| Ingersoll Rand India Limited | ||||||
| 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 reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of Ingersoll Rand India Limited (IRIL).
CRISIL Ratings expects IRIL to report a topline growth of over 20% in fiscal 2022 to over Rs 750 core, driven by low base effect of last fiscal. Operating profitability is expected to revert to pre-pandemic levels of over 15%, given moderation in gross margins due to higher freight costs, while other costs such as employee and travel returning to pre-pandemic levels. ln the first half of fiscal 2022, company has achieved a top line of Rs 443 crore and operating margin of over 16%.
In fiscal 2021, topline for IRIL de-grew by 15% on account of a 6% de-growth in finished goods segment, 10% de-growth in installation services segment and 85% de-growth in business support services segment. While the de-growth in finished goods segment and installation services segment was due to disruptions caused by the pandemic, the de-growth in business support services was primarily due to change in company structure post completion of transaction between Ingersoll Rand Co, USA (IRCo, rated 'BBB/Stable/A-2' by S&P Global, currently known as Trane Technologies) and Gardner Denver Holdings (GDH, rated 'BB+/Stable by S&P Global, currently known as Ingersoll Rand Inc) as the support that was provided to the climate businesses earlier in India has been discontinued. However, operating margin improved by 200 basis points to nearly 18% owing to substantial cost-optimisation measures such as pruning of employee costs, rentals and lower travel.
The ratings continues to reflect IRIL’s established position with strong brands in the domestic compressor manufacturing segment, along with the technological and operational support from its parent, Ingersoll Rand Inc. (IR Inc, rated 'BB+/Stable by S&P Global). The ratings also factor in support from IRIL’s healthy financial risk profile, supported by a debt free balance sheet. These strengths are partially offset by exposure to risks related to cyclical demand from end-user segments, susceptibility of profitability to volatile raw material prices and high dividend pay-outs leading to moderation in networth and liquidity. |
Key Rating Drivers & Detailed Description Strengths: Established market position and strong brand presence in compressor manufacturing segment IRIL has strong brand presence in the Indian compressor market. The company has a dominant market share of over 45% in the centrifugal compressor segment. However, it faces competition from other prominent players such as Atlas Copco India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Elgi Equipments Limited (‘CRISIL AA/Stable/CRISIL A1+’), and Kirloskar Pneumatic Company Limited (‘CRISIL AA-/Stable/CRISIL A1+).
Strong operational and technological support from the parent, IR Inc IR Inc, with revenue of over USD 5.4 billion as of December 2020, holds 75% stake in IRIL. It provides mission-critical air, fluid, energy, specialty vehicles and medical technologies; coupled with services and solutions to increase industrial productivity and efficiency. The parent provides requisite technological support to IRIL and procures a part of its global small compressor requirement from India. Exports (predominantly sales to affiliates) accounted for around 22% of IRIL’s revenue in fiscal 2021. Furthermore, IRIL meets a part of its input material requirement from its affiliates. CRISIL Ratings believes that IR Inc’s support by way of close interaction with the management and access to a global product portfolio will support IRIL’s business risk profile, over the medium term.
Healthy financial risk profile IRIL’s financial risk profile is healthy supported by debt-free balance sheet. Networth at over Rs 491 crore as on September 30, 2021 is adequate but has moderated from over Rs.1000 crore in fiscal 2018, due to material dividend payout (higher than profits generated in fiscal 2019). The company invested around Rs. 100 crore to upgrade its facilities in Naroda, Ahmedabad over fiscals 2015 and 2016 leading to adequate manufacturing capacity. Over the medium term, the company is expected to incur capital expenditure (capex) in the range of Rs 10-20 core per annum. Debt protection metrics continue to remain healthy, with ratio of total outside liabilities (TOL)/ tangible net worth (TNW), remaining below 0.5 time since fiscal 2017, and is likely to remain so, given the absence of material capex plans or expansion of working capital. IRIL is also expected to sustain its strong balance sheet over the medium term, enhancing its flexibility to raise funds.
Weakness: Exposure to risks related to cyclical demand in end-user industries and to volatility in raw material prices IRIL’s revenues over the past five fiscals have ranged between Rs 600-750 crore due to high competitive intensity and lower capex undertaken by its customers. IRIL's customers in the industrial segment are largely based in capital-intensive sectors such as automotive, metals, pharmaceutical and textiles. Barring pharmaceuticals, demand from other sectors depends on the macro-economic environment and is therefore, cyclical. Further postponement of deliveries due to the outbreak of Covid-19 pandemic recently led to lower revenues in fiscal 2021. Over the medium term, CRISIL Ratings believes that IRIL’s revenues will remain vulnerable to cyclicality in investments in end-user industries and high competitive intensity.
In addition, IRIL’s profitability is susceptible to fluctuations in foreign exchange rates and prices of raw materials and components (primarily castings made out of pig iron and steel). Material costs ranged at 54-59% of operating income over the four fiscals through 2021, reflecting the impact on the cost structure and operating margin. Nevertheless, the operating margin improved between fiscals 2018 and 2021, ranging between 13-18% owing to better product mix and substantial cost optimisation in fiscal 2021.
High dividend pay-outs leading to moderation in liquidity In fiscals 2019 and 2020, the company had paid special dividends leading to a pay-out of Rs 792 crore and Rs 106 crore (including dividend distribution tax) respectively, which substantially moderated net worth and liquidity from over Rs 1100 crore and Rs 770 crore respectively in fiscal 2018 to over Rs 380 crore and Rs 160 crore respectively in fiscal 2020. Company continues to hold healthy cash surpluses of over Rs 295 crore as on September 2021, while bank lines were completely unutilised. Dividend pay-out is expected to normalise over the medium term, facilitating better cash surplus build-up and improvement in net worth. |
Liquidity: Strong Liquidity is strong with cash surplus of around Rs 295 crore as of September 2021. Fund based working capital lines are unutilised, as the company has surplus cash. The company had nil debt as on September 30, 2021 and is expected to operate as a debt free company over the medium term. Cash accrual is expected to be sufficient to meet incremental working capital needs and low capital spends. |
Outlook: Stable CRISIL Ratings believes that IRIL will continue to sustain its established business position in the domestic compressor segment over the medium term, with technical and product support from its parent. Its operating profitability is also expected to sustain at healthy double digit levels. The company is also likely to maintain its healthy financial risk profile, marked by debt free balance sheet, and also gradually build up its liquidity over the medium term, following a prudent dividend philosophy. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company IRIL was incorporated in 1921. It manufactures air compressors of various capacities for the domestic and export markets. The company derives revenue from the sale of reciprocating, rotary, and centrifugal compressors and spares in the domestic market, and from exports to its parent and affiliates. The company has a manufacturing facility in Ahmedabad (Gujarat) and branch offices in most metros in India. |
Key Financial Indicators
CRISIL Ratings Adjusted | ||||||||||||||||||||||||
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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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