Rating Rationale
December 28, 2020 | Mumbai
Hafele India Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.307 Crore
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank loan facilities of Hafele India Private Limited (HAFELE) at 'CRISIL A+/Stable/CRISIL A1'.
 
The business risk profile of Hafele continues to remain strong despite covid-19 and subsequent lockdowns, and the same is reflected in its latest CY2020 performance. During 11M CY20, company has achieved revenue of Rs 535.74 crore, as against Rs 744.77 crore during 11M CY19 i.e. a 28% dip y-o-y. The dip in revenue is on account of operations getting impacted during March to June period due to Covid-19. However, August onwards, the company's revenue has improved and reached to pre-Covid level by November 2020. The revenue ramp up was backed by its established market position across kitchen/furniture fittings and architectural hardware product segment. Further, despite the moderation in revenue during this period, the company, with various cost measures, has reported moderate Earnings before Interest, Tax and Depreciation (EBITDA) of Rs 6.65% during 11M CY20. Going ahead, with its diversified geographical reach and product diversity, CRISIL believes, Hafele will continue to have strong business risk profile in medium term.
 
The rating continues to reflect strong business risk profile of HAFELE marked by established presence in the kitchen/furniture fittings and architectural hardware industry, its asset-lite business model leading to high return on capital employed, prudent risk management policies and comfortable financial risk profile. These credit strengths are partially offset by working capital intensive nature of operations and susceptibility of operating margin to forex fluctuation.
Key Rating Drivers & Detailed Description
Strengths
* Strong business risk profile marked by established presence in the kitchen/furniture fittings and architectural hardware industry: 'Hafele' brand's market position in India is underpinned by its parent i.e. Hafele GmbH & Co KG (HGC)'s strong and established brand presence in the premium segment of the global furniture/kitchen fittings and architectural hardware industry. Over a period of years, HGC has established a strong brand equity globally and currently 'Hafele' is among the leading global brands for furniture/kitchen fittings industry known for its premium quality products. While there are competing global brands apart from domestic brands, Hafele differentiates its market position by offering a wider product range which also includes appliances, lightings, Sanitary and Access Control System etc. CRISIL believes that along with such a diversified product profile and strong brand presence globally, HGC's technical expertise and research & development support are expected to continue to support business risk profile of HAFELE over the medium term.
 
* Asset-lite business model leading to high return on capital employed: HAFELE sells its products through its extensive distribution network comprising of nearly 70 franchisees and over 3000 large and small dealers across India. The sales through franchisee channels contributes around 20% of entire sales while remaining happens through distributors, multi-brand retailer, dealers, OEMs, etc. HAFELE makes initial investment only in stocking up of inventory at each franchisee while the entire cost of maintaining and initial set up of showroom is to be borne by the franchisee owner. It is due to this asset lite model that HAFELE is able to generate high return on capital employed (RoCE) of 18-26% on a consistent basis since last 5 years ended December 31, 2019. CRISIL believes that due to this asset lite business model of HAFELE, it will continue to generate healthy RoCE on a continued basis.
 
* Prudent risk management policies: HAFELE follows prudent risk management policies pertaining to counterparty, supplier and inventory. HAFELE has a trusted network of franchisee owners which were majorly multi-brand retailers earlier with average relationship of around 7 to 8 years. HAFELE provides credit period of 30 to 45 days to the franchisee owners. To industrial and project customers, HAFELE either provides open credit of 60 days or LC-backed credit depending on the customer profile leading to minimal counterparty risk. On supplier front, since HAFELE majorly procures from HGC's own manufacturing unit and approved vendors hence the supplier risk is low as it receives open credit of around 60-75 days. Regarding inventory, HAFELE keeps high inventory at its end which is due to high lead time of import of its products. To minimize risk of inventory obsolescence, HAFELE follows no return policy however HAFELE does assist its franchisee owners and distributors by providing discounts to reduce inventory obsolescence risk at even distributors' level. Moreover with a recent investment in an integrated system, HAFELE has ensured to closely monitor the inventory levels at franchisee and distributor levels which is expected to improve the decision making at HAFELE's end. CRISIL thus believes that these prudent risk management policies are continue to support both the business and financial risk profile of HAFELE.
 
