| Spur Technologies Private Limited | ||||
| Rating removed from ‘Watch Negative’; Rating Reaffirmed | ||||
| Rating Action | ||||
| ||||
| 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 removed its rating on the bank facilities of Spur Technologies Pvt Ltd (Spur) from 'Rating Watch with Negative Implications' and reaffirmed the rating at ‘CRISIL BBB+' while assigning a 'Negative' outlook to the long-term rating The ratings have been removed from watch following a similar rating action on the parent, Hero Cycles Ltd (HCL; rated ‘CRISIL A+/Negative/CRISIL A1). HCL has discarded its plans for the demerger of its cycle business into Hero Cycles Group Pvt Ltd. which would have been owned directly by the promoters of HCL. The company’s management will withdraw the demerger application from the National Company Law Tribunal (NCLT) soon.
The revision in outlook the weak operating performance of the cycle business of HCL on account of slower-than-expected ramp up in subsidiaries. Consolidated revenue for fiscal 2023 is estimated at ~Rs 2,100 crore (similar to that in fiscal 2022). Though there has been improvement in the consolidated operating profit from the overall cycle business in the first quarter of fiscal 2024 driven by turnaround in HNF GMBH, it remains lower than expected. Furthermore, continued marginal operating losses for subsidiaries has led to continued pressure on the overall cycle business. Ramp-up in subsidiaries and turnaround in their operating profitability in fiscal 2024 will be key monitorables.
Consolidated net debt for HCL estimated at ~Rs 580 crore as on March 31, 2023 increased from ~Rs 420 crore as on March 31, 2022. This is mainly because of larger working capital requirement given pile-up of inventory amid subdued demand. However, liquidation of excess inventory in the near term should reduce net debt in fiscal 2024. Profits of the Indian joint ventures (JVs) will continue to accrue in HCL. Given the strong operating performance of the JVs, healthy expected dividend income is expected over Rs 70 crore in fiscal 2024 will aid accrual and liquidity. HCL has already received Rs 23 crore of dividend in July 2023.
The management has also indicated measures to enhance liquidity, including monetisation of non-core assets in the next two fiscals. Timely execution of these liquidity events, leading to reduction in debt, will remain a rating sensitivity factor.
The ratings reflect the strong support from HCL, experienced management and strong opportunity for premium components. These strengths are offset by the modest scale of trading operations and subdued debt protection metrics. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial linkages Spur shares with HCL. |
Key Rating Drivers & Detailed Description Strengths:Strong support from the parent, HCL Being a wholly owned subsidiary of HCL, Spur receives strong operational, financial and managerial support from the parent. Majority of sales are to various group entities and the company also plans to cater to global markets such as Europe.
HCL exercises management control over Spur, including oversight on daily operations and the treasury. The parent has provided inter-corporate deposits of Rs 5 crore to fund capital expenditure (capex) in Spur, as well as provided a shortfall undertaking to its bankers. HCL is likely to provide need-based support to Spur for timely interest and debt servicing, while the operations ramp up.
Benefits from experienced management and strong opportunity for premium components Spur has the same management as HCL, which is the largest bicycle manufacturer in the domestic market. The promoters have decades of experience in the cycles segment. Spur is targeting sales of high-end components for premium bicycles in the domestic as well export markets such as Europe. It has built capabilities and is forging customer relationships for the business. The ability of the management to capture market share in competitive markets will be a key monitorable.
Weaknesses:Modest scale of trading operations; manufacturing still in the project phase Till fiscal 2022, trading operations formed the entire revenue, which was below Rs 26 crore for the past three fiscals. While the company has set up manufacturing facilities and commenced production, revenue is estimated to be around Rs 31 crore for fiscal 2023 due to subdued demand. Ability to ramp up operations will remain a key rating sensitivity factor going forward.
Subdued debt protection metrics: Networth was modest at Rs 2 crore as on March 31, 2022. The company had external debt of ~Rs 17 crore as of March 2023, to fund its working capital requirement and capex towards the new manufacturing facility. Hence, debt protection metrics remained subdued. HCL is expected to provide need-based support for timely servicing of debt. Better cash accrual, leading to improvement in debt protection metrics, will be a key monitorable. |
Liquidity: Adequate Liquidity is driven by strong financial linkages with HCL, which is expected to provide need-based support for timely debt servicing. Cash and liquid investments were negligible as on March 31, 2023. However, financial support is expected from HCL in fiscal 2024 since modest cash accrual may not be adequate to cover the debt obligation of ~Rs 4 crore. Furthermore, Spur has adequate financial flexibility, being a part of the Hero Cycles group. |
Outlook: Negative The outlook reflects the outlook of CRISIL Ratings on the credit quality of HCL. |
Rating Sensitivity Factors Upward factors * Upgrade in the credit rating of HCL by one or more notches * Significant improvement in scale of operations along with steady increase in the operating margin
Downward factors * Downgrade in the credit rating of HCL by one or more notches * Weakening of linkages between HCL and Spur |
About the Company Spur was incorporated in 2014 as a wholly owned subsidiary of HCL. The company trades in bicycle components and spares such as forks, handlebars and rims. It is setting up a manufacturing facility for various components with a focus on the premium segment and export sales. The sales are mostly to group entities with plans to diversify its clientele. |
About the Parent Incorporated in 1956, HCL is the largest bicycle manufacturer in the world. The company has capacity to manufacture 65 lakh bicycles per year, with units in Ludhiana, Punjab; Bihta, Bihar; and Ghaziabad, Uttar Pradesh. It also produces automobile rims and components. Operations are managed by Mr Pankaj Munjal and his family members.
In fiscal 2016, the group completed three acquisitions: Firefox Bikes (Firefox), Insync Bikes (Insync) and BSH Ventures Pvt Ltd (BSH). Firefox is a leading player in the premium bicycles segment in India and currently sells over 100 different models. Insync is one of the top three distributors of bicycles, e-bikes, bicycle parts and accessories, with presence across Europe. BSH is a bicycle manufacturer based in Sri Lanka, with a state-of-the-art manufacturing plant that will supplement sales of HCL in southern India and Europe.
HCL entered the commercial real estate business through Munjal Hospitality Pvt Ltd (MHPL) and acquired an under-construction hotel property in Gurugram, Haryana, in fiscal 2012. In 2019, the company diluted its 60% stake in MHPL for a consideration of Rs 438 crore. In the same year, it acquired the HNF brand in Germany, aiming to emerge as a full-range supplier in the European market. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with capex letter of credit upto Rs 10 cr |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
|
Criteria Details
|