Yuken India Ltd. — Audit Report / Information 2021

Oct 8, 2021

YUKEN INDIA LIMITED An ISO 9001 :2015 Company Manufacturers of Oil Hydraulic Equipment IN COLLABORATION WITH YUKEN KOGYO CO. LTD., JAPAN. CIN: L29150KA 1976PLC003017 No. 16-C, Doddanekundi PB No. 5, Regd. Office: Industrial Area II Phase, Factory: Koppathimmanahalli Village, Mahadevapura, Malur-Hosur Main Road, Malur Benqaluru - 560 048. Taluk, Kolar District- 563 130. Phone +91- 973161034 l Phone +91 9845191995 Our Ref No: YIL/Sec/2021 E-mail: h mn_rao@yukenindia.com Date: 08/10/2021 Web: www.yukenindia.com

To,

The General Manager, Listing Compliance & Legal Regulatory, BSE Limited, P J Towers, Dalal Street, Mumbai-400001. BSE Script Code: 522108

The General Manager, Listing Compliance & Legal Regulatory, National Stock Exchange of India Limited Exchange Plaza, Plot no. C/1, G Block, Bandra-Kurla Complex, Bandra (E), Mumbai- 400051 NSE Script Code: YUKEN

Dear Sir/Madam,

Sub: Intimation in respect of Credit Ratings under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

With reference to the captioned subject, we wish to inform you that, CARE Ratings Limited has released credit rating of our Company on 06[th ] October, 2021. We hereby attached the press release by CARE Ratings.

Please take the same on record.

Thanking you, Yours faithfully, For Yuken India Limited Vinayak Hegde Company Secretary & Compliance Officer

Press Release

Yuken India Limited

October 06, 2021

Ratings

Facilities	Amount (Rs. crore)	Rating1	Rating Action
Long Term Bank Facilities	39.03	CARE BBB-; Positive (Triple B Minus; Outlook: Positive)	Assigned
Long Term Bank Facilities	14.00	CARE BBB-; Positive (Triple B Minus; Outlook: Positive)	Reaffirmed; Outlook revised from Stable
Long Term / Short Term Bank Facilities	68.50	CARE BBB-; Positive / CARE A3 (Triple B Minus; Outlook: Positive/A Three)	Assigned
Short Term Bank Facilities	30.00	CARE A3 (A Three)	Assigned
Short Term Bank Facilities	7.00	CARE A3 (A Three)	Reaffirmed
Total Facilities	158.53 (Rs. One Hundred Fifty Eight Crore and Fifty Three Lakhs Only)

Details of instruments/facilities in Annexure-1

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Detailed Rationale & Key Rating Drivers

The revision in the outlook of the bank facilities of Yuken India Limited (YIL) reflects expected improvement in scale of operations and profitability on back of recovery in demand in end user industry. After witnessing subdued performance during FY21 and H1FY22 as the operations were affected by Covid-19, there has been improvement in profitability from Q3FY22 onwards led by increased sales on back of higher infrastructure spend as well as various cost cutting measures undertaken resulting from process automation.

The rating continues to derive strength from experience of its promoters Yuken Kogyo Company Limited, Japan (YKC), the company’s established track record of more than four decades in the hydraulics equipment business, and established relationship with reputed clientele. There has been improvement in capital structure following closure of short term loan as well as improved collections from residential project being joint development agreement (JDA) with Brigade Enterprises Limited.

The ratings continue to be constrained by exposure of profitability to volatility associated with the key raw material prices as well as performance of end user industries. Company has also lined up sizeable investment plan exposing it to implementation and stabilization risk.

Rating Sensitivities

Positive factors- Factors that could lead to positive rating action/upgrade

• Significant improvement in sales while maintaining PBILDT margin > 9% on a sustained basis

• Significant improvement in collections from real estate project leading to improvement in capital structure

Negative factors- Factors that could lead to negative rating action/downgrade

• Consistent subdued performance of the company resulting in interest coverage of less than 1.25x and elevated debt levels.

Outlook: Positive

Positive outlook reflects likely improvement in profitability of the company aided by recovery in end user industry and cost cutting measures being undertaken. Additionally, post completion of current capex being undertaken, share of exports are expected to go up which would also augur well for its operating cashflows. The outlook may be revised to ‘Stable’ if YIL’s margins remains lower than envisaged or there is material deterioration in its capital structure and liquidity profile.

1 Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.