* Comfortable financial risk profile: With a steady growth in revenue and healthy operating profitability, there is healthy accretion to reserves, which is thus reflected in a robust networth of Rs 183.80 crore as on December 31, 2019. Networth will continue to remain robust going forward. On account of company's moderate reliance on external debt, the capital structure is healthy as reflected in low gearing of 0.56 time as on December 31, 2019. TOLTNW too is comfortable at 1.22 times as on December 31, 2019. Going ahead, capital structure is expected to remain healthy on account of continued moderate dependence on external debt for funding incremental working capital requirements. The company does not have any major debt funded capital expenditure plans owing to healthy cash accrual generation in the system and hence no significant impact is anticipated on TOLTNW. With healthy operating profitability and moderate reliance on external debt, interest cover is healthy at 6.8 times in CY19. Net cash accruals to adjusted debt too is comfortable at 0.51 time in CY19, backed by healthy accruals and moderate debt level.
 
Weaknesses
* Working capital intensive nature of operations: Operations are working capital intensive as reflected by gross current assets (GCAs) of 149 days as on December 31, 2019.  HAFELE's large working capital requirements arise from its high inventory requirements owing to large number of stock keeping units (SKUs) and high lead time of imported to be kept for its entire product range. This is reflected in inventory estimated to be of 93 days as on December 31, 2019. CRISIL believes due to requirement of maintaining high inventory, operations are expected to remain working capital intensive on a continuous basis. Debtor days were 59 days as on March 31, 2019.
 
* Susceptibility of operating margin to forex fluctuation: HAFELE imports more than 95% of its traded product range on an annual basis, hence it exposes HAFELE to any fluctuations in forex rates. However, operating margin of HAFELE have been in the range of 9 to 11% for the last 5 years ended CY19. This has been partially due to forex risk management practices being followed wherein HAFELE hedges partially its forex exposure and partially due to ability to pass on price changes to its end consumers. HAFELE saw operating losses on account of Covid-induced lockdown, however the operating profitability has rebound to pre-Covid level, and operating margin is expected to be around 7-8% in CY20. CRISIL believes that HAFELE's ability to continue to maintain its operating profitability at around 10% over the medium term, and any sharp and sudden forex fluctuations will remain a key monitorable.
Liquidity Strong

Liquidity of HAFELE is strong as reflected by moderate bank lines utilization averaging at 47% for 12 months ended August 2020. Company is expected to generate NCA of Rs 28 crore, which will be more than adequate against minimal repayments of Rs.6.9 crore in CY20. However, the company has pre-paid its term loans in H1CY20. Going forward, NCA is expected to be in the range of Rs 49-55 crore per fiscal, against nil repayments. Hafele also had moderate unencumbered cash and bank balances of Rs 11.77 crore as on December 31, 2019.  Current ratio was 1.52 times as on December 31, 2019. Company did not avail moratorium on its bank limits and continued to pay all its dues timely. With moderation in business due to covid-19, the company may not pay dividend payment for CY20 to its parent company.
Outlook: Stable

CRISIL believes the revenue of HAFELE will continue to grow at a healthy rate over the medium term supported by an established market position and healthy consumption demand in urban markets.
 
