Rating Rationale
June 15, 2020 | Mumbai
Hitech Corporation Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.210 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of Hitech Corporation Limited (Hitech).
 
The ratings continue to reflect the company's established market position backed by reputed clientele and strategically located manufacturing facilities. Rating also continue to reflect strong financial risk profile of the company as reflected in healthy capital structure and strong financial flexibility.These strengths are partially offset by susceptibility of operating profitability to volatility in raw material prices and to intense competition in the packaging industry.
 
The lockdown and other measures taken by various central and state governments towards containment of COVID-19 are expected to only have a moderate impact the business risk profile of the Hitech in fiscal 2021. The company's operations have partially resumed from May, 2020 albeit at considerably reduced scale. Scale of operations is expected to be around 50% in June 2020 and improve further over the coming quarters.
 
CRISIL has also taken into cognizance, moratorium granted by the bankers on the interest and repayment obligations up to August 31, 2020, as permitted by the Reserve Bank of India (RBI), which should support liquidity and contain risk of default. CRISIL believes the company would continue to see a steady inflow of receivables from its customers, over the medium term and would also be able to scale up its operations over the next two-three months.

Key Rating Drivers & Detailed Description
Strengths:
* Established market position
A diversified customer base in the paints, pharmaceuticals, fast moving consumer goods, and consumer goods industries has enabled Hitech to maintain a leadership position in the plastic-based rigid container segment. It is a leading suppliers to Asian Paints Ltd ('CRISIL AAA/Stable/CRISIL A1+'), clientele also include reputed companies such as Berger Paints India Ltd ('CRISIL AAA/Stable/CRISIL A1+') Reckitt Benckiser (India) Ltd, and Pidilite Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'). Further, Hitech also benefits from its geographically spread manufacturing facilities located close to clients' plants, which provide locational and cost advantages over competitors.
 
Revenue growth remained flat in fiscal 2020 due to delay in scale up of operations at the new plants in Visakhapatnam (Andhra Pradesh) and decline in realisations. Operating performance may continue to be subdued in fiscal 2021 as an after effect of the economic slowdown caused by the nationwide lockdown imposed to restrict the spread of the pandemic. However, the business is expected to recover over the medium term, supported by a strong market position.
 
* Healthy financial risk profile
Financial risk profile continues to be comfortable, with networth estimated to be around Rs 166-170 crore as on March 31, 2020 (Rs 164 crore as on March 31, 2019). Despite the large, debt-funded capital expenditure (capex) in the recent past, total outside liabilities to adjusted networth ratio is likely to be around 1.2-1.5 times as on March 31, 2020; the ratio may further improve over the medium term, in the absence of any further capex. Although debt protection metrics may weaken in fiscal 2021 due to pandemic-related disruptions, they should recover over the medium term with interest coverage and net cash accrual to adjusted debt (NCAAD) ratios projected at 3.5-4.5 times and 0.2-0.3 time, respectively.  
 
The promoter's (the Dani family's) reputation and financial strength enhances Hitech's ability to raise additional financing in case of exigencies and enhances its financial flexibility. The promoters will continue to support the company, both financially and in operations, over the medium term.
 
Weaknesses:
* Susceptibility to raw material price volatility and intense competition
Raw materials include polymers such as polypropylene, polyethylene, terephthalate glycol and polyvinyl chloride, prices of which are directly linked to crude oil rates. Hence, any fluctuation in crude prices is reflected in polymer prices and in turn, affects operating margin. This is compounded by intense competition in the packaging industry because of low entry barrier, resulting in competitive pricing. However, the company does pass on hikes in input prices to the customers, though with a lag.
 
