Rating Rationale
September 10, 2020 | Mumbai
Delta Electronics India Private Limited
Ratings reaffirmed at 'CRISIL AA- / Stable / CRISIL A1+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.354 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
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 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 DEIPL receives from its parent, Delta Electronics (Thailand) Public Limited Company (Delta Thailand), and ultimate parent, Delta Electronics Inc., Taiwan (Delta Taiwan), a leading global supplier of electronics components. The ratings also factor in the company's diversified revenue and product profile, strong market position in key product segments, and robust financial risk profile with nil external debt. These strengths are partially offset by exposure to intensely competitive telecom industry, volatility in operating profitability, and susceptibility to risks associated with implementation of the ongoing large capacity expansion.
 
The company is carrying out a large capacity expansion with capital outlay of ~Rs 3000 crore over five fiscals till 2024 to be 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 R&D centre, Till fiscal 2020, capex of ~Rs 700 crore has been incurred and the parent has infused ~Rs 1040 crore through equity and ECB in fiscal 2019 and 2020. 
 
The first phase of export facility is expected to be commissioned and start contributing to revenues from 4th quarter of fiscal 2021 and will be the key revenue & profitability driver over the medium term.  
 
In fiscal 2020, the company's revenues were lower by ~20% led by the decline in sales from telecom power segment (TPS), the key contributor to revenue, while the operating profitability was lower at ~2% from 3.5% y-o-y. In fiscal 2021, while the first quarter was impacted by COVID, on a full year basis, the company is expected to post marginally higher growth in the revenues mainly supported by commissioning of export facility while operating profitability is also expected to improve.
 
Financial profile remains healthy owing to no external debt on balance sheet. Liquidity levels remain comfortable with ~Rs 370 crore of cash & equivalents presently while fund based facilities of Rs 146 crore remained unutilized. Financial flexibility is also supported by flexible credit period offered by parent towards the purchases. DEIPL procures ~60% of its total raw material/traded goods requirements from Delta Group entities.
 
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 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 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 capital expenditure (capex) of around Rs 3,000 crore in DEIPL over fiscal 2019 to 2024 of which ~Rs 700 crore is over till fiscal 2020 and Rs 900 crore is expected to be incurred in fiscal 2021. 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 research & development (R&D) Centre. The entire capex will be funded through equity or 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 has industry leading market share in some of its product segments such as telecom power solutions (TPS), display solutions, and photovoltaic inverters. The company's other segments, industrial uninterrupted power supply (UPS) systems and industrial automation, are also gaining market share. The revenue contribution from the largest segment, TPS, reduced to 36% in fiscal 2020 from 47% in fiscal 2019 owing to the segment revenue reducing by a third due to lower capex by telecom tower companies in 2020. Earlier, strong market position and consistent addition of products resulted in revenue increasing at a compound annual growth rate of 11% over the three fiscals through 2019. However, revenues declined by 20% in 2020 mainly owing to decline in TPS revenues. In future, with the commissioning of export facility and ramp up therein, the scale of operations is expected to improve sizably.
 
* Robust financial risk profile
The financial risk profile has been robust, with net worth of Rs 1632 crore and nil external debt as on March 31, 2020. The parent has done large infusions through equity of Rs 685 crore and ECB of Rs 356 crore during fiscal 2019 and 2020, and remains committed to further support. The company had cash and equivalents of Rs 407 crore as on March 31, 2020. A part of that is out of the ECB infusion by parent for projects. The ECBs are payable in a bullet payment after 10 years. The company is expected to generate cash accruals of ~Rs 40 crore in 2021 and ~Rs 150 crore in 2022 against which there is no repayment obligations. The projects for exports and domestic markets will be funded entirely through infusions from parent. The company has been external debt free from last two fiscals and the dependence on external debt is expected to be minimal over medium term and hence the debt protection metrics are expected to remain strong over the medium term.
 
