Rating Rationale
March 28, 2018 | Mumbai
Hindustan Aeronautics Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.1500 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.450 Crore Bond CRISIL AAA/Stable (Reaffirmed)
Rs.450 Crore Short Term Debt CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes of Hindustan Aeronautics Limited (HAL).
The ratings continue to reflect the company's strategic position as the main aviation equipment supplier to the Indian defence sector, its technology absorption capability, sizeable order book, and sound financial risk profile. These strengths are partially offset by its exposure to revenue concentration risk on account of high dependence on the Indian defence sector.
CRISIL has noted HAL's initial public offer concluded on March 20, 2018, with sale of GoI's stake of 10% to the public. GoI continues to hold the balance stake. The stake sale will not make any material impact on the credit risk profile of the company as major control will remain with the government, the company being strategically important in the aerospace and defence sector. The amount raised shall be utilised by GoI.
The rating review is based on the annual report of 2016-17 along with information available on company's website.

Analytical Approach

CRISIL has applied its criteria for notching up standalone ratings of entities based on government support.

Key Rating Drivers & Detailed Description
* Strategic position as the main aviation equipment supplier to the Indian defence sector: HAL occupies a strategic position as the major domestic supplier of aviation equipment to the Indian defence sector. The company is also the primary provider of maintenance and overhauling services to the defence forces. HAL is expected to derive benefit from the government's budget allocation of Rs 2.95 lakh crore for the defence sector in the Union Budget for fiscal 2019. HAL has also identified growth opportunities in the non-defence segment to diversify its revenue base, which comprises advanced light helicopters (ALHs), structures and tankages for launch vehicles of Indian Space Research Organisation (ISRO), and marine gas turbine overhaul and sub-assembly supplies to global majors.
* Strong order book and superior technology absorption capability: HAL's strong business prospects are reflected in its sizeable order book, which provides revenue visibility over the medium term. As on July 31, 2017, HAL's order book position was Rs 63,333 crore. Its superior technology absorption capability signifies its in-house development capability for licensed production of aircraft, repairs and overhaul services, as well as indigenous design and development of aircraft and helicopters.
* Strong financial risk profile: The financial risk profile is backed by strong liquidity, substantial internal cash accrual, low indebtedness, and sound debt coverage ratios.
* Significant revenue concentration due to dependence on the Indian defence sector: HAL derives 80-90% of its revenue from the Indian defence sector, primarily aviation. Inability to fulfil critical defence needs may lead to increased share of private or foreign players in the defence budget of Indian Air Force (IAF). Also, lowering of the defence budget could hit HAL's revenue.
Outlook: Stable

CRISIL believes HAL will maintain its strong business and financial risk profiles over the medium term because of its strategic importance to the Indian government and the business support it receives from IAF. The outlook may be changed to 'Negative' if any change leading to dilution in HAL's strategic importance to the Indian defence sector.

About the Company

HAL is wholly owned by the Indian government and has a memorandum of understanding with the Ministry of Defence's Department of Defence Production and Supplies. HAL is a vertically integrated aerospace company, and designs, manufactures, and overhauls aviation products. It has 19 production units supported by research and development centres at Kanpur, Lucknow, Korwa in Uttar Pradesh; Koraput in Odisha; Bengaluru; Nashik in Maharashtra; and Hyderabad.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs Cr. 18,555 17,158
Profit After Tax Rs Cr. 2616 1998
PAT Margin % 14 12
Adjusted Debt/Adjusted Networth Times 0.14 0.05
Interest coverage Times 227 624

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 crore)
Rating Assigned with Outlook
NA Short Term Debt NA NA 7-365 Days 450 CRISIL A1+
NA Bond* NA NA NA 450* CRISIL AAA/Stable
NA Bank Guarantee NA NA NA 20.00 CRISIL A1+
NA Cash Credit NA NA NA 450.00 CRISIL AAA/Stable
NA Letter of Credit NA NA NA 1030.00 CRISIL A1+
*Yet to be issued
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Bond  LT  450  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AAA/Stable 
Short Term Debt  ST  450  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  450  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AAA/Stable 
Non Fund-based Bank Facilities  LT/ST  1050  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 20 CRISIL A1+ Bank Guarantee 20 CRISIL A1+
Cash Credit 450 CRISIL AAA/Stable Cash Credit 450 CRISIL AAA/Stable
Letter of Credit 1030 CRISIL A1+ Letter of Credit 1030 CRISIL A1+
Total 1500 -- Total 1500 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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