The operating margin has swayed between 8.66% and 11.6% during the five fiscals through March 2019 (11.3 and 9.5% in fiscals 2019 and 2018, respectively; the operating margin improved to 13.2% during the nine months of fiscal 2020 ended December 31, 2019).
Liquidity Adequate

Net Cash accrual is estimated to be around Rs 30-32 crore in fiscal 2020 against maturing term debt of around Rs 10 crore. Cash accrual is likely to moderate in fiscal 2021 yet remain sufficient to meet the repayment obligations, given the moratorium on repayments allowed by banks as per guidelines announced by RBI; the accrual is likely to improve to Rs 35-40 crore from fiscal 2022 onwards, adequate to meet repayment obligations. No further major capex is planned for the medium term. Bank limit utilisation averaged 75% during the 12 months through fiscal 2020. Liquidity is also supported by bills discounting facilities (without recourse) available to monetise receivables from Asian Paints Ltd. Available bank facilities and surplus cash accrual should comfortably cover working capital requirement over the medium term.
 
The company also has adequate cash flow from clients (including bills from Asian Paints Ltd) and available funded limit to meet operational and financial obligation in the near term amidst Covid-19-related disruptions. Need-based support from the promoters is also expected.

Outlook: Stable

Hitech should continue to benefit from its established market position and healthy relationship with customers.

Rating Sensitivity factors
Upward factors:
* Sustained growth of 20-25% in revenue, and increase of 200-300 basis points in operating margin, leading to significantly higher net cash accrual
* Decline in debt and growth in networth, strengthening capital structure and improvement in debt protection metrics, with interest coverage and NCAAD ratios exceeding 5.0 times and 0.3 time, respectively
 
Downward factors:
* Lower than expected scale up in operations and profitability over the medium term, weakens net cash accruals to below Rs.20 crore and deterioration in debt protection metrics with material decline in interest coverage or net cash accruals to debt repayment ratio
* Sizeable stretch in the working capital cycle; any large, debt-funded capex or acquisition weakens the financial risk profile
About the Company

Hitech (formerly, Hitech Plast Ltd) was established in 1991 by Mr Ashwin Dani. This Mumbai head quartered company with manufacturing facilities in multiple states, manufactures plastic-based rigid packaging products for the paints, personal care, agricultural chemicals, healthcare, confectionery, and lubricants segments. Hitech acquired Clear Plastics Ltd (CPL) in 2003 and Mipak Polymers Ltd (MPL) in 2006. In fiscal 2010, the management merged CPL and MPL into Clear Mipak, which was eventually merged with Hitech in fiscal 2015.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 477 404
Profit after tax (PAT) Rs crore 16.4 7.8
PAT margin % 3.6 2.0
Adjusted debt/adjusted networth Times 1.13 1.09
Interest coverage Times 3.4 2.8

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 Cr)		 Rating Assigned
with Outlook
NA Fund-Based Facilities NA NA NA 55 CRISIL A/Stable
NA Fund-Based Facilities NA NA NA 19 CRISIL A1
NA Letter of credit & Bank Guarantee NA NA NA 25 CRISIL A1
NA Long Term Bank Facility NA NA NA 45 CRISIL A/Stable
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 9 CRISIL A/Stable
NA Term Loan NA NA Mar-25 57 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  185.00  CRISIL A/Stable/ CRISIL A1      11-09-19  CRISIL A/Stable/ CRISIL A1  07-06-18  CRISIL A/Stable/ CRISIL A1  07-08-17  CRISIL A/Stable  CRISIL A/Stable 
            02-08-19  CRISIL A/Stable           
Non Fund-based Bank Facilities  LT/ST  25.00  CRISIL A1      11-09-19  CRISIL A1  07-06-18  CRISIL A1  07-08-17  CRISIL A1  CRISIL A1 
            02-08-19  CRISIL A1           
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
Fund-Based Facilities 55 CRISIL A/Stable Fund-Based Facilities 56 CRISIL A/Stable
Fund-Based Facilities 19 CRISIL A1 Fund-Based Facilities 19 CRISIL A1
Letter of credit & Bank Guarantee 25 CRISIL A1 Letter of credit & Bank Guarantee 25 CRISIL A1
Long Term Bank Facility 45 CRISIL A/Stable Long Term Bank Facility 45 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 9 CRISIL A/Stable Proposed Long Term Bank Loan Facility .5 CRISIL A/Stable
Term Loan 57 CRISIL A/Stable Term Loan 64.5 CRISIL A/Stable
Total 210 -- Total 210 --
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 Fast Moving Consumer Goods Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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