Hind Rectifiers Ltd. — Capital/Financing Update 2023

Feb 13, 2023

Rotunda Building, Limited Dalal Street, Mumbai Bandra Kurla Complex,

ri	: Lake Road, Bhandup (W), Mumbai - 400078. Address_ : +91-22-25696789 Fax : +91-22-25964114 Tel. : corporate@hirect.com / marketing@hirect.com Email L28900MH1958PLC011077 CIN : : www.hirect.com Website
No. HIRECT/SEC/2022-2023/58° Ref.	February 13, 2023
BSE Limited	Exchange National Stock India of
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 Sub: Credit Rating	Symbol: HIRECT Type of Security: Equity
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 February 13, 2023.
Total bank loan facilities rated	Rs 132 crore
Long-term rating	CRISIL BBB-/ Negative (rating reaffirmed and
	outlook revised from 'Stable')
Short-term rating	CRISIL A3 (reaffirmed)

CRISIL Ratings has revised its outlook on the long-term bank facilities of Hind Rectifiers Limited (HRL) to 'Negative' from 'Stable' while reaffirming the rating at 'CRISIL BBB-'. The short-term rating has been reaffirmed at 'CRISIL A3'. The company reported cash losses in this period dye to a decline in ievenues as well as operating margins. This was due to delays in the execution of orders, coupled with a significant increase in raw material prices primarily electrical components as well as unfavorable product mix. However, some recovery is witnessed in Q3 of fiscal 2023.

Kindly take the same on record.

Thanking you,

Yours Faithfully,

For Hind Rectifjers Limited

weer Meenakshi Anchlia (Company Secretary & Compliance Officer)

Encl: As above

Perfectly Engineered Power Conversion Systems

Rating Rationale

Hind Rectifiers Limited

Rating Action

	CRISIL Ratings
Rating Rationale February 13, 2023 Mumbai
Limited Hind Rectifiers
	Rating outlook revised to 'Negative', Ratings reaffirmed
Rating Action Total Bank Loan Facilities Rated	Rs.132 Crore
Long Term Rating	CRISIL BBB-/Negative (Outlook revised from 'Stable'; Rating Reaffirmed)
CRISIL A3 (Reaffirmed) Short Term Rating

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 Limited (HRL) to 'Negative' from 'Stable' while reaffirming the rating at 'CRISIL BBB-'. The short-term rating has been reaffirmed at 'CRISIL A3'.

The revision in outlook reflects weakening of business and financial risk profiles, as reported in 9 month ended December 31, 2022. The company reported cash losses in this period due to decline in revenues as well as operating margins. This was due to delays in execution of order, coupled with significant increase in raw material prices primarily electrical components as well as unfavorable product mix. Although, some recovery is witnessed in Q3 of fiscal 2023, the overall performance for the year, is expected to remain below CRISIL Ratings expectations as well as fiscal 2022. A sustained weak operating performance could impact the liquidity in near term. Hence, sustained improvement in business performance and liquidity would be a key monitorable.

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 end-user industry base.

CRISIL Ratings had revised its outlook on the long-term bank facilities of HRL to 'Stable' from 'Positive' while reaffirming the rating at 'CRISIL BBB-'; the short-term rating has been reaffirmed at 'CRISIL A3' on November 25, 2022.

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 Rs 372.5 crore in fiscal 2022 from Rs 305 crore in fiscal 2021. The company has achieved revenue of Rs 247 crore till December 2022 and is likely to report revenue of Rs 360-370 crore for the full fiscal.

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 March 2023, should also ensure a steady flow of orders. This is driven by continuous development of new products and addition of customers.

Comfortable capital structure: Networth was healthy, at Rs 100.7 crore as on September 30, 2022, as against Rs 89 crore as on March 31, 2022. Total outside liabilities to adjusted networth ratio was moderate at 1.5 times, as on March 31, 2022, aided by a healthy networth and stable debt. Capital structure should remain comfortable over the medium term with steady accretion to reserves.

Weaknesses:

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. Revenue is likely to decline in fiscal 2023, with Rs 247.5 crore booked for the first nine months. 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 6-8% over the past few fiscals (except in fiscal 2020 when the company received a one-time high-margin order). The margin has declined to 4% as on December 2022 due to variation in the product mix and fluctuation in prices of raw materials such as oil, copper, semi-conductors and various other electrical components and execution of contracts at lower rates. Improvement in operating margin remains a key monitorable over the medium term.

Liquidity: Stretched

Liquidity is marked by insufficient cash accrual and moderate bank limit utilisation. Cash accrual are expected of Rs 3-3.5 crore which would be insufficient against annual debt obligation of Rs 7.5-8 crore in fiscal 2023. Improvement in cash accruals is expected to be at Rs. 13-14 crore which would be sufficient against debt obligation of Rs. 7.5-9 each in fiscal 2024 and 2025 and would remain a key monitorable. Bank limit utilisation was moderate averaging 70% on for the three months through December 2022Current ratio was moderate at 1.47 times as on March 31, 2022. Moderate gearing and healthy networth provide financial flexibility to raise additional debt in case of any adverse conditions or downturns in the business. Key financial indicators

Outlook: Negative

Rating Sensitivity Factors

Upward factors:

• e Growth in revenue and operating margin leading to cash accrual of over Rs 12 crore
• « Sustenance of capital structure and working capital cycle

Downward factors:

