Rating Rationale
December 19, 2023 | Mumbai
Hooghly Cochin Shipyard Limited
'CRISIL AA/Stable/CRISIL A1+' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.200 Crore
Long Term RatingCRISIL AA/Stable (Assigned)
Short Term RatingCRISIL A1+ (Assigned)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA/Stable/CRISIL A1+’ ratings to the bank facilities of Hooghly Cochin Shipyard Limited (HCSL).

 

The rating reflects the benefits derived from the established market position of the parent, Cochin Shipyard Limited (CSL, rated ‘CRISIL AAA/Stable/CRISIL A1+'). The parent company benefits from the long-standing presence in the ship building industry with healthy execution track record, strong market position driven by healthy association with Indian navy and sizeable order book. The group has achieved healthy revenues of 2,000-3,500 crore over the few fiscals through 2023. In addition, the business risk profile also reflects the moderate orderbook of Rs 34 crores as on Sept 30, 2023 for building of inland waterway vessels, multi-purpose vessels and caisson gate. This provides revenue visibility over the near term.

 

The rating also incorporates the continued support from the parent to meet its capex as well as debt service obligations. The company has received non-convertible debenture and redeemable preference shares of Rs. 75 crore and Rs. 56 crore respectively as on March 31, 2023 from the parent company and would continue to receive financial support over the medium term,

 

These strengths are partially offset by a limited track record of operations as the company recently started its operations in fiscal 2022 and below average financial risk profile with weak debt protection metrics and leveraged capital structure. The nascent stage of its operations has led to limited operational flexibility, however significant increase in scale as well as improvement in profitability remains a key rating sensitivity factor.

Analytical Approach

The ratings of HCSL factor in support expected from its parent, CSL. CRISIL Ratings believes that HCSL will, in case of exigencies, receive distress support from its parent for timely repayment of debt obligations, considering strategic importance of HCSL to CSL, ownership of 100% stake in HCSL, and shared name by both the entities.

 

Non-convertible debenture and redeemable preference shares of Rs. 75 crore and Rs. 56 crore respectively as on March 31, 2023 have been treated as debt.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position of parent in the shipping industry: HCSL will continue to benefit from the five-decade-long presence of CSL in the shipping industry, its strong understanding of market dynamics and healthy relations with customers and suppliers. Revenue has remained strong at Rs 2,000-3,500 crore over the few fiscals through 2023 driven by  pan-India presence and strong demand and healthy execution of projects as the company caters to commercial (domestic and export) as well as defense segment. CSL has achieved sales of Rs 1,488 crore for the first half of fiscal 2024 and are estimated  to reach Rs 3200-3400 crores for the full year. The scale of operations are expected to sustain over over the medium term on the back of capacity expansion, healthy order book and timely execution track record.

 

  • Financial support from the parent: CSL has extended support via equity infusion, preference shares and non-convertible debentures to HCSL for setting up the dockyard of the company. Further CSL’s management has maintained a stance to support HCSL for all financial needs.

 

  • Moderate orderbook: The company currently has a moderate orderbook of Rs 34 crores as on September 2023, which provides adequate revenue visibility for the near term.

 

Weaknesses:

  • Limited track record of operations: HCSL was acquired by CSL in 2019 and has commenced its operations since fiscal 2022. Though expected to increase, the scale of operations continues to remain modest, marked by revenues of Rs. 17 crore in fiscal 2023 and of around Rs. 9-10 crore in the first half of fiscal 2024. Timely stabilization and increase in scale of operations leading to healthy profitability would continue to remain a key monitorable over the medium term.

 

  • Below average financial profile: HCSL has below average financial profile marked by weak debt protection metrics with negative interest coverage and net cash accruals to adjusted debt for fiscal 2023. This is due to weak operating margins. While the networth is healthy at Rs. 60 crore as on March 31, 2023, the capital structure is leverage ,marked by total outside liabilities to adjusted networth of 3.3 times as on March 31, 2023. The financial profile is expected to improve driven by an increase in scale of operations, steady accretion to reserves, and healthy profitability and will remain a key monitorable over the medium term.

Liquidity: Strong

HCSL has strong liquidity, driven by expectation of support from the parent CSL (rated CRISIL AAA/Stable/CRISIL A1+) to provide ongoing and need based support, in case of exigencies. On a standalone basis, HCSL has fund based bank limits of Rs. 20 crore which remain highly unutilized over the past 12 months September 2023. Liquidity profile Is also benefited by healthy cash and bank balance of Rs. 63 crore as on March 31, 2023 Current ratio of 1.5 times as on March 31, 2023.

Outlook: Stable

CRISIL Ratings believes HCSL’s business risk profile will continue to improve backed by strong support extended by the parent.

Rating Sensitivity Factors

Upward factors

  • Increase in the revenues while generating healthy operating margins of around 14% leading to higher cash accruals.
  • Improvement in the financial risk profile.

 

Downward factors

  • Downward change in credit risk profile of CSL by 1 notch, could lead to similar change in rating of HCSL.
  • Any change in the support philosophy of CSL, leading to a downward revision in the quantum and timing of support to HCSL.

About the Company

HCSL was set up as a joint venture between CSL and Hooghly Dock & Port Engineers Ltd (HDPEL) on October 23, 2017. Pursuant to the approval of the Union Cabinet, CSL acquired the shares held by HDPEL and, with effect November 01, 2019, made HCSL its wholly owned subsidiary. HCSL manufactures and repairs commercial ships, barges and tugs for domestic and international clients.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

17.07

0.42

Reported profit after tax (PAT)

Rs.Crore

-20.34

-2.84

PAT margin

%

-119.1

-677.2

Adjusted debt/adjusted networth

Times

2.19

3.82

Interest coverage

Times

-0.19

-4.94

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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)

Complexity

level

Rating assigned

and outlook

NA

Bank Guarantee

NA

NA

NA

30

NA

CRISIL A1+

NA

Cash Credit

NA

NA

NA

20

NA

CRISIL AA/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

150

NA

CRISIL AA/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 170.0 CRISIL AA/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 30.0 CRISIL A1+   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 30 Union Bank of India CRISIL A1+
Cash Credit 20 Union Bank of India CRISIL AA/Stable
Proposed Long Term Bank Loan Facility 150 Not Applicable CRISIL AA/Stable
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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