| Hero E-Cycles Private Limited | ||||||
| Long-term Rating continues on 'Watch Negative’; 'CRISIL A1+/Watch Negative' assigned to Bank Debt; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings on the long term bank facilities of Hero E-Cycles Pvt Ltd (HECPL) continues on 'Rating Watch with Negative Implications’. The short-term facilities have been assigned a ‘CRISIL A1+’ rating, which is also placed on 'Rating Watch with Negative Implications'.
The ratings are on ‘Watch with Negative Implications' because of the proposed demerger of the auto components segment of the group.
The auto components business will be transferred to Hero Motors Ltd (HML), a majority-owned subsidiary of Hero Cycles Ltd (HCL; rated ‘CRISIL AA/Watch negative/CRISIL A1+). Subsequently, HML will be majority held by the shareholders of HCL, while HCL will continue to hold minority stake in the company. The transaction is pending requisite approvals.
The auto components business is estimated to have contributed to ~28% of the overall revenue and more than half of the operating profit for Hero Cycles in fiscal 2022 (compared with ~26% and 41%, respectively, in fiscal 2021) Hero Cycles. Therefore, this proposed demerger will likely weaken the business risk profile of Hero Cycles. CRISIL Ratings is in discussion with the management to seek details of the transaction, including the division of assets and liabilities between the two entities. CRISIL Ratings shall resolve the watch once the transaction has received all the required regulatory approvals and upon having clarity on the balance sheets of the two entities post the demerger.
The rating factors in the strong operational, managerial and financial linkages between the two entities and expectation of need-based support from the parent, HCL. The business risk profile of HECPL is supported by experienced management and strong prospects in the export segment. These strengths are partially offset by the project phase of operations, leading to a weak financial risk profile. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial linkages HECPL shares with HCL.
For arriving at the rating of HCL, CRISIL Ratings has combined the business and financial risk profiles of HCL and its subsidiaries, joint ventures and associates because all these entities are under a common management with strong business and financial linkages. |
Key Rating Drivers & Detailed Description Strengths
Weakness
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Liquidity: StrongHECPL has strong financial linkages with HCL, which is expected to provide need-based support for timely debt servicing. The company had cash and liquid investments of around Rs 1 crore as on March 31, 2022. Furthermore, HECPL has strong financial flexibility from being part of Hero Cycles. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company HECPL, incorporated in January 2020, is a wholly owned subsidiary of HCL. It houses the new manufacturing unit in Hero Industrial Park in Ludhiana, Punjab (cycle valley project), for manufacturing cycles and e-cycles for domestic as well as overseas markets. The unit has installed capacity of 20 lakh units on a two-shift basis, with 1 lakh units for high-end e-cycles. The sales would be via the distribution network of HCL. |
About the parentHCL, incorporated in 1956, is the largest bicycle manufacturer in the world. The company has a manufacturing capacity of 65 lakh bicycles per year, with units in Ludhiana, Punjab; Bihta, Bihar; and Ghaziabad, Uttar Pradesh. It also manufactures auto rims and components. Operations are managed by Mr Pankaj Munjal and his family members.
In fiscal 2016, the group completed three acquisitions: Firefox, Insync and BSH. Firefox is a leading player in the premium bicycles segment in India and sells over 100 different models. Insync is one of the top three distributors of bicycles, e-bikes and bicycle parts and accessories, with presence across Europe. BSH is a bicycle manufacturer based in Sri Lanka, with a state-of-the-art manufacturing plant that will supplement sales of Hero Cycles in southern India and Europe.
HCL entered the commercial real estate business through Munjal Hospitality Pvt Ltd and acquired an under-construction hotel property in Gurugram in fiscal 2012. In fiscal 2019, the company diluted 60% stake in MHPL for a consideration of Rs 438 crore. |
Key Financial Indicators for Hero Cycles Ltd
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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)
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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 12-Aug-2022 in line with the lender-wise facility details as on 18-Oct-2021 received from the rated entity.
Criteria Details
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