Rating Rationale
February 27, 2023 | Mumbai
Ingersoll Rand India Limited
Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.120 Crore
Long Term RatingCRISIL AA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
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 reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of Ingersoll Rand India Limited (IRIL).

 

The ratings continue to reflect IRIL’s established position with strong brands in the domestic compressor manufacturing segment, along with technological and operational support from its parent, Ingersoll Rand Inc. (IR Inc, rated 'BB+/Stable by S&P Global). The ratings also factor in support from IRIL’s healthy financial risk profile, supported by a debt-free balance sheet. These strengths are partially offset by exposure to risks related to cyclical demand from end-user segments, susceptibility of profitability to volatile raw material prices and high dividend pay-outs leading to moderation in networth and liquidity.

 

In fiscal 2022, revenues for IRIL grew 47% at the back of a stronger second half in fiscal 2022 (compared to the first half of fiscal 2021 that was disrupted by the Covid-19 pandemic). The income from business support services was stagnant primarily due to change in the company structure post completion of transaction between Ingersoll Rand Co, USA (IRCo, rated 'BBB/Stable/A-2' by S&P Global, currently known as Trane Technologies) and Gardner Denver Holdings (currently known as IR Inc) as the support that was provided to the climate businesses earlier in India has been discontinued. However, operating margin deteriorated by 100 basis points to nearly 17% on account of raw material cost headwinds. ln the first nine months of fiscal 2023, the company achieved top line of Rs 846 crore and operating margin of over 18%.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of IRIL.

Key Rating Drivers & Detailed Description

Strengths:

Established market position and strong brand presence in the compressor manufacturing segment

IRIL has strong brand presence in the Indian compressor market. The company has a dominant market share of over 48% in the centrifugal compressor segment. However, it faces competition from other prominent players such as Atlas Copco India Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Elgi Equipments Ltd (‘CRISIL AA/Stable/CRISIL A1+’), and Kirloskar Pneumatic Company Ltd(‘CRISIL AA-/Stable/CRISIL A1+).

 

Strong operational and technological support from the parent, IR Inc

IR Inc, with revenue of over USD 4.3 billion as of September 2022, holds 75% stake in IRIL. It provides mission-critical air, fluid, energy, specialty vehicles and medical technologies; coupled with services and solutions to increase industrial productivity and efficiency. The parent provides requisite technological support to IRIL and procures a part of its global small compressor requirement from India. Exports (predominantly sales to affiliates) accounted for around 28% of IRIL’s revenue in fiscal 2022. Furthermore, IRIL meets a part of its input material requirement from its affiliates. CRISIL Ratings believes IR Inc’s support by way of close interaction with the management and access to a global product portfolio will support IRIL’s business risk profile, over the medium term.

 

Healthy financial risk profile

IRIL’s financial risk profile is supported by debt-free balance sheet. Networth was over Rs 557 crore as on September 30, 2022, which is adequate. However, it has moderated from over Rs.1000 crore in fiscal 2018, due to material dividend payout (higher than profits generated in fiscal 2019). On December 22, 2022, the Board of Directors approved setting up a new manufacturing plant in Gujarat to increase the manufacturing capacity of the existing products and to additionally manufacture new products (from 10,000 units per month to 15000 units per month) for Rs 170 crore spread over fiscal 2023-to 2025. Debt protection metrics continue to remain healthy, with total outside liabilities to tangible net-worth (TOLTNW) ratio, remaining below 0.5 time since fiscal 2017. It is likely to remain at a similar level over the medium term. IRIL is also expected to sustain its strong balance sheet over the medium term, enhancing its flexibility to raise funds.

 

Weaknesses:

Exposure to risks related to cyclical demand in end-user industries and to volatility in raw material prices

IRIL’s revenue over the past five fiscals has been Rs 600-900 crore due to high competitive intensity. The company’s customers in the industrial segment are largely based in capital-intensive sectors such as automotive, metals, pharmaceuticals and textiles. Barring pharmaceuticals, demand from other sectors depends on the macro-economic environment and is therefore, cyclical. Over the medium term, CRISIL Ratings believes IRIL’s revenue will remain vulnerable to cyclicality in investments in end-user industries and high competitive intensity.

 

In addition, IRIL’s profitability is susceptible to fluctuations in foreign exchange rates and prices of raw materials and components (primarily castings made of pig iron and steel). Material costs were 54-62% of operating income over the four fiscals through 2022, reflecting the impact on the cost structure and operating margin. Nevertheless, the operating margin improved between fiscals 2018 and 2022 at 13-18% on account of better product mix.

 

High dividend pay-outs leading to moderation in liquidity

In fiscals 2019, 2020 and 2023, the company paid special dividends of Rs 792 crore, Rs 106 crore and Rs 95 crore, respectively.  In fiscal 2023, the dividend was on account of IRL completing 100 years. The dividend payouts have moderated net worth from over Rs 1100 crore in fiscal 2018 to Rs 552 crore in fiscal 2022 and liquidity from Rs 770 crore in fiscal 2018 to Rs 294 crore in fiscal 2022. The company continues to hold healthy cash surpluses, while bank lines were completely unutilised. Dividend pay-out is expected to normalise over the medium term, facilitating better cash surplus build-up and improvement in net worth. 

Liquidity: Strong

Liquidity is supported by cash surplus of around Rs 288 crore as of September 2022. The fund-based working capital lines are unutilised, as the company has surplus cash. The company had nil debt as on September 30, 2022 and is expected to operate as a debt-free company over the medium term. Cash accrual is expected to be sufficient to meet incremental working capital needs and capital spends.

 

ESG Profile:

CRISIL Ratings believes Ingersoll’s Environment, Social and Governance (ESG) profile supports its already strong credit risk profile. The industrial machinery and consumable sector has significant impact on the environment on account of emissions, waste generation and water consumption. The sector has social impact due to its nature of operations affecting the local community and health hazards involved. Ingersoll has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights:

  • Ingersoll is committed to reduce 60% greenhouse gas (GHG) emission by 2030.
  • The company has installed a solar power plant at Naroda, Gujarat. The manufacturing facility aims to accelerate its sustainability commitment and reduce dependence on conventional energy by almost 40% with installation of almost 1,800 solar panels at the facility totaling capacity of 800 KWP
  • Ingersoll has also taken initiatives to reduce packing consumables (non-hazardous and plastic waste) in the manufacturing facility by reduction of packaging waste and plastic waste through use of returnable pallets for components in high volume lines.
  • 100% of the Permanent Associates of the company are members of recognized associations which is close to 30% of the total headcount.
  • The company had mandated all employees to undergo online training on Prevention of Sexual Harassment (POSH) and during the year 33 workshops were conducted to raise awareness
  • Around 79% of the third-party purchasing spend is through local suppliers within India, out of which micro, small and medium enterprises (MSMEs) accounting for ~50%.
  • Its governance structure is characterized by 50% of its board comprising independent directors, split in chairman and CEO positions, dedicated investor grievance redressal system and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. Ingersoll’s commitment to ESG principles will play a key role in enhancing stakeholder confidence.

Outlook: Stable

CRISIL Ratings believes IRIL will continue to sustain its established business position in the domestic compressor segment over the medium term, with technical and product support from its parent. Its operating profitability is also expected to sustain at healthy double-digit levels. The company is also likely to maintain its healthy financial risk profile, as indicated by debt-free balance sheet and also gradually build up its liquidity over the medium term, following a prudent dividend philosophy.

Rating Sensitivity factors

Upward factors

  • Strong double-digit growth in revenue on sustained basis, while sustaining healthy operating profitability
  • Sustenance of strong balance sheet and material improvement in liquidity

 

Downward factors

  • Significant deterioration in the operating performance with margins
  • Material debt-funded capex or acquisitions or stretched working capital cycle, leading to sharp moderation in debt protection metrics; for instance, TOLTNW ratio exceeding 1.0-1.2 times
  • Further reduction in cash surplus and networth, due to high dividend payout, capital reduction or share buy-back

About the Company

IRIL was incorporated in 1921. It manufactures air compressors of various capacities for the domestic and export markets. The company derives revenue from the sale of reciprocating, rotary, and centrifugal compressors and spares in the domestic market, and from exports to its parent and affiliates. The company has a manufacturing facility in Ahmedabad (Gujarat) and branch offices in most metros in India.

Key Financial Indicators

As on / for the period ended March 31 2022 2021
Revenue Rs crore 912 621
Adjusted profit after tax (PAT) Rs crore 110 72
PAT margins % 12.1 11.6
Adjusted debt/Adjusted net-worth Times - -
Interest coverage Times 73.88 106.64

CRISIL Adjusted

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 
levels		 Rating assigned
with outlook
NA Cash Credit NA NA NA 1.3 NA CRISIL AA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 101.7 NA CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 17 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 18.3 CRISIL AA/Stable   --   -- 23-12-21 CRISIL AA/Stable 18-09-20 CRISIL AA/Stable CRISIL AA+/Watch Developing
      --   --   -- 15-12-21 CRISIL AA/Stable 23-06-20 CRISIL AA+/Watch Developing --
      --   --   --   -- 16-04-20 CRISIL AA+/Watch Developing --
      --   --   --   -- 20-01-20 CRISIL AA+/Watch Developing --
Non-Fund Based Facilities ST 101.7 CRISIL A1+   --   -- 23-12-21 CRISIL A1+ 18-09-20 CRISIL A1+ CRISIL A1+
      --   --   -- 15-12-21 CRISIL A1+ 23-06-20 CRISIL A1+ --
      --   --   --   -- 16-04-20 CRISIL A1+ --
      --   --   --   -- 20-01-20 CRISIL A1+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 0.1 Standard Chartered Bank Limited CRISIL AA/Stable
Cash Credit 0.1 Bank of America N.A. CRISIL AA/Stable
Cash Credit 0.1 Central Bank Of India CRISIL AA/Stable
Cash Credit 1 Citibank N. A. CRISIL AA/Stable
Letter of credit & Bank Guarantee 19.9 Central Bank Of India CRISIL A1+
Letter of credit & Bank Guarantee 11.9 Bank of America N.A. CRISIL A1+
Letter of credit & Bank Guarantee 3 Bank of America N.A. CRISIL A1+
Letter of credit & Bank Guarantee 12 Citibank N. A. CRISIL A1+
Letter of credit & Bank Guarantee 40 Bank of India CRISIL A1+
Letter of credit & Bank Guarantee 14.9 Standard Chartered Bank Limited CRISIL A1+
Proposed Long Term Bank Loan Facility 17 Not Applicable CRISIL AA/Stable

This Annexure has been updated on 27-Feb-2023 in line with the lender-wise facility details as on 23-Dec-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Engineering Sector
CRISILs Criteria for rating short term debt

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Anuj Sethi
Senior Director
CRISIL Ratings Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com

Aditya Jhaver
Director
CRISIL Ratings Limited
B:+91 22 3342 3000
aditya.jhaver@crisil.com

Latika Shyam Lala
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
Latika.Lala@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html