Rs 86 crore as on March 31, 2022 and expected annual cash accrual of Rs 250-300 crore per fiscal in 2023 and 2024. As the bank limit of around Rs 849 crore has been largely unutilised, it can be used to cover the incremental working capital expenses over the medium term. Liquidity is further aided by the debt-free status of the company.

Outlook: Stable

CRISIL Ratings believes that the company will continue to benefit from its established market position, reputed clientele and strong parental support; and will maintain its robust financial risk profile, given its conservative financial policy.

Rating Sensitivity factors

Downward factors:

  • Slump in order inflow or decline in operating margin below 6% on a sustained basis
  • Any large, debt-funded capex weakening liquidity
  • Material weakening of the credit risk profile of Hitachi Ltd, leading to downward revision in its rating by S&P Global Ratings by one or more notches, or change in stance or support philosophy towards Hitachi Energy India Limited

About the Company

Incorporated in February 2019, following the demerger of ABB India's power grid business unit, Hitachi Energy India Limited provides product, system, software and service solutions across the entire power value chain. The portfolio includes an extensive range of high-voltage products, transformers, grid automation products, and power quality products and systems.

 

Hitachi Energy India Limited is a public limited company with 25% equity shares traded publicly. The balance 75% promoter shareholding is currently held by Hitachi Energy Ltd., based in Zurich, Switzerland

Key Financial Indicators (for financial year ending March 31)

Particulars

Unit

2022^

2020*

Revenue

Rs.Crore

4,951

3,439

Profit After Tax (PAT)

Rs.Crore

203

100

PAT Margin

%

4.1

2.9

Adjusted debt/adjusted networth

Times

0.11

0.0

Interest coverage

Times

9.1

7.6

*Reported financials (for the period, January-December 2020)

^Reported financials (for the period, January 2021-March 2022)

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

ISIN

Name of instrument

Date of allotment

Coupon
rate (%)

Maturity date

Issue size
(Rs.Crore)

Complexity

levels

Rating

NA

Fund-Based Facilities

NA

NA

NA

849

NA

CRISIL AAA/Stable

NA

Non-Fund Based Limit

NA

NA

NA

250

NA

CRISIL A1+

NA

Non-Fund Based Limit

NA

NA

NA

3308

NA

CRISIL AAA/Stable

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

151

NA

CRISIL AAA/Stable

NA

Proposed Non Fund based limits

NA

NA

NA

1442

NA

CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 1000.0 CRISIL AAA/Stable   -- 30-12-21 CRISIL AAA/Stable   --   -- --
      --   -- 12-04-21 CRISIL AAA/Stable   --   -- --
      --   -- 04-01-21 CRISIL AAA/Stable   --   -- --
Non-Fund Based Facilities ST/LT 5000.0 CRISIL A1+ / CRISIL AAA/Stable   -- 30-12-21 CRISIL A1+   --   -- --
      --   -- 12-04-21 CRISIL A1+   --   -- --
      --   -- 04-01-21 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 252 Bank of America N.A. CRISIL AAA/Stable
Fund-Based Facilities 211 Deutsche Bank CRISIL AAA/Stable
Fund-Based Facilities 100 HDFC Bank Limited CRISIL AAA/Stable
Fund-Based Facilities 6 Axis Bank Limited CRISIL AAA/Stable
Fund-Based Facilities 250 JP Morgan Chase Bank N.A. CRISIL AAA/Stable
Fund-Based Facilities 30 Kotak Mahindra Bank Limited CRISIL AAA/Stable
Non-Fund Based Limit 250 JP Morgan Chase Bank N.A. CRISIL A1+
Non-Fund Based Limit 311 Deutsche Bank CRISIL AAA/Stable
Non-Fund Based Limit 750 Axis Bank Limited CRISIL AAA/Stable
Non-Fund Based Limit 100 HDFC Bank Limited CRISIL AAA/Stable
Non-Fund Based Limit 497 Kotak Mahindra Bank Limited CRISIL AAA/Stable
Non-Fund Based Limit 650 Standard Chartered Bank Limited CRISIL AAA/Stable
Non-Fund Based Limit 1000 The Hongkong and Shanghai Banking Corporation Limited CRISIL AAA/Stable
Proposed Fund-Based Bank Limits 151 Not Applicable CRISIL AAA/Stable
Proposed Non Fund based limits 1442 Not Applicable CRISIL A1+

This Annexure has been updated on 08-Jul-2022 in line with the lender-wise facility details as on 11-Nov-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Engineering Sector
Mapping global scale ratings onto CRISIL scale
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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