CARE Ratings Limited

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Press Release

Detailed description of the key rating drivers

Key rating strengths

Experienced promoters with technical support from YKC

YIL has more than four decades of track record in its line of business with technical and financial collaboration with Yuken Kogyo Company Limited, Japan (YKC). The day-to-day affairs of the company are looked after by Mr C.P. Rangachar (MD), Mr A.Venkatakrishnan (CEO) and Mr Narasinga Rao (CFO) who have commendable experience in the hydraulic industry and are assisted by team of well-experienced professionals. YKC is one of the leading manufacturers of hydraulic equipment in the world having presence in UK, Taiwan, China and Hong Kong and provides technical know-how and assistance to YIL for manufacturing hydraulic equipment. For the FY ending March 31, 2021, YKC earned revenue of 23.11 billion Yen as against 26.15 billion Yen in FY20. Networth of YKC stood at 17.33 billion Yen as on March 31, 2021. YKC holds 40% in Yuken India and has been supporting it by way of arranging additional WC limits based on its Corporate Guarantee.

Reputed clientele with established relationship

YIL’s clientele comprises leading corporates such as Tata Steel Ltd, SAIL, HMT, BHEL, Alstom, Tata-Hitachi, JCB, SAIL, NTPC, Toyota, Honda, Toshiba, etc. Over the period the company has developed strong relationships with the customers which results in repeat orders. YIL enjoys a strong network of about 58 dealers and servicing capability which differentiates it from competition.

Improvement in operational performance post revival in demand from the end user segment and is likely to sustain

YIL’s FY20 and H1FY21 operational performance had moderated as a result of muted demand for the hydraulic components from the end user industry viz. machine tool industry, plastic machine manufacturing companies and infrastructure. The revival in demand started gaining momentum from the Q3FY21 as evident by 77% of FY21’s TOI earned in H2FY21. YIL is in the process of automating the production process of pumps and valves with an objective to manufacture export quality products. In a strategic shift, YIL plans to establish itself as a key supplier to its parent company in a span of 5 years which would augur well for its operating cashflows.

Key rating weaknesses

Moderate capital structure and debt coverage indicators

Though the company’s capital structure improved due to closure of Rs.25 Cr short term loan availed to pay off the income tax charged on recognising sale of property rights funded by cash flow from Brigade, the capital remains leveraged at 0.97x as on March 31, 2021 (adjusted for the actual cash flows received under JDA). Further, the company has received term loan sanction of Rs.25 crore to undertake the capex to modernise and automate the manufacturing plant. There has been improvement in cashflows under JDA and in scenario of continuance of same, said sanction may not be utilized by YIL. The company’s interest coverage ratio declined from 1.59x during FY20 to 1.46x during FY21 due to subdued performance on account of muted demand in the first half of FY21.

Volatile raw material prices

YIL has no long-term contract with the suppliers of raw materials and solely depends upon the established relationships. The prices of YIL’s major raw material, i.e., steel and castings have witnessed high level of price volatility in the past. Almost major portion of YIL’s orders are fixed price contracts, and hence, the company is subject to risk associated with adverse movement in raw material prices.

Liquidity analysis: Adequate

Liquidity of the company mainly derives comfort from its parentage which has arranged banking lines for Yuken India Limited from Japan based banks by extending Corporate Guarantee to secure the facilities. Company has flexibility of drawing additional facilities over and above drawing power from these banks to tide over any short term cash flow mismatch. Improvement in cash generation from its core business operations, revival in demand from the end user industry and timely and continuous receipt of cashflows from residential project has aided in maintaining adequate liquidity position. The average fund utilization for the 12 month period ended June ’21 was 46%.

Analytical approach: Consolidated as subsidiaries and associates operate in supporting functions (mainly suppliers) to YIL. List of subsidiaries and associates of the company is attached as Annexure-6.

Applicable Criteria

Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE's Policy on Default Recognition Rating Methodology: Consolidation and Factoring Linkages in Ratings Financial Ratios - Non Financial Sector

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CARE’s methodology for manufacturing companies Short term instruments

Liquidity Analysis of Non-financial sector entities

About the Company

YIL was established in June 1976 with technical and financial collaboration of YKC. YIL manufactures wide range of hydraulic equipment such as vane pumps, piston pumps, pressure controls, flow controls, directional valves, modular valves, electro proportional valves, gear pumps, accumulators, cylinders and hydraulic power units which find its applications in various industries such as Steel, Machine tools, Power, Automobiles, Infrastructure, etc. The entire product range of YIL is broadly classified as elements (hydraulic pumps and valves), systems (assembled products) and castings (foundry division). YIL is an ISO 9001:2015 company and has four manufacturing facilities for hydraulic division at Bahadurgarh (Haryana), Peenya (Bangalore), Mumbai and Malur (Karnataka); two for foundry division at Mahadevpura (Bangalore) and Malur (Karnataka) and one facility for gear pumps at Malur (Karnataka).

