Rating Rationale
August 23, 2019 | Mumbai
D-Link India Limited
Rating outlook revised to 'Stable', rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.10 Crore
Long Term Rating CRISIL A/Stable (Outlook revised from 'Negative' and rating reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its rating outlook on the long-term bank facility of D-Link India Limited (D-Link) to 'Stable' from 'Negative' and reaffirmed the rating at 'CRISIL A'.

The outlook revision reflects the improvement in business in fiscal 2019 and the expected sustenance of the same over the medium term. The performance improved on the back of price corrections, sourcing efficiencies, and healthy demand for the networking products industry. Despite intense competition, the company consolidated its position in the passive networking components such as CAT 5 and CAT 6 copper cables. While currency volatility remains a concern, the company's policy of hedging 70% foreign exchange exposure offsets the risk partially.

D-Link's performance was impacted in fiscals 2017 and 2018 due to demonetisation, destocking by distributors before the implementation of goods and service tax and revaluation of inventory. However, in fiscal 2019, the performance improved due to higher project revenues and expansion in margins on account of price increases exercised towards the end of fiscal 2018 and decline in copper (the primary raw material) rates. Profit after tax augmented to Rs 23 crore in fiscal 2019 from Rs 10 crore in fiscal 2018, despite significant extraordinary expenses of Rs 5.2 crore in the form of differential custom duty payments on select products for past years.

The rating continues to reflect D-link's established market position and strong distribution network across India, and healthy financial risk profile. These strengths are partially offset by exposure to intense competition, parent company's weak business profile and exposure to input price and currency volatility.

Analytical Approach

Goodwill, as a result of acquisition of Team F1, is being amortised over five years from the effective date of acquisition.

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 shipment of switches and wireless local area network products, with a share of around 30% and 40%, respectively. During the year, D-Link introduced a series of high-end products for its enterprise business including unmanaged long term POE/POE plus switches, new generation layer 3 stackable managed switches with advance hardware and software enhancements for better performance, flexibility and easy management and industrial grade switches.
 
* Healthy financial risk profile:
Networth was large at Rs 194 crore as on March 31, 2019, while debt was nil. Return on capital employed, which was affected by weak business performance, improved to 24.6% in fiscal 2019 from 9.7% in fiscal 2018 supported by expansion in profitability.
 
Weaknesses:
* Exposure to intense competition and risks inherent in the networking industry
D-Link mainly operates in the home and small and medium enterprises segments of the networking industry, where profitability is lower than that in the institutional sales segment. The latter is dominated by CISCO India. Profitability in the retail segment is constrained by intense competition and commoditised nature of products.
 
* Susceptible to input price and currency volatility
Price of copper, the key input for manufacturing cables, is an open market commodity traded globally on exchanges. Copper price has been volatile in the past. Further, currency volatility also impacts profitability as the company largely imports its products. Complete and immediate pass on of cost increases is difficult given the intense competition. Hence, operating margin will remain susceptible to any adverse fluctuation in raw material prices and currency.
 
* Weak parent performance
The parent company D-Link Corporation's business and financial risk profiles have been on a decline over the past four years, mainly due to volatility in currency, weak project offtake in Europe, US- China trade war and declining demand in emerging markets (except India). Revenues have decreased from NTD 30.3 billion in calendar year 2014 to NTD 19.38 billion in calendar year 2018, while networth has reduced from NTD 15.9 billion to NTD 10.6 billion due to mounting losses. However, cash surpluses have been at NTD 4.4 billion with net debt at NTD 3.5 billion on December 31, 2018. Despite parent's weak performance, CRISIL believes that it will not depend on D-Link India for any financial support.
Liquidity

Liquidity is adequate. In the absence of capex plans and repayment obligations, cash accrual, expected at Rs 20-30 crore each in fiscals 2020 and 2021 will support liquidity. Also reliance on short-term debt is minimal with funded limit utilisation at about 5%. Cash surplus, at Rs 24 crore as on March 31, 2019, is expected to remain healthy over the medium term. 

Outlook: Stable

CRISIL believes business risk profile will witness healthy improvement over the medium term driven by increasing revenue from project businesses. Financial risk profile may remain healthy because of absence of any major capex and limited reliance on working capital debt.

Upside scenario
* Sustained revenue growth of at least 15% and profitability of above 6%

Downside scenario
* De-growth in revenue or deterioration in profitability
* Significant stretch in working capital metrics
* Large scale debt-funded acquisitions or capex.

About the Company

Incorporated in 2008, D-Link is a step-down subsidiary of D-Link Corp and mainly markets networking products of the parent in India. Product profile comprises network switches, wireless local area networks, routers, modems, storage devices, and cameras. In 2010, D-Link began marketing structured cabling products procured externally.

In January 2014, D-Link acquired Team F1, a US-based company that specialises in providing network and security software for embedded devices. The consideration for the acquisition was in the form of D-Link's equity shares, which resulted in D-Link Corp's equity stake in D-Link reducing to 51% from 60%.

D-Link Corp, set up in 1986, is a multinational company that designs, markets, and manufactures networking equipment, with presence across over 100 countries.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs. Cr. 716 659
Profit After Tax (PAT) Rs. Cr. 23 10
PAT Margin % 3.3 1.5
Adjusted Gearing Times 0.00 0.00
Interest coverage Times 494.81 33.68
 
Year to Date Financials
Particulars Unit Q1-20 Q1-19
Revenue Rs crore 184 174
Profit After Tax (PAT) Rs crore 8 1
PAT Margin % 4.11 0.6
Interest coverage Times 210.91 17818.00

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Cr) Rating assigned with Outlook
NA Cash Credit & Working Capital demand loan NA NA NA 10 CRISIL A/Stable
 
Annexure - List of Entities Consolidated
Names of Entities Consolidated Extent of Consolidation
Team F1 Networks Private Limited Complete
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  10.00  CRISIL A/Stable      27-09-18  CRISIL A/Negative  08-09-17  CRISIL A/Stable      CRISIL A/Stable 
                30-03-17  CRISIL A/Stable       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit & Working Capital demand loan 10 CRISIL A/Stable Cash Credit & Working Capital demand loan 10 CRISIL A/Negative
Total 10 -- Total 10 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
Criteria for notching down standalone ratings of companies based on support extended to parent

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com


Sameer Charania
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8025
sameer.charania@crisil.com


Mohan Rao
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 22 3342 3000
Mohan.Rao@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL