| Alfa Laval India Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities of Alfa Laval India Private Limited (Alfa Laval India).
The company reported strong operating performance for 2022 with operating income at Rs 1,706 crore, translating to on-year growth of 27%, compared with Rs 1,356 crore in 2021. The increase in operating income was driven by healthy demand from the food and water end-user segment, which contributed to around 80% of revenue. While revenue witnessed growth, operating margin declined to 17% in 2022 from 23% in 2021 owing to rise in input prices and increase in fixed costs, such as rent and travel, post the Covid-19 pandemic. Over the medium term, the operating income is expected to grow 15-17% on-year driven by healthy inflow of orders. The company had orders worth Rs 1,500 crore as of August 2023 vis-à-vis ~Rs 900 crore as of August 2022. This, along with operating margin of 19-20%, will support the operating performance of Alfa Laval India over the medium term.
The financial risk profile was comfortable with nil debt and networth over Rs 754 crore as on December 31, 2022. The company is likely to remain debt-free over the medium term with liquid surplus of Rs 221 crore as on December 31, 2022, in the form of deposits and marketable securities. Financial linkages with the parent will remain limited. The company paid dividend of Rs 107 crore in 2022. Substantial reduction in surplus liquidity or weakening in the credit risk profile of the parent will remain key monitorables.
The ratings continue to reflect the strong financial and business risk profiles of Alfa Laval India, backed by its established market position in the process technology and equipment segment, and technological and marketing support from the parent, Alfa Laval Corporate, AB (Alfa Laval; rated ‘BBB+/Stable’ by S&P Global Ratings). These strengths are partially offset by susceptibility to cyclicality in the engineering and capital goods industry and volatility in input costs, and exposure to project risks in the process technology business. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of Alfa Laval India, given its limited financial linkages with its parent. |
Key Rating Drivers & Detailed Description Strengths: Established market position backed by a diversified user base: The company has an established position in the heat exchangers, centrifugal separators, decanters, and pumps segments. Furthermore, it provides integrated solutions to process industries such as edible oil processing, brewery, food processing, pharmaceuticals, and biotechnology. The diversified end-user base, wherein no industry contributes to more than 20% of revenue, mitigates the risk of slowdown in any segment.
Healthy operating performance: Alfa Laval India manufactures equipment for diverse industries globally. Operations benefit from product research and development and technical support from the parent. This has resulted in growth in operations at compound annual growth rate (CAGR) of 9% over the five years through 2022. The company reported operating income of Rs 1,709 crore in 2022, as against Rs 1,356 crore in 2021, translating to on-year growth of 27%, driven by healthy realisation. The operating income is expected to grow 15-17% over the medium term supported by healthy order book position of Rs 1,500 crore as of August 2023.
Strong financial risk profile: Networth and capital structure were healthy, backed by steady cash accrual and zero debt in the five years ended December 31, 2022. Growth in operating income at 27% in 2022 with operating margin at 17.5% continue to support the financial risk profile. Also, Alfa Laval India has a cash pool arrangement with Tranter India Pvt Ltd (Tranter [‘CRISIL A/Stable/A1’]; group company) wherein the cashflow position of Tranter is reported daily to Alfa Laval (the parent) and any mismatch or shortfall is made good by the Alfa Laval India. The company had extended Rs 15 crore to Tranter in 2022. In the absence of any major debt-funded capital expenditure (capex), the capital structure will remain stable. The company continues to maintain steady-state liquid surplus of Rs 200 crore.
Weaknesses: Susceptibility to cyclicality in the capital goods sector and fluctuations in input prices: The engineering and capital goods industry remains highly vulnerable to economic cycles. Alfa Laval India has seen periodic slowdowns in revenue growth owing to deferment of capex by customers. Besides, turnkey projects in the process technology division, with a gestation period of 9-11 months, have limited cushion to accommodate any escalation in raw material prices.
Exposure to project risks in the process technology business: The process technology division continues to face risks such as significant delay in execution or increase in input prices, which could exert pressure on the working capital cycle. |
Liquidity: Strong Cash accrual is expected over Rs 120 crore per annum over the medium term. The company had liquid surplus of Rs 221 crore as on December 31, 2022 and will maintain minimum surplus of Rs 200 crore. Alfa Laval India has access to fund-based limit of Rs 27 crore, which continues to remain unutilised. Capex is expected to be moderate at Rs 73 crore in 2023 and Rs 13 crore in 2024 towards expansion of facilities and shall be funded entirely through internal accrual. The company has nil term debt obligation. Additionally, Alfa Laval India has a cash pool arrangement with Tranter, wherein the cashflow position of Tranter is reported daily to Alfa Laval (the parent) and any mismatch or shortfall is made good by the Alfa Laval India. Accrual and cash and equivalent are likely to be sufficient to meet capex and working capital requirement. Besides, with nil debt, Alfa Laval India has sufficient gearing headroom to contract debt for capex. |
Outlook: Stable CRISIL Ratings believes Alfa Laval India will continue to benefit from its strong financial risk profile, healthy market position and continued technological support from the parent over the medium term. |
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About the Company Alfa Laval India is a 99.99% subsidiary of Alfa Laval. The Indian subsidiary operates through two divisions: process technology and equipment. The equipment division sells standardised Alfa Laval equipment such as separators, heat exchangers and flow products. The process technology division provides turnkey solutions, mainly to vegetable oil refining plants, breweries, fuel ethanol plants and spray drying plants. The division also supplies equipment to the energy and waste management sectors.
Alfa Laval India got voluntarily delisted from stock exchanges on April 19, 2012. In 2016, as per the share reduction scheme approved by the Bombay High Court, the company bought back the stake of minority shareholders (1.8% of equity capital). The stake of Alfa Laval increased to 99.99% after the share buyback. The remaining 0.01% is held by other Alfa Laval group companies. In 2018, the company acquired 100% stake in Alfa Laval Support Services Pvt Ltd, which was merged with Alfa Laval India with effect from April 1, 2018. |
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Any other information: Not applicable |
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Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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