| D-Link India Limited | ||||
| Rating 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 A/Stable’ rating on the long-term bank facility of D-Link India Limited (D-Link).
The operating performance of D-Link improved, as reflected in 26% revenue growth in fiscal 2022 compared with the previous fiscal, backed by pent-up demand for information technology hardware products following the Covid-19 pandemic. The company benefitted from opening of commercial offices and easing logistics. Operating profitability remained stable at 6% in fiscal 2022, supported by healthy revenue growth. The company continues to face challenges related raw material supply and pricing pressure on account of global chip shortage, exacerbated by geopolitical issues between China and Taiwan as well as the Russia-Ukraine war. The company’s revenue is expected to grow steadily at 10% per annum, with the operating margin remaining stable at ~6% over the medium term.
D-Link maintains a healthy liquidity position, as reflected in cash and equivalents of Rs 135 crore as on March 31, 2022. The flexible credit period provided by the parent, D-Link Corporation, allows headroom for D-Link to efficiently manage its working capital. Absence of debt provides cushion to absorb any business shocks.
The rating continues to reflect the established market position and strong distribution network of D-Link across India, along with a healthy financial risk profile. These strengths are partially offset by exposure to intense competition, weak business risk profile of the parent and exposure to volatility in input price and currency. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of D-Link and its wholly owned subsidiary, Team F1 Networks Pvt Ltd (Team F1).
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Established market position and strong distribution network D-Link is the market leader in switches and wireless local area network (WLAN) products, with a significant market share. In fiscal 2019, the company introduced a series of high-end products for its enterprise business, including unmanaged long-term Power over Ethernet (PoE)/PoE plus switches; new generation layer 3 stackable managed switches with advance hardware and software enhancements for better performance, flexibility and ease of management; and industrial grade switches.
Healthy financial risk profile Networth is estimated at Rs 287 crore as on March 31, 2022, and is expected to increase over the medium term owing to steady accretion to reserve and in the absence of debt. Return on capital employed is estimated at 20-22% in fiscal 2022. In the absence of any debt-funded capital expenditure (capex), the financial risk profile should remain healthy over the medium term.
Weaknesses Exposure to intense competition and risks inherent in the networking industry D-Link mainly operates in the home and small and medium enterprise segments of the networking industry, where profitability is lower than that in the institutional sales segment. The latter is dominated by Cisco India and other new entrants in the industry. Profitability in the retail segment is constrained by intense competition and commoditised products.
Weak parent performance Revenue of the parent, D-Link Corporation, has been continuously declining from NT$ 26 billion in calendar year 2015 to NT$ 15.00 billion in calendar year 2021, while networth has fallen from NT$ 10.3 billion to NT$ 8.5 billion in the said period on account of mounting losses. However, cash surplus has been utilised to pay off the debt, resulting in a debt-free balance sheet as on December 31, 2020. Despite weak performance, the parent is not likely to depend on D-Link India for financial support.
Susceptibility to volatility in input price and currency Copper, the key input for manufacturing cables, is an open market commodity traded globally on exchanges, leading to volatility in its prices. Furthermore, fluctuations in currency also impact profitability, as the company imports about 30% of its traded products. Complete and immediate passing on of cost increases is difficult given the competitive pressure—the company experiences a lag of 45-60 days in passing on price hikes. Hence, the operating margin will remain susceptible to fluctuations in raw material prices and currency. D-Link hedges currency exposure up to 70% of the total exposure by entering into forward contracts. |
Liquidity: Adequate The company maintains adequate liquidity. Cash accrual, expected at Rs 40-45 crore in fiscals 2023 and 2024, will support liquidity in the absence of any capex or debt obligation. Unutilised bank limit of Rs 10 crore will be adequate to fund the company’s fixed expenses. Cash surplus is expected to remain healthy over the medium term. |
Outlook: Stable CRISIL Ratings believes D-Link will continue to benefit from its established market position and strong distribution network. Furthermore, the financial risk profile is expected to remain healthy on account of a debt-free balance sheet and absence of any major capex. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Incorporated in 2008, D-Link is a step-down subsidiary of D-Link Corporation. The company markets networking products of the parent and procures from third-party vendors. The product profile comprises network switches, wireless local area networks, routers, modems, storage devices, copper and fibre cables and cameras. In 2010, D-Link began marketing structured cabling products procured from third-party vendors.
In January 2014, D-Link acquired Team F1, a company that specialises in providing network and security software for embedded devices. The consideration for the acquisition was in the form of equity shares of D-Link, which resulted in the equity stake of D-Link Corporation in D-Link reducing to 51% from 60%.
D-Link Corporation, founded in 1986, is a multinational company that designs, markets and manufactures networking equipment and has presence across over 100 countries. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit & Working Capital Demand Loan | 10 | HDFC Bank Limited | CRISIL A/Stable |
This Annexure has been updated on 13-Mar-23 in line with the lender-wise facility details as on 02-Mar-23 received from the rated entity.
Criteria Details
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