Hindusthan Urban Infrastructure Limited.

Brickwork Ratings revises the outlook to 'Negative' for the Bank Loan Facilities of Rs. 180.00 Crs. of Hindusthan Urban Infrastructure Limited.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (24 Mar 2022)	Present
Fund Based	91.00	91.00	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Negative Reaffirmation and change in Outlook
Non Fund Based	89.00	89.00	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	180.00	180.00	(Rupees One Hundred Eighty Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has reaffirmed its BWR BBB-//BWR A3 rating while revising the outlook to 'Negative' from 'Stable' on the bank loan facilities of Hindusthan Urban Infrastructure Ltd ('HUIL' or 'the company).

The rating action reflects HUIL's weakening business risk profile, especially at a consolidated level, which stems from declining profitability. An increase in the power and fuel cost along with declining realisation in the Speciality Chemicals segment and the inability of the company to pass on the heightened prices led to a decline in operating margin to 1.1% for Q1FY23 from 8.3% for FY22 resulting in extended net losses. This further resulted in lower-than-expected cash accrual and increased dependence on working capital debt. Steady improvement in revenue and operating margin and the resultant improvement in cash accrual will remain a key monitorable.

The rating reaffirmation continues to reflect the promoters extensive experience, a diversified product profile, and a reputed client profile. These rating strengths are however partially offset by the moderate albeit deteriorating financial risk profile, working capital intensity in operations, and susceptibility to volatility in aluminum and alumina prices.

Outlook: Negative

The outlook has been revised to “Negative” on the back of the expected deterioration in the revenue resulting from lowered realisations and deteriorated profitability on account of an increase in fuel costs and inability to pass on the same, which may result in adversely impacting the liquidity profile of the Company.

KEY RATING DRIVERS

Credit Strengths:

Established track record of operations and experienced management :

The company commenced its operations in 1959 and has a successful track record of more than six decades in the existing line of business. HUIL’s long track record and the extensive experience of promoters have helped establish relations with various stakeholders for its business. The company was established and is managed by the Mody family which holds a 74.91% equity stake in HUIL as of June 30, 2022. Furthermore, the promoters are assisted by a team of experienced professionals in managing the company’s daily business operations.
Diversified product portfolio and reputed customer profile :
The company manufactures & sells various types of conductors and insulators. The products manufactured find end use by power and discoms. HUIL’s client base consists of government and private clients, such as Powergrid Corporation of India Ltd, Larsen & Toubro Ltd, Tata Projects Ltd, Madhyanchal Vidyut Vitran Nigam Ltd, West Bengal State Electricity Distribution Company Ltd, Siemens Ltd, ABB India Ltd, Kalpataru Power Transmission Ltd, etc., in various states, including West Bengal, Uttar Pradesh, Tamil Naidu, Orissa, Assam, Haryana, Madhya Pradesh, and Gujarat. Thus, the company's counterparty credit risk remains diversified and low.

Credit Risks:

Moderate albeit deteriorating Financial risk profile :
The company had a comfortable networth of Rs 447.9 crore and gearing at 0.76 times as on March 31, 2022. However, in Q1FY23 on account of deterioration in profitability the debt coverage indicators weakened thus impacting the overall financial risk profile. While the conductor business has been downsized significantly, as per earlier expectations, the chemical business, which continues to be the main contributor to the revenue, has been impacted on account of reasons highlighted earlier.
Working capital-intensive operations :
Working capital requirement is large because of the inherent nature of the business and project execution cycle of 2-3 years, which results in high reliance on short-term debt. Receivables are high in the business due to the sizable quantum of retention money blocked in projects till the end of the performance guarantee period. As on March 31, 2022, receivables were 96 days, against 115 days a year earlier. This is however supported by a similar credit period available from suppliers with payables of 102 days as on March 31, 2022 (FY21: 114 days). This results in a controlled conversion cycle ranging from 80 - 100 days.
Susceptibility to volatility in aluminium and alumina prices :
While global aluminium prices have witnessed a strong recovery from the previous fiscal on account of improved metal demand, the profitability will remain susceptible to volatility in aluminium and alumina prices, which are commoditized and cyclical. Movement in aluminium prices and aluminium-alumina spreads will be a key monitorable.