Rating Sensitivity Factors
Upward Factors:
* Sustained growth in revenue along with sustenance of operating margin
* Improvement in working capital cycle with gross current assets (GCA) of around 100 days.
* Improvement in credit risk profile of the parent entity
 
Downward Factors:
* Any steep decline in revenue or an operating margin below 5%
* Stretch in working capital cycle
* Any significant change in global strategy of parent which could impact the business risk profile of HAFELE.
About the Company

Incorporated in 2003 and based in Mumbai, HAFELE is a 100% subsidiary of German major, Hafele Holding GmbH and Co, which is an investment arm of the ultimate holding company HGC. HAFELE deals in furniture/kitchen fittings and architectural hardware products of not only Hafele's own brands but also co-brands products of other large established players globally such as BLUM, Austria; Webert and Bertazonni, Italy; and Blanco, Germany, among others. Along with Indian operations under its ambit, HAFELE also operates in Sri Lanka and Bangladesh and also exports its products to Bhutan, Nepal and Maldives.
Key Financial Indicators
As on/for the period ended December 31 Unit 2019* 2018*
Operating income Rs crore 840.28 712.91
Reported profit after tax Rs crore 47.62 27.55
PAT margins % 5.7 3.9
Adjusted Debt/Adjusted Networth Times 0.56 1.20
Interest coverage Times 6.8 4.9
*HAFELE follows calendar year

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)		 Complexity Level Rating Assigned
with Outlook
NA Working Capital Demand Loan NA NA NA 117 NA CRISIL A+/Stable
NA Cash Credit NA NA NA 40 NA CRISIL A+/Stable
NA Overdraft NA NA NA 30 NA CRISIL A1
NA Letter of credit NA NA NA 25 NA CRISIL A1
NA Import Letter of Credit Limit NA NA NA 60 NA CRISIL A1
NA Working Capital Facility NA NA NA 35 NA CRISIL A+/Stable
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  222.00  CRISIL A+/Stable/ CRISIL A1      06-09-19  CRISIL A+/Stable/ CRISIL A1  15-03-18  Withdrawal (Issuer Not Co-operating)*      CRISIL A-/Stable 
            30-03-19  CRISIL A+/Stable/ CRISIL A1  29-01-18  CRISIL BBB+/Stable (Issuer Not Co-operating)*       
Non Fund-based Bank Facilities  LT/ST  85.00  CRISIL A1      06-09-19  CRISIL A1    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Cash Credit YES Bank Limited 40 CRISIL A+/Stable
Import Letter of Credit Limit Standard Chartered Bank Limited 60 CRISIL A1
Letter of Credit RBL Bank Limited 25 CRISIL A1
Overdraft Facility ICICI Bank Limited 30 CRISIL A1
Working Capital Demand Loan HDFC Bank Limited 117 CRISIL A+/Stable
Working Capital Facility The Hongkong and Shanghai Banking Corporation Limited 35 CRISIL A+/Stable

This Annexure has been updated on 21-Sep-2021 in line with the lender-wise facility details as on 06-Sep-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
Rating Criteria for Retailing Industry
CRISILs Criteria for rating short term debt
CRISILs Bank Loan Ratings

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
Mohit Makhija
Director
CRISIL Ratings Limited
D:02240405805
mohit.makhija@crisil.com

Smriti Singh
Senior Rating Analyst
CRISIL Ratings Limited
D:+91 22 4040 5930
Smriti.Singh@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 Ratings. However, CRISIL Ratings 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 Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set 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 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ("CRISIL Ratings") is a wholly-owned subsidiary of CRISIL Limited ("CRISIL"). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is 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

CRISIL PRIVACY NOTICE
 
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 (each a "Report") that is provided by CRISIL Ratings Limited  (hereinafter referred to as "CRISIL Ratings") . 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 Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings 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 Ratings 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 Ratings 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 Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. Rating by CRISIL Ratings 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 Ratings or its associates may have other commercial transactions with the company/entity.

Neither CRISIL Ratings nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, "CRISIL Ratings Parties") guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Ratings 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 RATINGS' 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 Ratings 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 Rating'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 ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings 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 Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL Ratings 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 Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings Limited is a wholly owned subsidiary of CRISIL Limited.

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011 to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html