• e Bank limit utilisation exceeding 90%, thus weakening liquidity
• e Decline in revenue on account of delays in order execution or further fall in operating margin, leading to lower cash accrual

About the Company

various other electrical components and execution of contracts at lower rates. Improvement in operating margin remains a key monitorable over the medium term.
Large working capital cycle: Gross current assets were high ranging from 160 to 200 days for the four fiscals ended March 31, 2022, driven by large receivables of 65-110 days and inventory of 80-105 days. The company extends a high credit period to customers and maintain sizeable inventory to meet customer requirements on time.
Subdued debt protection metrics: Owing to operating losses in the first nine months of fiscal 2023, debt protection metrics have weakened as reflected in interest coverage ratios of 0.72 time as on December 2022 as compared to 3.4 times during the same period in 2021. Improvement in debt protection metrics remains a key sensitivity factor.
Liquidity: Stretched Liquidity is marked by insufficient cash accrual and moderate bank limit utilisation. Cash accrual are expected of Rs 3-3.5 Improvement in cash crore which would be insufficient against annual debt obligation of Rs 7.5-8 crore in fiscal 2023. accruals is expected to be at Rs. 13-14 crore which would be sufficient against debt obligation of Rs. 7.5-9 each in fiscal 2024 and 2025 and would remain a key monitorable. Bank limit utilisation was moderate averaging 70% on for the three months through December 2022Current ratio was moderate at 1.47 times as on March 31, 2022. Moderate gearing and healthy networth provide financial flexibility to raise additional debt in case of any adverse conditions or downturns in the business.
Outlook: Negative CRISIL Ratings believes the financial risk profile and liquidity of HRL may remain under pressure over the medium term owing to low cash profit.
Rating Sensitivity Factors Upward factors: e «	Growth in revenue and operating margin leading to cash accrual of over Rs 12 crore Sustenance of capital structure and working capital cycle
Downward factors: Bank limit utilisation exceeding 90%, thus weakening liquidity e Decline in revenue on account of delays in order execution or further fall in operating margin, leading to lower cash e accrual
About the Company Incorporated in April 1958, HRL was promoted by the late Mr SK Nevatia and is currently managed by Mr Saurabh Nevatia Mr Suramya company manufactures equipment such power electronic The transformers Nevatia. and as traction for locomotives and electrical multiple units, converters, rectifiers, power semiconductors and railway transportation equipment Mumbai, Nashik such board regulated chargers switch cabinets, and battery inverters. (both Facilities are as in in Maharashtra) and Dehradun (Uttarakhand). The company is listed on the Bombay and National Stock Exchanges.
Key financial indicators
Particulars	Unit	YTD Dec-22	2022	2020
Revenue	Rs crore	247.51	372.1	305.1
PAT	Rs crore	-3.91	7.8	5.33
PAT margin Adjusted debt/adjusted networth	% Times	-1.58	2.1	1.75
Interest coverage	Times	-	0.83 3.12	1.01
		-		2.2

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.
	Annexure - Details of Instrument(s)
		Date of			Coupon Maturity Issue size Complexity		Rating assigned
ISIN NA	Name of instrument Bank Guarantee	allotment rate (%) NA	NA	date NA	(Rs.Crore) 27	levels NA	with outlook CRISIL A3
NA	Cash Credit	NA	NA	NA	83.5	NA	CRISIL BBB-/Negative
NA	Overdraft Facility	NA	NA	NA	7	NA	CRISIL BBB-/Negative
NA	Term Loan	NA	NA	Jun-26	5	NA	CRISIL BBB-/Negative
NA	Term Loan	NA	NA	Jun-26	3.5	NA	CRISIL BBB-/Negative

Annexure - Details of Instrument(s)

Annexure - Rating History for last 3 Years

		Current			(History)	2022		2021		2020		snot
Instrument		Type Outstanding	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Fund Base es	LT	105.0	CRISIL BBB-/Negative			25-11-22	CRISIL app stable 7°°5°21		CRISIL BeB/stable	100720	CRISIL BBB-/Positive	CRISIL BBB-/Stable
						30-05-22	CRISIL BBB -/Positive			05-02-20	CRISIL BBR -/Positive
						19-05-22	CRISIL BBB /Positive
Non-Fund Based Facilities	ST	27.0	CRISILA3			25-11-22)	CRISILA3 28-05-21.		CRISILA3 10-02-20)			CRISILA3 CRISILA3
						30-05-22	CRISILA3			05-02-20	CRISILA3
						19-05-22)	CRISILA3

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-/Negative
Cash Credit	27	Standard Chartered Bank Limited	CRISIL BBB-/Negative
Cash Credit	31.5	TJSB Sahakari Bank Limited	CRISIL BBB-/Negative
Cash Credit	17.9	ICICI Bank Limited	CRISIL BBB-/Negative
a Overdraft Facility	3.5	Thane Janata Sahakari Bank limited	CRISIL BBB-/Negative
Overdraft Facility	3.5	Standard Chartered Bank Limited	=—=—Crisii BBB-/Negative
Term Loan	3.5	Thane Janata Sahakari Bank limited	CRISIL BBB-/Negative
Term Loan	5	ICICI Bank Limited	CRISIL BBB-/Negative
Term Loan	6	IDFC Limited	CRISIL BBB-/Negative

This Annexure has been updated on 13-Feb-2023 in line with the lender-wise facility details as on 06-May-2022 received from the rated entity.

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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