ANALYTICAL APPROACH - Consolidated

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive

Significant and sustained improvement in topline and profitability
Improvement is financial profile with improving coverage indicators and sustainability in capital structure

Negative:

Decline in revenues and/or profitability thereby reducing the cash accruals
Deterioration in financial risk profile especially liquidity

LIQUIDITY INDICATORS - Adequate

The liquidity is adequate, the company is expected to generate cash accruals of over Rs 40 crore in FY23 and Rs 45 crore in FY24 against repayment obligations of Rs 34.68 crore in FY23. The bank limit utilisation was moderate averaging 70% over the past six months through July 2022. The current ratio was moderate at 1.22 times as on March 31, 2022. Liquidity is further supported by need-based funding from promoters through unsecured loans (outstanding at Rs 39 crore as on March 31, 2022), and the expectation to provide further support in case of any exigencies.

ABOUT THE ENTITY

HUIL was established in 1959 and is currently headed by chairman, Mr.Raghavendra Anant Mody. The Company is a leading manufacturer of overhead conductors and electro-porcelain high tension insulators such as Disc, solidcore, hollow and railway. Its operations can be classified into two divisions,viz, conductors and insulators.The conductor manufacturing units are located in Khurda,Orissa and Guwahati, Assam with a combined installed capacity of 66,000 metric ton per annum (MTPA) and insulator manufacturing unit is located in Bhopal, Madhya Pradesh with installed capacity of 15,380 MTPA. It is listed on the Bombay stock exchange.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	289.22	352.55
EBITDA	Rs.Crs.	6.87	31.19
PAT	Rs.Crs.	-12.64	2.59
Tangible Net Worth	Rs.Crs.	445.37	458.22
Total Debt/TNW	Times	0.38	0.30
Current Ratio	Times	1.59	1.47

KEY FINANCIAL INDICATORS (Consolidated)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	739.89	540.96
EBITDA	Rs.Crs.	55.10	59.05
PAT	Rs.Crs.	-3.76	-3.29
Tangible Net Worth	Rs.Crs.	447.93	449.99
Total Debt/TNW	Times	0.76	0.67
Current Ratio	Times	1.22	1.26

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2022)			2022 (History)		2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	91.00	BWR BBB-/Negative (Reaffirmation and change in Outlook)	24Mar2022	BWR BBB- Stable (Reaffirmation)	05Mar2021	BWR BBB-Stable (Reaffirmation)	14Feb2020	BWR BBB-Stable (Reaffirmation)	17Jan2019	BWR BBB-Stable (Assignment)
Non Fund Based	ST	89.00	BWR A3 (Reaffirmation)	24Mar2022	BWR A3 (Reaffirmation)	05Mar2021	BWR A3 (Reaffirmation)	14Feb2020	BWR A3 (Reaffirmation)	17Jan2019	BWR A3 (Assignment)
Grand Total		180.00	(Rupees One Hundred Eighty Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

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
Arbez Noshir Karbhari Ratings Analyst arbez.k@brickworkratings.com	Chintan Dilip Lakhani Director- Ratings chintan.l@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Hindusthan Urban Infrastructure Limited.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Canara Bank	Term Loan - Sanctioned	10.92	_	10.92
2	Canara Bank	Cash Credit - Sanctioned	5.00	_	5.00
3	Canara Bank	GECL - Sanctioned	8.00	_	8.00
4	Canara Bank	ILC/FLC - Sanctioned	_	25.00	25.00
5	Canara Bank	BG/LC/ILC - Sanctioned	_	35.00	35.00
6	IDBI Bank	GECL - Sanctioned	4.00	_	4.00
7	IDBI Bank	BG/LC/ILC - Sanctioned	_	15.00	15.00
8	IDBI Bank	Cash Credit - Sanctioned	10.00	_	10.00
9	State Bank Of India (SBI)	Funded Interest Term Loan - Sanctioned	0.56	_	0.56
10	State Bank Of India (SBI)	GECL - Sanctioned	12.52	_	12.52
11	State Bank Of India (SBI)	Cash Credit - Sanctioned	40.00	_	40.00
12	State Bank Of India (SBI)	Term Loan - Sanctioned	_	_	0.00
13	State Bank Of India (SBI)	BG/LC/ILC - Sanctioned	_	14.00	14.00
Total			91.00	89.00	180.00
TOTAL (Rupees One Hundred Eighty Crores Only)

ANNEXURE-III

List of entities consolidated

Name of Entity	% Ownership	Extent of consolidation	Rationale for consolidation
Hindusthan Specialty Chemicals Limited	100	Full	Subsidiary Company

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