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Hind Rectifiers Ltd. Audit Report / Information 2023
62363_rns_2023-06-30_1f202055-c0c6-44f7-b389-59adc3b5d494.pdf
Audit Report / Information
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Ref. No. HIRECT/SEC/2023-24/13 June 30, 2023
| BSE Limited | National | Stock | Exchange | of | India |
|---|---|---|---|---|---|
| Rotunda Building, | Limited | ||||
| Phiroz Jeejeebhoy Towers, | "Exchange Plaza" 5' Floor, C-1, Block 'G' | ||||
| Dalal Street, Mumbai | Bandra Kurla Complex, | ||||
| 400 001 Maharashtra | Bandra (East) Mumbai 400 051 | ||||
Security Code No.: 504036 Symbol: HIRECT Type of Security: Equity
Sub: Credit Rating
Dear Sir/ Madam,
This has reference to Regulation 30(6) of the SEBI Listing Regulations 2015.
In accordance with the said regulation, please find below the details of the revised rating published by CRISIL on June 30, 2023.
| Total bank loan facilities rated | Rs 132 crore |
|---|---|
| Long-term rating | CRISIL BBB-/Stable (Outlook revised from 'Negative' |
| Short-term ratin | CRISIL A3 (Reaffirmed |
| CRISIL Ratings revised has its BBB-'. The short-term rating has been reaffirmed at 'CRISIL A3'. Kindly take the same on record. |
Hind long-term bank outlook on the facilities of Rectifiers Ltd (HRL) to 'Stable from 'Negative' while reaffirming the rating at 'CRISIL |
| Thanking you, Yours Faithfully, |
|
| oe For Hind Rectifiers Limited |
|
| Meenakshi Anchlia (Company Secretary & Compliance Officer) |
|
| Encl: As above | |
| Perfectly Engineered Power Conversion Systems |
For Hind Rectifiers Limited oe
Rating Rationale
June 30, 2023 | Mumbai
Hind Rectifiers Limited
Rating outlook revised to 'Stable'; Ratings Reaffirmed
Rating Action
| Total Bank Loan Facilities Rated | Rs.132 Crore |
|---|---|
| Long Term Rating | CRISIL BBB-/Stable (Outlook revised from 'Negative'; Rating Reaffirmed) |
| Short Term Rating | CRISIL A3 (Reaffirmed) |
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 revised its outlook on the long-term bank facilities of Hind Rectifiers Ltd (HRL) to 'Stable from 'Negative' while reaffirming the rating at 'CRISIL BBB-'. The short-term rating has been reaffirmed at 'CRISIL A3'.
The revision in outlook reflects improvement in the business profile of the company supported by improved profitability and steady growth in scale. The revenues as well as the operating margins have improved in Q4 FY23 to Rs. 111.6 crore and 9.9% as compared to Rs. 97.2 crore and 6.7% in Q3 FY23 respectively. The improvement in operating margins is due to improved product mix as well as backward integration measures implemented by the company. Steadily increasing scale backed by healthy demand while maintaining stable operating margins around 9% should continue to support the business risk profile over the medium term. Financial risk profile continues to remain comfortable with adequate liquidity.
The ratings continue to reflect the extensive experience of the promoters in the power electronic equipment industry, the strong order book providing revenue visibility and the comfortable financial risk profile of the company. These strengths are partially offset by the large working capital requirement and exposure to risk posed by the tender-based nature of business and concentration in the enduser industry base.
Key Rating Drivers & Detailed Description
Strengths:
Extensive experience of the promoters: Benefits from the five-decade-long experience of the promoters in the power electronic equipment industry, their in-depth understanding of market dynamics, development of new products in keeping with changing market demands, and strong relationships with customers and suppliers should continue to support the business. Clientele includes the Indian Railways and Bharat Heavy Electricals Ltd (rated 'CRISIL AA-/Negative'). Revenue rose to around Rs. 355-360 crore in fiscal 2023 from Rs 305 crore in fiscal 2021.
