Rating Rationale
October 15, 2020 | Mumbai
Gluhend India Private Limited
Rating migrated to 'CRISIL A4'
 
Rating Action
Total Bank Loan Facilities Rated Rs.35 Crore
Short Term Rating CRISIL A4 (Migrated from 'CRISIL A4+ ISSUER NOT COOPERATING'*)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Issuer did not cooperate; based on best-available information
Detailed Rationale

Due to inadequate information, CRISIL, in line with Securities and Exchange Board of India guidelines, had migrated the rating on the short-term bank facility of Gluhend India Private Limited (GIPL), earlier known as Sage Metals Pvt Ltd (SMPL) to 'CRISIL A4+ Issuer Not Cooperating'. However, the management has subsequently started sharing the requisite information for carrying out a comprehensive review of the rating.  Consequently, CRISIL is migrating the rating to 'CRISIL A4' from 'CRISIL A4+ Issuer Not Cooperating'.
 
The rating action follows the merger of SMPL into its holding company, GIPL, in June 2019; the merger is effective from March 13, 2018. The merger has resulted in a consolidated and transparent ownership structure. SII (Sage International Inc) a wholly owned subsidiary of SMPL, has now become a subsidiary of GIPL. GIPL had already met its debenture obligation due in September 2019. The final redemption of debentures due in June 2021, however, remains highly uncertain in the absence of sufficient liquid funds, and would remain a key monitorable for the rating.

The rating reflects working capital-intensive operations owing to large inventory, a weak financial risk profile, and exposure to volatility in raw material prices and foreign exchange (forex) rates. These rating weaknesses are partially offset by the established relationship with key customers and a diversified product portfolio.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of GIPL, its wholly owned subsidiary, SII.
 
CRISIL has considered the entire preference share capital as 100% equity as these shares are exclusively issued to group company, Delos Capital. These are compulsory convertible with 0.0001% coupon rate.

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
Weaknesses:
* Below-average financial risk profile:
The total outside liabilities to tangible networth ratio was high at a negative 3.35 times as on March 31, 2020. Debt protection metrics have remained weak due to high gearing and low cash accrual from operations. The interest coverage and net cash accrual to total debt ratios were 0.91 time and a negative 0.01 time, respectively, for fiscal 2020. The metrics are expected to remain at similar levels over the medium term due to high debentures.

* Exposure to risks relating to volatility in raw material prices and forex rates:
The operating margin has fluctuated in the 11-20.0% range in the four fiscals through 2020. The margin remains exposed to volatility in raw material prices and London Metal Exchange metal/alloy prices, where realisations are based on the previous month's price. On account of various initiatives taken by the management, the margin is expected to be stable, but should remain vulnerable to any increase in raw material prices and forex movements, over the medium term.

* Working capital-intensive operations:
Gross current assets (GCAs) were high at 200 days as on March 31, 2020 (230 days a year earlier), driven by inventory and receivables of 106 and 66 days, respectively (153 and 68 days), due to the large product portfolio. Working capital management was aided by credit of 120-140 days from suppliers. With greater focus on exports and commensurate increase in the scale of operations, working capital requirement may be higher over the medium term.

Strengths:
* Established relationship with key customers:
The group is one of the leading players in the castings business, as reflected in the healthy operating income of around Rs 592 crore in fiscal 2020. A presence of more than three decades in the industry has helped to build a healthy relationship with customers, both domestic and overseas. Key customers include Halex, Thomas and Betts Ltd, Orbit Industries Inc, and Zurn Industries Inc.

* Well-diversified product profile and customer base:
The group manufactures a wide range of castings such as industrial castings, sanitary drainage fittings, and electric fittings for different industries; these are sold in both the domestic as well as international markets. Diversity in clientele and products helps maintain growth in revenue and profit even in case of a drop in demand from a particular segment. The established relationship with customers and diversified product portfolio should provide stability to revenue over the medium term.
Liquidity Stretched

Cash accrual was a negative Rs 7.0 crore in fiscal 2020 and is expected at a negative Rs 20-25 crore per fiscal in fiscals 2021 and 2022, against redemption of debentures of around Rs 300 crore in June 2021. Timely redemption of debentures and well-timed funding support remain critical for the rating. Bank limit utilisation averaged 72% for the 12 months through June 2020.

Rating Sensitivity factors
Upward factors
* Funding plan and resources for final redemption of debentures due in June 2021
* Sustained revenue of Rs 500-600 crore per fiscal with an improved operating margin of  14-15%
* Prudent working capital management and timely contraction of debt

Downward factors
* A stretch in GCAs to beyond 250 days, resulting in weakening of the financial risk profile, especially liquidity
* A significant decline in the operating margin to less than 9.0%
About the Group

GIPL, incorporated on December 22, 2017, is a wholly owned-subsidiary of Delos Capital. The registered office is in Mumbai. The company is engaged in manufacture, import, export, consultancy services, and dealing in electrical wiring accessories and fittings. The debt securities are listed on the Bombay Stock Exchange.

SII, incorporated in July 1999 in the US, is a wholly owned subsidiary of GIPL and acts as a marketing arm in the US.

Key Financial Indicators
Particulars Unit 2019 2018
Operating income Rs crore 420.36 22.80
Profit After Tax (PAT) Rs crore -47.99 -24.69
PAT Margin % -11.42 -108.29
Adjusted debt/adjusted networth Times -2.53 610.36
Interest coverage Times 0.58 -7.06

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity Date Issue Size
(Rs crore)		 Complexity levels Rating assigned with outlook
NA Post Shipment Credit NA NA NA 35 NA CRISIL A4
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Gluhend India Pvt Ltd Full consolidation --
Sage International Inc Full consolidation wholly owned subsidiary
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  35.00  CRISIL A4  23-04-20  CRISIL A4+ (Issuer Not Cooperating)*  30-01-19  CRISIL A4+  29-11-18  CRISIL A4+ (Issuer Not Cooperating)*      CRISIL A2 
                12-09-18  CRISIL A2/Watch Developing       
                14-06-18  CRISIL A2/Watch Developing       
                14-03-18  CRISIL A2/Watch Developing       
Non Fund-based Bank Facilities  LT/ST    --    --    --    --    --  CRISIL A2 
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Post Shipment Credit 35 CRISIL A4 Post Shipment Credit 35 CRISIL A4+/Issuer Not Cooperating
Total 35 -- Total 35 --
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Engineering Sector
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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