RATING RATIONALE
18Aug2021
Him Teknoforge Ltd
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 167.18 Crs. of Him Teknoforge Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (12 Aug 2020) |
Present | ||
| Fund Based | 142.67 | 150.48 | Long Term |
BWR BBB (Credit Watch with Developing Implications)
Downgrade |
BWR BBB
/Credit Watch with Developing Implications Reaffirmation |
| (7.75) | (7.75) | Short Term |
BWR A3 (Credit Watch with Developing Implications)
Downgrade |
BWR A3
/Credit Watch with Developing Implications Reaffirmation |
|
| Non Fund Based | 16.50 | 16.70 | Short Term |
BWR A3 (Credit Watch with Developing Implications)
Downgrade |
BWR A3
/Credit Watch with Developing Implications Reaffirmation |
| Grand Total | 159.17 | 167.18 | (Rupees One Hundred Sixty Seven Crores and Eighteen lakhs Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
Brickwork Ratings (BWR) reaffirms the ratings of the bank loan facilities of Him Teknoforge Ltd. (HTL or the company). This reaffirmation reflects the company’s sustained credit risk profile, indicated by its moderate leverage levels and marginal improvements in revenues and profitability in FY21. The rating also draws strength from diversified revenue streams and client profile of the company and improving prospects of the commercial vehicle business segment after the demand bottomed out in the H2FY20 and H1FY21 due to COVID related disruptions. Given the increasing trend in revenues from the past 2-3 quarters, the company is hopeful of registering a moderate growth in revenues in FY22 which is also reflected from its increased order book. The ratings, however, continue to remain constrained by the large working capital requirements and elongated cash conversion cycle due to the requirements of maintaining higher inventory levels. The profit margins are also susceptible to volatility in the raw material prices as the company is able to pass on the price increase to its customers only with a lag of 3-4 months.
OUTLOOK: CREDIT WATCH WITH DEVELOPING IMPLICATIONS
The outlook of the rating continues to remain under 'Credit watch with developing implications' due to the fact that the promoter’s civil writ petition against the IFCI Venture Capital Fund, restraining the latter from exercising its right to invoke the pledged shares of promoters is subjudice before the Punjab & Haryana High Court. An adverse outcome of this petition may reduce the promoters shareholding of the company which may pose significant management risk. The rating outlook may be revised to Stable in case the decision of the court comes in favor of the promoters.
KEY RATING DRIVERSCredit Strengths:
-
Sustained credit risk profile :
The company has maintained its comfortable gearing and TOL/TNW ratios at 1.05x and 1.37x in FY21 although the same deteriorated marginally from the previous year as the company availed GECL and CECL loans in FY21. Due to marginally higher cash accruals, the company's ISCR and DSCR improved to 1.98x (PY: 1.56x) and 1.14x (PY: 0.95x) respectively. The company’s OPM and NPM improved to 13.63% (PY: 11.24%) and 2.13% (PY: 1.46%) respectively in FY21. The company’s revenues have grown by ~8% in FY21.
-
Expected revival in demand :
Increased order flow from OEMs operating in tractor industry is reflecting a recovery in demand. Further, the demand from the commercial vehicles segment is also improving which is reflected in the company's increased revenue contribution from this segment in the past 2-3 quarters. HTL’s revenues from exports stood at Rs.10.5 cr in Q1FY22. The company is targeting a higher share of exports revenues in Q2FY22 backed by an unexecuted order book of ~ Rs. 20 crores. The company’s domestic order book currently stands at ~Rs 35 Crores.
-
Long operational track record of the company & well diversified clientele :
HTL was established in 1989 by Mr. Vijay Aggarwal. Later, he was joined by his brothers, Mr. Rajeev & Mr. Vinod Aggarwal. The company benefits from its established relationships with Tier-1 auto-component suppliers to automotive majors such as Mahindra & Mahindra, Tata Motors, Ashok Leyland etc. It also supplies auto components to agricultural equipment & tractor manufacturers such as Sonalika Industries, International Tractors Ltd., Indo Farm Ltd. etc. which provides diversification benefits to the company. After its merger with Gujarat Automotive & Gears Ltd., the company now has access to new clientele spread over international geographies. The company has a product portfolio of more than 600 different automotive components.
-
High working capital requirements & stretched cash conversion cycle :
The company is required to maintain high inventory to support its integrated operations and wide product portfolio. Further, the inventory levels have increased in FY20 and FY21 due to lower production by vehicle manufacturers thereby resulting in inventory buildup with the smaller auto component suppliers. Resultantly, HTL's gross current asset days stood high at 316 days which were partly funded by trade creditors of 80 days in FY21. The company had a large inventory of ~Rs 139 Crs, resulting in a stretched cash conversion cycle of 235 days in FY21.
-
Uncertainty regarding the dispute between the promoters & a VC fund over invocation of pledged shares :
The promoters had filed a civil writ petition against IFCI Venture Capital Fund in the Hon’ble Punjab & Haryana High Court, contesting the latter’s right to exercise the invocation of the pledged shares based on the share pledge agreement dated 05.05.2011 between the parties. The promoters had pledged their 14.38 lakh shares to the fund before the company was listed at the BSE in 2018. The promoters & promoter’s group holds 42.90 lakh shares which accounts to 54.55% of ownership in the company. The matter is currently subjudice before the court as the hearings have been delayed due to the COVID situation. An adverse outcome of the case may reduce the shareholding of the promoter & promoters group, exposing the company to some level of management risk.
