| L&T - MHI Power Turbine Generators Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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 |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of L&T - MHI Power Turbine Generators Pvt Ltd (LMTG; part of the L&T group). CRISIL Ratings has also withdrawn its rating on bank facilities of Rs 300 crore at the request of the company and upon receiving confirmation from the lenders. The withdrawal is in line with CRISIL Ratings’ withdrawal policy.
The ratings continue to reflect the strong financial and technological support from the promoters and joint venture (JV) partners -- Larsen & Toubro Ltd (L&T; ‘CRISIL AAA/Stable/CRISIL A1+’), Mitsubishi Heavy Industries Ltd (MHI ; rated ‘BBB+/Stable’ by S&P) and Mitsubishi Electric Corp (MELCO; rated ‘A+/Negative/A-1 by S&P). These strengths are partially offset by risks related to a subdued business environment in the thermal power sector and LMTG’s modest financial risk profile.
Operating performance remained muted in previous two fiscals, as operating income declined 18% y-o-y and 42% y-o-y during fiscals 2022 and 2023 respectively owing to low opening order book and inflows. However, EBITDA margin for fiscal 2023 remained in the similar range of fiscal 2022 at around 13.5%, as the company strived to mitigate slowdown in thermal power segment with hydro and machining job orders. Operating margin is expected to remain at around the 14-15% level over the medium term, against the 18-20% trajectory pre-fiscal 2020.
LMTG had outstanding orders worth Rs 265 crore as of March-2023. Fresh order inflow should provide better revenue visibility over the medium term and would remain a key rating sensitivity factor. Focus on machining jobs for modernisation/capacity addition of existing power plants are expected to contribute to a relatively higher margin revenue for the company.
Repayment of the first instalment of the long-term debt, which was refinanced during fiscal 2022, is due in December 2023. The company expects to repay the instalment out of internal accruals, which may put pressure on liquidity maintained to the extent of Rs 262 crore as on March 31, 2023. Interest coverage declined to 1.08 times in fiscal 2023 against 1.96 times in fiscal 2022. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has analysed the business and financial risk profiles of LMTG. The ratings centrally factor in the company's strategic importance to, and the strong support it is expected to receive from, its promoter, L&T, which has a 51% stake in LMTG. L&T has also infused equity in the past, with representation in senior management and a shared brand name. Furthermore, it has guaranteed the term debt proportionately, along with the other JV partner. |
Key Rating Drivers & Detailed Description Strengths: Strong financial and technological support from promoters: The promoters have infused capital in the past. The JV partners have also guaranteed the long-term debt. In addition, technological support is received from MPL and MELCO along with marketing support from L&T; this helps LMTG maintain its strong market position, operating efficiency, and financial flexibility.
Established presence in power turbine generators: LMTG is the second largest manufacturer of boiler turbine generators (BTG) segment in India, with a capacity to manufacture 4,000 MW of Turbines and Generators per year. LMTG has a fully integrated factory in Hazira, Gujarat, where large size turbine and generators are manufactured, assembled, and tested under single roof. It offers end-to-end manufacturing solutions and life-cycle support using the latest Ultra Supercritical Turbine and Generator technology to domestic and overseas customers.
Weaknesses: Exposure to subdued business environment in the thermal power sector: Large capacity additions in the thermal power generation segment without adequate off-take and fuel arrangement have put pressure on the financials of power generation companies. As a result, the private sector is slowing down their capacity addition from that planned earlier. The company has not received a major order since 2019. However, the company is expecting a pick-up in brownfield projects in the near term as well as projects from the hydro power segment.
Modest financial risk profile: The capital structure is leveraged, albeit improving, because of sizeable outstanding debt of Rs 689 crore as on March 31, 2023. The debt protection metrics are expected to remain modest given subdued business environment. The financial risk profile, however, is cushioned by demonstrated ability to refinance. |
Liquidity: Adequate Liquidity is cushioned by the fund-based bank limit that was utilised at an average of 43% during the 12 months ended March 2023. LMTG is expected to meet its incremental working capital requirement from unutilised bank lines. Also, availability of cash and equivalents (including liquid investments in mutual funds) to the tune of Rs. 262 crore as of March 2023 and visibility of realisation of receivables on account of completion of few large projects should provide liquidity buffer, although repayment of debt instalment of Rs 135 crore due in December 2023 will put pressure on the liquidity position. |
Outlook: Stable LMTG will continue to receive strong support from its JV partners. However, its business risk profile should remain constrained by sluggish domestic order flow; financial risk profile should also remain modest due to high working capital intensity. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company LMTG was incorporated as L&T-MHI Turbine Generators Pvt Ltd (L&T-MHI) in November 2007. At the time, the company was as a 51:49 JV between L&T and Mitsubishi Heavy Industries Ltd (MHI). MELCO holds a 10% equity stake in LMTG; this stake, for the purpose of the JV agreement, is recognised and treated as MPL's shareholding.
LMTG manufactures supercritical steam turbines and generators in Hazira, Gujarat. The plant has capacity to manufacture turbines and generators equivalent to 4,000 megawatt per annum. The company has entered into two technology agreements: with MHI Power for turbines and with MELCO for generators. |
About the Parent Set up in 1938 by Mr H H Larsen and Mr S K Toubro, L&T was incorporated in 1946 and reconstituted as a public limited company in 1950. It is one of Asia’s largest vertically integrated EPC conglomerates, with a strong market position across segments such as infrastructure, power, hydrocarbons, heavy engineering, defense engineering, electrical and automation, IT, IT&TS, metallurgical and material handling, and machinery and industrial products. L&T undertakes infrastructure development projects (roads, metro rail, power and transmission lines) through its SPVs: L&T Infrastructure Development Projects Limited, L&T Power Development Limited and L&T Metro Rail (Hyderabad) Limited. |
Key Financial Indicators (CRISIL Ratings-adjusted numbers)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@@@Fully Interchangeble with Working Capital Demand Loan, PCRE/PCFC, Bill Discounting, OTSTL |
| 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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*Export Packing Credit ("EPC") upto Rs. 100 Cr & Short term loan ("STL") upto Rs. 200 Crore
^Interchangeble with LC and Invoice Financing upto Rs. 50 Crore, with Short term loan, OD and Buyer's Credit upto Rs. 100 Crore, Packing Credit upto Rs. 200 Crore
^^Interchangeable with WCDL upto 125 Crore, OD upto 50 Crore and EPC/PCL/PCFC/FUBP/FDBP/EBRD upto 125 Crore, LC & BG upto 120 Crore
#Interchangeable with LC upto Rs 25 crore
Criteria Details
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