Rating Rationale
September 29, 2018 | Mumbai
Hindustan Hardy Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.13.78 Crore
Long Term Rating CRISIL BB-/Stable (Reaffirmed)
Short Term Rating CRISIL A4+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Hindustan Hardy Limited (HHS) at 'CRISIL BB-/Stable/CRISIL A4+'.

The ratings continue to reflect an established track record in the propeller shaft industry and a moderate financial risk profile because of low gearing. These strengths are partially offset by a subdued operating performance, large working capital requirement, and susceptibility of profitability to fluctuations in raw material prices and foreign exchange (forex) rates, and to cyclicality in the automobile industry.

Key Rating Drivers & Detailed Description
Strengths
* Established track record: The company's technical partner, Spicer Gelenkwellembau GMBH (GWB), is a part of Dana Corp, which is a global leader in cardan-jointed propeller shafts. HHS has been supplying propeller shafts to domestic and overseas automotive majors.

* Moderate financial risk profile: The capital structure was comfortable, backed by a gearing of below 1 time over the four fiscals ended March 31, 2018, and a moderate networth. Gearing was at 0.45 times and the networth Rs 8.16 crores as on March 31, 2018.

Weakness
* Modest scale of operations and large working capital requirement:
Revenue was Rs 37.9 crores in fiscal 2018. The scale of operations is likely to remain modest over the medium term. Gross current assets were high at 164 days, because of large receivables and inventory of 116 days and 40 days, respectively, as on March 31, 2018.

* Susceptibility to fluctuations in raw material prices and forex rates: The operating margin has been below 5% over the three fiscals through 2018 (1% in fiscal 2017) due to intense competition, and fluctuation in steel prices and forex rates.

* Cyclicality in automobile sector: The automobile industry remains vulnerable to economic cycles. Any uncertainty in the economy, or monetary tightening measures such as a hike in interest rates, can have a significant impact on demand for vehicles.
Outlook: Stable

CRISIL believes HHS will continue to benefit from its established track record in the propeller shaft industry. The outlook may be revised to 'Positive' if there is a significant and sustained increase in revenue and profitability, leading to higher-than-expected cash accrual, and better working capital management. The outlook may be revised to 'Negative' if a further decline in revenue or profitability, or a stretch in the working capital cycle, weakens the financial risk profile, particularly liquidity.

About the Company

HHS, incorporated in 1982 and based in Nashik, Maharashtra, manufactures propeller shafts'mechanical devices that transfer power from engines or motors to the point of application.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 37.91 36.14
Profit after tax (PAT) Rs crore 0.81 -0.97
PAT margin In % 2.1 -2.6
Adjusted debt/adjusted net worth Times 0.45 0.71
Interest coverage Times 3.97 0.58

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 Bank Guarantee NA NA NA 0.05 CRISIL A4+
NA Cash Credit NA NA NA 5.5 CRISIL BB-/Stable
NA Letter of Credit NA NA NA 0.1 CRISIL A4+
NA Proposed Working Capital Facility NA NA NA 6.03 CRISIL BB-/Stable
NA Term Loan NA NA Mar-2020 2.1 CRISIL BB-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  13.63  CRISIL BB-/Stable      04-09-17  CRISIL BB-/Stable      27-11-15  CRISIL BB/Stable  CRISIL BB+/Stable 
            20-01-17  CRISIL BB/Stable           
Non Fund-based Bank Facilities  LT/ST  0.15  CRISIL A4+      04-09-17  CRISIL A4+      27-11-15  CRISIL A4+  CRISIL A4+ 
            20-01-17  CRISIL A4+           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee .05 CRISIL A4+ Bank Guarantee .05 CRISIL A4+
Cash Credit 5.5 CRISIL BB-/Stable Cash Credit 5.5 CRISIL BB-/Stable
Letter of Credit .1 CRISIL A4+ Letter of Credit .1 CRISIL A4+
Proposed Working Capital Facility 6.03 CRISIL BB-/Stable Proposed Working Capital Facility 6.03 CRISIL BB-/Stable
Term Loan 2.1 CRISIL BB-/Stable Term Loan 2.1 CRISIL BB-/Stable
Total 13.78 -- Total 13.78 --
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
Rating Criteria for Auto Component Suppliers
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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