The ratings of Him Teknoforge Ltd. have been arrived at on a standalone basis after the independent evaluation of its financial risk profile. For arriving at its ratings, Brickwork Ratings (BWR) has applied its rating methodology as detailed in the rating criteria below (hyperlinks provided at the end of this rationale)
RATING SENSITIVITIES
Upward: The rating may be upgraded if the company improves its revenues and profitability significantly which translates into healthy debt protection metrics while also improving its liquidity position significantly.
Downward: The ratings may be downgraded if the company’s DSCR deteriorates further or the company’s promoters & promoter group loses a significant shareholding as a result of an adverse decision by the honorable high court in the matter currently subjudice.
LIQUIDITY INDICATORS - Stretched
Stretched liquidity is indicated by high utilisation of credit lines of over 95% for the last five months and high gross current assets days due to elongated cash conversion cycle of 235 days in FY21. The company has a current maturity of Rs 17.8 Crs of its long term loans in FY22, while is likely to be tightly matched with the cash accruals of Rs 18-20 crores in FY22, resulting in a continued low DSCR of 1.0x-1.1x. The company has 'Nil' current investments and a cash balance of Rs 2.32 Crs in FY21. However, the current ratio has consistently improved due to long term funds being sourced by the company through term loans. Current ratio stood comfortable at 1.30x in FY21. The company's liquidity position may improve in the medium term if the current flow of orders and profitability sustain in the next two-three quarters.
ABOUT THE ENTITYHTL (Formerly known as Gujarat Automotive Gears Limited) was established in 1989 by Mr. Vijay Aggarwal. The Company’s registered office is located in Baddi, Himachal Pradesh. It is engaged into the manufacturing of alloy steel forgings, finished gears & axles, shafts, assemblies and non-assemblies for the automotive industry, mainly the commercial auto manufacturers. The Company amalgamated with a BSE listed company – Gujarat Automotive & Gears Limited. The amalgamation scheme was approved by NCLT via order dtd. 09.01.2018. Subsequently its name was changed from ‘Gujarat Automotive & Gears Limited’ to ‘Him Teknoforge Limited’. The Company runs six manufacturing units located at Baddi (two), Manpura, HP (one), Baroda, Gujarat (one) and Pithampur, MP (two). The company gets around ~15% of its revenues from exports.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 241.01 | 223.11 |
| EBITDA | Rs.Crs. | 32.85 | 25.08 |
| PAT | Rs.Crs. | 5.14 | 3.25 |
| Tangible Net Worth | Rs.Crs. | 143.90 | 135.72 |
| Total Debt/Tangible Net Worth | Times | 1.05 | 0.96 |
| Current Ratio | Times | 1.30 | 1.22 |
The terms of sanction include standard covenants normally stipulated for such facilities.
NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY
NONE
ANY OTHER INFORMATIONNONE
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2021) | 2020 | 2019 | 2018 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 150.48 |
BWR BBB/Credit Watch with Developing Implications
(Reaffirmation) |
12Aug2020 |
BWR BBB (Credit Watch with Developing Implications)
(Downgrade) |
23Dec2019 |
BWR BBB+ (Credit Watch with Developing Implications)
(Reaffirmation and change in Outlook) |
29Nov2018 |
BWR BBB+ (Stable)
(Upgrade) |
| Fund Based | ST | NA |
NA
|
12Aug2020 |
BWR A3 (Credit Watch with Developing Implications)
(Downgrade) |
23Dec2019 |
BWR A3+ (Credit Watch with Developing Implications)
(Reaffirmation and change in Outlook) |
29Nov2018 |
BWR A3+
(Upgrade) |
| FB SubLimit | ST | (7.75) |
BWR A3/Credit Watch with Developing Implications
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Non Fund Based | ST | 16.70 |
BWR A3/Credit Watch with Developing Implications
(Reaffirmation) |
12Aug2020 |
BWR A3 (Credit Watch with Developing Implications)
(Downgrade) |
23Dec2019 |
BWR A3+ (Credit Watch with Developing Implications)
(Reaffirmation and change in Outlook) |
29Nov2018 |
BWR A3+
(Upgrade) |
| Grand Total | 167.18 | (Rupees One Hundred Sixty Seven Crores and Eighteen lakhs Only) | |||||||
BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
Hyperlink/Reference to applicable Criteria| Analytical Contacts | |
|---|---|
|
Sumit Saharan Senior Rating Analyst Board : +91 172 5032 295 / 6 sumit.s@brickworkratings.com |
Ashwini Mital Director - Ratings Board : +91 172 5032 295 / 6 ashwinimital@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|---|
| 1 | NBFC | Term LoanOut-standing | 11.69 | _ | 11.69 |
| 2 | State Bank Of India (SBI) | Cash CreditSanctioned | 93.00 | _ | 93.00 |
| Sub-Limit (EPC/PCFC/EBR/FBD/FBD) Sanctioned | (7.75) | ||||
| 3 | State Bank Of India (SBI) | Term LoanOut-standing | 37.60 | _ | 37.60 |
| 4 | State Bank Of India (SBI) | Letter of CreditSanctioned | _ | 14.00 | 14.00 |
| 5 | State Bank Of India (SBI) | Bank GuaranteeSanctioned | _ | 2.50 | 2.50 |
| 6 | State Bank Of India (SBI) | Credit Exposure Limit (CEL)Sanctioned | _ | 0.20 | 0.20 |
| 7 | TATA Capital Financial Services Limited | Working Capital Term LoanOut-standing | 8.19 | _ | 8.19 |
| Total | 150.48 | 16.70 | 167.18 | ||
| TOTAL (Rupees One Hundred Sixty Seven Crores and Eighteen lakhs Only) | |||||
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