Strong order pipeline: Orders worth more than Rs 330 crore, to be executed in the next 18 months, provide near-term revenue visibility and will help sustain growth in revenue. Fresh tenders, expected to float in August 2023, should also ensure a steady flow of orders. This is driven by continuous development of new products and addition of customers.
Comfortable financial profile: Networth was healthy, at around Rs. 91-92 crore as on March 31, 2023. Total outside liabilities to adjusted networth ratio was moderate at around 1.8-1.9 times, as on March 31, 2023, aided by a healthy networth and stable debt. The company has issued 5,00,000 sweat equity shares of Rs. 10.8 crore to the promoters, leading to PAT losses in Q4 fiscal 2023. Further 8,00,000 sweat equity shares are yet to be issued to the promoter by December 2023. However, the same would not have an impact on the financial profile of the company. Capital structure should remain comfortable over the medium term with steady accretion to reserves. Debt protection metrics though have been affected in fiscal 2023 are expected to improve over the medium term with expected increase in operating margins. Interest coverage ratio and net cash accruals to adjusted debt was at around 1.8 times and around 0.08 times in fiscal 2023. Improvement in debt protection metrics remains a key sensitivity factor.
Weakness:
Exposure to risks posed by the tender-based nature of operations and concentration in the end-user industry base: The company derives 70-80% of its revenue from the Indian Railways, and thus, growth in revenue and profitability remain linked to prospects of this segment. Any slowdown or stretch in receivables could impinge upon performance of the company. Further, as majority of revenue is tender-based, income and profitability also depend upon ability of the company to bid successfully for contracts floated by the Indian Railways and other government agencies. Sustained growth in revenue would be a key monitorable over the medium term.
Volatility in operating margin:
Operating margin have been volatile in the range of 4-7% over the past three fiscals through fiscal 2023. The company reported EBITDA loss in H1 FY2023 , due to variation in the product mix and fluctuation in prices of raw materials such as oil, copper, semiconductors and various other electrical components and execution of contracts at lower rates. Though margins have improved back to around 9.9% in Q4 FY23, sustenance of healthy margins will remain a key monitorable over the medium term.
Large working capital cycle: Although improving, HRL's operations are working capital intensive, reflected in its estimated gross current assets (GCA) of around 180 days as on March 31, 2023, drievn by debtors and inventory stood at 69 days and 98 days, respectively. The company extends moderate credit period of 60-90 days to its customers and has been recieving timely payment from them. Also, the company has to maintain a large inventory of raw materials to meet customer demand on time as well as because of its long processing cycle.
Liquidity: Adequate
Expected annual cash accruals of Rs. 23-23.5 crore which would be sufficient aganist repayment obligation of Rs. 9.5-12.5 crore in fiscal 2024 and 2025. Bank limit utilization is average at 77% for the past 6 months through April 2023. Cash and bank balance of Rs. 1.4 crore as on March 31, 2023. Moderate gearing and healthy networth provide financial flexibility in case of any adverse conditions or downturns in the business.
Outlook: Stable
CRISIL Ratings believes the business profile of HRL will continue to be supported by extensive experience of promoters.
Rating Sensitivity Factors
Upward factors:
- Growth in revenue and operating margin leading to cash accrual of over Rs 25 crore
- Sustenance of capital structure and working capital cycle
Downward factors:
- Decline in revenue on account of delays in order execution or further fall in operating margin, leading to cash accrual of less than Rs. 15 crores
- Stretch in working capital cycle affecting the financial profile of the company
About the Company
Incorporated in April 1958, HRL was promoted by the late Mr SK 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. Facilities are in Mumbai, Nashik (both in Maharashtra) and Dehradun (Uttarakhand). The company is listed on the Bombay and National Stock Exchanges.
Key Financial Indicators
| Particulars | Unit | YTD Mar 2023 | 2022 | 2020 |
|---|---|---|---|---|
| Revenue | Rs crore | 359.1 | 372.10 | 305.10 |
| PAT | Rs crore | -6.4 | 7.80 | 5.33 |
| PAT margin | % | -1.78 | 2.10 | 1.75 |
| Adjusted debt/adjusted networth | Times | 1.15 | 0.83 | 1.01 |
| Interest coverage | Times | 1.84 | 3.12 | 2.20 |
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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.
CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.
For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.
| ISIN | Name of instrument |
Date of allotment |
Coupon rate (%) |
Maturity date | Complexity levels |
Issue size (Rs.Crore) |
Rating assigned with outlook |
|---|---|---|---|---|---|---|---|
| NA | Bank guarantee | NA | NA | NA | NA | 27 | CRISIL A3 |
| NA | Cash credit | NA | NA | NA | NA | 83.5 | CRISIL BBB-/Stable |
| NA | Overdraft facility | NA | NA | NA | NA | 7 | CRISIL BBB-/Stable |
| NA | Term loan | NA | NA | June-2026 | NA | 5 | CRISIL BBB-/Stable |
| NA | Term loan | NA | NA | June-2026 | NA | 3.5 | CRISIL BBB-/Stable |
| NA | Term loan | NA | NA | June-2026 | NA | 6 | CRISIL BBB-/Stable |
Annexure - Details of Instrument(s)
Annexure - Rating History for last 3 Years
| Current | 2023 (History) | 2022 2021 |
2020 | Start of 2020 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Instrument | Type Outstanding Amount |
Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating | Rating | |
| Fund Based Facilities |
LT | 105.0 | CRISIL BBB-/Stable 13-02-23 |
CRISIL BBB-/Negative |
25-11-22 | CRISIL BBB-/Stable |
28-05-21 | CRISIL BBB-/Stable 10-02-20 |
CRISIL BBB-/Positive |
CRISIL BBB-/Stable |
||
| -- | -- | 30-05-22 | CRISIL BBB-/Positive |
-- | 05-02-20 | CRISIL BBB-/Positive |
-- | |||||
| -- | -- | 19-05-22 | CRISIL BBB-/Positive |
-- | -- | -- | ||||||
| Non-Fund Based Facilities |
ST | 27.0 | CRISIL A3 | 13-02-23 | CRISIL A3 | 25-11-22 | CRISIL A3 | 28-05-21 | CRISIL A3 | 10-02-20 | CRISIL A3 | CRISIL A3 |
| -- | -- | 30-05-22 | CRISIL A3 | -- | 05-02-20 | CRISIL A3 | -- | |||||
| -- | -- | 19-05-22 | CRISIL A3 | -- | -- | -- |
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
|---|---|---|---|
| Bank Guarantee | 7 | ICICI Bank Limited | CRISIL A3 |
| Bank Guarantee | 10 | Standard Chartered Bank Limited |
CRISIL A3 |
| Bank Guarantee | 5 | IDFC Limited | CRISIL A3 |
| Bank Guarantee | 5 | TJSB Sahakari Bank Limited | CRISIL A3 |
| Cash Credit | 7.1 | IDFC Limited | CRISIL BBB-/Stable |
| Cash Credit | 27 | Standard Chartered Bank Limited |
CRISIL BBB-/Stable |
| Cash Credit | 31.5 | TJSB Sahakari Bank Limited | CRISIL BBB-/Stable |
| Cash Credit | 17.9 | ICICI Bank Limited | CRISIL BBB-/Stable |
| Overdraft Facility | 3.5 | Thane Janata Sahakari Bank limited |
CRISIL BBB-/Stable |
| Overdraft Facility | 3.5 | Standard Chartered Bank Limited |
CRISIL BBB-/Stable |
| Term Loan | 3.5 | Thane Janata Sahakari Bank limited |
CRISIL BBB-/Stable |
| Term Loan | 5 | ICICI Bank Limited | CRISIL BBB-/Stable |
| Term Loan | 6 | IDFC Limited | CRISIL BBB-/Stable |
Criteria Details
| Links to related criteria |
|---|
| Rating criteria for manufaturing and service sector companies |
| CRISILs Approach to Financial Ratios |
| CRISILs Bank Loan Ratings - process, scale and default recognition |
| The Rating Process |
| Understanding CRISILs Ratings and Rating Scales |
| CRISILs Bank Loan Ratings |
| Rating Criteria for Engineering Sector |
| Understanding CRISILs Ratings and Rating Scales |
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