| Delta Electronics 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 Delta Electronics India Private Limited (DEIPL).
The ratings reflect the strong technological, managerial, and financial support that DEIPL receives from its parent, Delta Electronics (Thailand) Public Ltd Company (Delta Thailand), and the ultimate parent, Delta Electronics Inc., Taiwan (Delta Taiwan), a leading global supplier of electronics components. The ratings also factor in the diversified revenue and product profile of the company, its strong market position in key product segments and healthy financial risk profile. These strengths are partially offset by exposure to intense competition in the telecom industry, volatility in operating margin and risks associated with implementation of the ongoing large capacity expansion.
In fiscal 2023, the company is expected to report revenues of over Rs 2200 crore driven by strong growth across segments. Operating profitability is expected to moderate at 5-6% primarily driven by overall macroeconomic factors and higher input costs. In fiscal 2022, the company’s revenues grew by 19% to Rs 1585 crore supported by healthy contributions from telecom power segment (TPS) and Mission critical infrastructure solutions (MCIS). Operating profitability had moderated to around 6.5% on account of macroeconomic factors.
The company is carrying out a large capacity expansion with capital outlay of around Rs 3,000 crore over five fiscals till 2026 which is being funded entirely from infusion from parent through equity and external commercial borrowings (ECB). The project involves setting up of a large export-oriented facility for Delta Group, a domestic focused facility and a global research and development (R&D) centre. The parent has provided consistent support towards the ongoing capex through infusion of around Rs 1240 crore by way of equity and ECB till fiscal 2022. DEIPL has incurred capex of around Rs 1300 crore towards the project till December 2022.
Timely commissioning as well as ramp-up of operations of the export facility and its impact on the overall revenues and profitability as envisaged will remain key rating monitorables. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has factored in the business and need-based financial support from the parent. Unsecured loans from parent have been treated as 75% equity and 25% debt as per CRISIL Ratings criteria. |
Key Rating Drivers & Detailed Description Strengths: Strong managerial, technological and financial support from the Delta group DEIPL is strategically important to the group, which is focusing on India as a manufacturing destination and growth market. DEIPL has strong operational linkages with the Delta group as about 60% of the raw material/traded goods is sourced from the group. It is the flagship company of the Delta group in India and is used by the group to distribute products in the country. The company has full access to the technological capability of the parent, and the Delta group has significant control over DEIPL’s management and operations.
With the vision of making India a large manufacturing destination for its products, the group has planned large capex of around Rs 3,000 crore in DEIPL over fiscal 2019 to 2026. The capex is towards two manufacturing facilities (one entirely dedicated for export and the other for manufacturing the group’s products for the Indian market) along with a global R&D Centre. The entire capex is being funded through equity and external commercial borrowings (ECBs) infused by the parent. Strong support from the parent for execution of the proposed capex and ramp-up in scale is expected to continue over the medium term.
Established position and diversity in the product segments DEIPL enjoys market leadership in few product segments such as TPS, display solutions and photovoltaic inverters. It is also gaining market share in other segments such as industrial uninterrupted power supply (UPS) systems and industrial automation. Revenue contribution from the largest segment, TPS rose to around 56% in fiscal 2022, from 44% in fiscal 2021, led by healthy demand. Going forward, with the commissioning of the export facility and ramp up therein, the scale of operations is expected to improve sizably.
Healthy financial risk profile Financial risk profile is marked by a comfortable networth of over Rs 1,800 crore and low external debt as on March 31, 2022. The parent infused equity of Rs 685 crore and ECBs of Rs 555 crore, between fiscals 2019 and 2022, and remains committed to providing support in future as well with equity of more than Rs 1000 crore expected in fiscal 2023 as well. The ECBs are payable in a bullet payment after 10 years. The company is expected to generate cash accruals of Rs 100-200 crore over the medium term against which there is no repayment obligations. The projects for exports and domestic markets will be funded entirely through infusions from parent. The company’s dependence on external debt is expected to be minimal over medium term. As a result, debt protection metrics are expected to remain strong over the medium term.