Weaknesses
* Exposure to intense competition and volatile operating margin
Around half of the company's revenue came from telecom tower operators in fiscal 2019. The contribution declined to 36% in fiscal 2020 owing to slowdown in capex in telecom towers industry. The telecom industry is marked by intense competition as well as leveraged balance sheets that limits capability for capex in future. The industry has seen many exits as well as consolidation in the past few years. While DEIPL has a dominant position in the TPS business, due to these issues, the growth in the industry is expected to be muted over the medium term.
 
The company's profitability has been volatile over the past five years, with operating margin fluctuating from 2% to 6%, driven by product mix and fluctuations in forex rates. The profitability remains susceptible to volatility in capacity utilization due to high fixed overheads 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 setting up a Greenfield export-oriented facility at Krishnagiri (Tamil Nadu), expansion of capacity for the domestic market, and a global R&D center in Bengaluru. More than 50% capex is to be incurred on the export-oriented facility to be established in phases. The production from first phase of Export facility was to be started in fourth quarter of fiscal 2020. However owing to Covid-19 impacting the construction activities as well as restricting movements of key personnel from abroad for over 2 quarters, the same has got delayed and now will start production in fourth quarter of fiscal 2021. With the ramping-up of operations, the Delta group expects revenue from India to increase to above Rs 3,000 crore within 3-4 years.
 
The funding risk will be low as the capex will be funded entirely through equity/ECB from Delta Thailand whose parent, Delta Taiwan has cash and equivalent of over USD 1.7 billion as on June 2020. A strong in-house project team, working under the active guidance of a global project management team and receiving technological support from the parent, should support the project execution.
 
The demand risk is moderate as the export-oriented unit will serve the existing global clientele 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

Liquidity position of the company is strong. Utilization of sanctioned fund-based working capital limit of Rs 146 crore has been negligible. The parent has infused large equity/ECB of around Rs 1040 crore in the past 2 fiscals for large capex. The company had cash & equivalents of Rs 407 crore as on 31st March 2020, a part of which is from the infusions from parent. The large capex of Rs 3,000 crore over the medium term will be funded entirely through fund infusions by the Delta group. The company derives high financial flexibility from the Delta group which accounts for 60% of payables.
Outlook: Stable

CRISIL 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
* Significant and sustained improvement in the operating profitability to over 7-8% and RoCE above 10%
* Consistent improvement in the performance of the Delta group

Downward Factors
* Significant weakening of operating performance, for instance, operating profitability remaining below 2% for a consistent period
* Decline in support from the Delta group
* Increase in gearing to above 0.50 time.
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.

In fiscal 2020, DEIPL posted revenue of Rs 1268 crore and PAT of Rs 1 crore on provisional basis as against Rs 1584 crore and Rs 23 crore during fiscal 2019

*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 Parent
The Delta group was incorporated in 1971. With revenue of over USD 9 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. In August 2020, Delta Taiwan had market capitalization of over USD 16 billion and a net debt-free balance sheet.
Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Revenue Rs crore 1584 1407
Profit After Tax (PAT) Rs crore 23 40
PAT Margin % 1.5 2.9
Adjusted debt/adjusted networth Times NA 0.07
Interest coverage Times 58.9 33.0

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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)		 Complexity Level Rating Assigned
with Outlook
NA Fund-Based Facilities NA NA NA 146.9 NA CRISIL AA-/Stable
NA Non-Fund Based Limit NA NA NA 207.1 NA CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  146.90  CRISIL AA-/Stable      10-09-19  CRISIL AA-/Stable    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  207.10  CRISIL A1+      10-09-19  CRISIL A1+    --    --  -- 
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Fund-Based Facilities BNP Paribas Bank 85 CRISIL AA-/Stable
Fund-Based Facilities Citibank N. A. 61.9 CRISIL AA-/Stable
Non-Fund Based Limit Citibank N. A. 107.1 CRISIL A1+
Non-Fund Based Limit ICICI Bank Limited 100 CRISIL A1+
Total - 354 -

This Annexure has been updated on 16-Aug-2021 in line with the lender-wise facility details as on 3-Aug-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Understanding CRISILs Ratings and Rating Scales

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