Brief Financials(Rs. crore)	FY20(A)	FY21(A)
Total operatingincome	243.96	213.64
PBILDT	16.81	14.75
PAT	3.02	5.19
Overallgearing (times)	0.76	0.62
Interest coverage(times)	1.59	1.46

A: Audited

Status of non-cooperation with previous CRA: Not Applicable

Rating History for last three years: Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3

Complexity level of various instruments rated for this company : Annexure 4

Annexure-1: Details of Instruments / Facilities

Name of the Instrument	Date of issuance	Coupon rate	Maturity Date	Size of the Issue (Rs. crore)	Rating assigned along with Rating Outlook
Fund-based - LT-Cash Credit	-	-	-	14.00	CARE BBB-;Positive
Non-fund-based - ST-BG/LC	-	-	-	7.00	CARE A3
Fund-based - LT-Term Loan	-	-	February, 2026	39.03	CARE BBB-; Positive
Fund-based - ST-Working Capital Demand loan	-	-	-	30.00	CARE A3
Fund-based/Non-fund-based- LT/ST	-	-	-	68.50	CARE BBB-; Positive / CARE A3

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Annexure-2: Rating History of last three years

Sr. No.	Name of the Instrument/Bank Facilities		Current Ratings	Current Ratings		**Rating **	history
		Type	Amount Outstanding (Rs. crore)	Rating	Date(s) & Rating(s) assigned in 2021-2022	Date(s) & Rating(s) assigned in 2020-2021	Date(s) & Rating(s) assigned in 2019-2020	Date(s) & Rating(s) assigned in 2018-2019
1	Fund-based - LT- Cash Credit	LT	14.00	CARE BBB-; Positive	-	1)CARE BBB-; Stable (01-Oct- 20) 2)CARE BBB; Negative (07- Jul-20)	1)CARE BBB; Stable (03- Oct-19)	1)CARE BBB; Stable (12- Feb-19)
2	Non-fund-based - ST-BG/LC	ST	7.00	CARE A3	-	1)CARE A3 (01- Oct-20) 2)CARE A3 (07- Jul-20)	1)CARE A3+ (03-Oct-19)	1)CARE A3+ (12-Feb-19)
3	Term Loan-Long Term	LT	-	-	-	-	-	1)Withdrawn (12-Feb-19)
4	Fund-based - LT- Term Loan	LT	39.03	CARE BBB-; Positive	-	-	-	-
5	Fund-based - ST- Working Capital Demand loan	ST	30.00	CARE A3	-	-	-	-
6	Fund- based/Non-fund- based-LT/ST	LT/ST*	68.50	CARE BBB-; Positive / CARE A3	-	-	-	-

* Long Term / Short Term

Annexure-3: Detailed explanation of covenants of the rated instrument / facilities

Name of the Instrument	Detailed explanation
A. Financial covenants	a. Total Outside Liabilities/Total Net worth 2.0x c. DSCR > 1.5x b. Interest Cover >2.0x c. DSCR > 1.5x
B. Non financial covenants	Not stipulated

Annexure 4: Complexity level of various instruments rated for this company

Sr. No	Name of instrument	Complexity level
1	Fund-based - LT-Cash Credit	Simple
2	Fund-based - LT-Term Loan	Simple
3	Fund-based/Non-fund-based-LT/ST	Simple
4	Non-fund-based - ST-BG/LC	Simple
5	Fund-based - ST-WorkingCapital Demand loan	Simple

Annexure 5: Bank Lender Details for this Company – To view the lender wise details of bank facilities please click here

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Annexure 6: List of subsidiaries and associates:

Sr.	Name of company	% Shareholding
	Subsidiaries
1	Yuflow EngineeringPrivate Limited	100%
2	Grotek Enterprises Private Limited	100%
3	Coretec EngineeringIndia Private Limited	100%
4	Kolben Hydraulics Limited	85.92%
	Associates
5	Sai India Limited	40%
6	Bourton Consulting (India)Private Limited	29.54%

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications.

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About CARE Ratings:

CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

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CARE’s ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE’s ratings do not convey suitability or price for the investor. CARE’s ratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. CARE is not responsible for any errors and states that it has no financial liability whatsoever to the users of CARE’s rating. Our ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and if triggered, the ratings may see volatility and sharp downgrades.

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