Weaknesses: Exposure to intense competition and volatility in operating margin More than half of the company's revenue came from the telecom segment in fiscal 2022. Intense competition and leveraged balance sheets limit the capability for capex in the telecom industry, which has witnessed many exits as well as consolidation in the past few years. Though DEIPL has a dominant position in the TPS business, growth is likely to be muted over the medium term.
The company’s profitability has been volatile over the past three years, with operating margin fluctuating from 3% to 8%, driven by product mix and fluctuations in forex rates. The profitability remains susceptible to volatility in capacity utilization due to high fixed overheads, volatile input costs and employee costs. Over the medium term, the operating margin is expected to improve with the commissioning of the export facility.
Exposure to risks related to project implementation DEIPL has undertaken large capex of around Rs 3,000 crore, funded entirely through infusions from parent. While the capex is phased over five years, the projects will be modular and commissioned in phases.
Projects under this capex include a greenfield export-oriented facility at Krishnagiri (Tamil Nadu), expansion of capacity for the domestic market, and a global R&D centre in Bengaluru. Around 50% of capex is to be incurred on the export-oriented facility, which will be undertaken in phases. Production from first phase of the export facility has been commissioned and started production in October 2021. With the ramping-up of operations, the Delta group expects revenue from India to increase to above Rs 3,000 crore within the next 3-4 fiscals.
Funding risk will be low as capex will be funded entirely through equity/ECBs from Delta Thailand, whose parent, Delta Taiwan has cash and equivalent of over USD 1.9 billion as of December 2022. A strong in-house project team, working under the active guidance of a global project management team, and technological support from the parent, should support project execution.
Demand risk is moderate as the export-oriented unit will serve the existing global clients of the Delta group, whereas the capacity expansion for the Indian market will be for manufacturing products locally that are presently imported, as well as introduction of new products of the group. Although the capex is in existing line of businesses, such large projects are susceptible to the risk of time and cost overruns. Timely commissioning as well as ramp-up of operations as envisaged will remain key rating monitorables. |
Liquidity: Strong Utilization of sanctioned fund-based working capital limit of Rs 146 crore has been low. The company had cash & equivalents of Rs 172 crore as on 31st March 2022, a part of which is from infusions by parent.
The company does not have any repayment obligations in the medium term and cash accruals of Rs 100-200 crore in the medium term is expected to be utilized towards working capital purposes. |
Outlook: Stable CRISIL Ratings believes DEIPL will continue to receive strong support from its parent and maintain its established position in various product segments, including TPS, UPS, industrial automation, photovoltaic inverters, and display businesses. |
Rating Sensitivity Factors Upward factors:
Downward factors
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About the Company* Delta Group started its operations in India in 2003. DEIPL is the wholly owned subsidiary of Delta Thailand. The company is one of the leading providers of TPS and a major player of industrial automation, display solutions, UPS, DC fans and blowers, components, bio-medical, LED lighting, automotive electronics, and renewable energy products. With 8 regional offices, 2 manufacturing facilities at Rudrapur and Gurugram, and 2 R&D centers in Gurugram and Bengaluru, DEIPL has a strong presence across India with more than 100 channel partners.
*CRISIL Ratings updated this rating rationale on 13th June 2024 to update certain non-material facts about presence of Delta group in India. This note was added on 3rd Oct 2024 and does not change CRISIL’s analytical approach in any way. |
About the Group The Delta group was incorporated in 1971. With revenue of over USD 10 billion, the group is the world's largest provider of switching power supplies and DC brushless fans, as well as a major source of power management solutions, components, display solutions, industrial automation, networking products, and renewable energy solutions. The group has sales offices worldwide and manufacturing plants in Taiwan, China, Thailand, Mexico, India, and Europe. As of December 2021, Delta Taiwan had market capitalization of over USD 24.4 billion and a net debt-free balance sheet. |
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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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This Annexure has been updated on 13-Mar-2023 in line with the lender-wise facility details as on 03-Aug-2021 received from the rated entity
Criteria Details
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