Rating Rationale
May 15, 2019 | Mumbai
Ingersoll Rand India Limited
Long-term rating placed on 'Watch Developing'short-term rating reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.100 Crore
Long Term Rating CRISIL AA+ (Placed on 'Rating Watch with Developing Implications')
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its rating on the long term bank facilities of Ingersoll Rand India Limited (IRIL) on 'Rating Watch with Developing Implications'. The rating on the short-term bank facilities has been reaffirmed at 'CRISIL A1+'.
Ingersoll Rand Co, USA (IRCo, rated 'BBB/Stable/A-2' by S&P Global) and Gardner Denver Holdings (GDH, rated 'BB+/Stable by S&P Global) - a provider of industrial equipment, technologies and related parts have entered into a definitive agreement, whereby IRCo will separate its Industrial unit by way of spin-off and merge it with GDH; while the remaining assets of the IRCo will become a pure play global leader in climate control solutions (called 'ClimateCo' hereafter).
IRIL is a part of the Industrial segment which is being spun-off at the parent level. The industrial segment will be led by GDH management and thus has triggered the open offer in India. CRISIL is in discussion with IRIL to better understand the transaction, the operations and financial profile of the company going forward. CRISIL will remove the rating from watch and take a final rating action post-clarity on the same.
CRISIL's ratings on the bank facilities of IRIL continue to reflect its established position with strong brands in the domestic compressor manufacturing segment, along with the technological and operational support from its parent, IRCo. The ratings also factor in IRIL's robust financial risk profile marked by adequate liquidity and the absence of debt. These rating strengths are partially offset by the company's exposure to risks related to cyclical demand from its end-user segments, and the moderate susceptibility of profitability to volatile raw material prices.

Key Rating Drivers & Detailed Description
* Established market position and strong brand presence in compressor manufacturing segment
IRIL has a strong brand presence in the Indian compressor market. The company has a dominant market share in the centrifugal compressor segment. IRIL is present in the fast-growing rotary compressor segment and faces stiff competition from the market leader, Atlas Copco India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'). IRIL is the largest manufacturer in the small compressor segment in India. However, its presence in the domestic market is small, as most of its production capacity is dedicated to exports to various countries, primarily through IRCo.
* Strong operational and technological support from parent, IRCo
IRCo, with revenue exceeding USD 13 billion, holds a 74% stake in IRIL. The parent, a prominent global player in the commercial HVAC (heating, ventilating and air conditioning) markets, provides requisite technological support to IRIL and procures a part of its global small compressors requirement from India. Exports (predominantly sales to affiliates) accounted for around 16%-18% of IRIL's revenue. Furthermore, IRIL also meets a part of its input material requirement from its affiliates. CRISIL believes that IRCo's support by way of close management interaction and access to a global product portfolio will support IRIL's business risk profile, over the medium term.
* Robust financial risk profile and financial flexibility
IRIL's strong financial risk profile is underpinned by healthy cash accruals, large net worth and zero debt, leading to robust financial flexibility. IRIL has invested about ~Rs. 100 crore to upgrade its facilities in Naroda, Ahmedabad over fiscal 2015 and fiscal 2016 leading to adequate manufacturing capacity. The company does not have any further significant capex plans.
* Exposure to risks related to cyclical demand in end-user industries and to volatility in raw material prices
IRIL's customers in the industrial segment are largely based in capital-intensive industries such as steel and automobiles. Demand from these industries depends on the macro-economic environment and is therefore, cyclical. Company's revenues growth has remained sluggish over fiscal 16 ' fiscal 18 on account of lower capex undertaken by these sectors and impact of demonetisation and GST. Over medium term, CRISIL believes that company revenues will grow in line with compressor industry growth. CRISIL believes that IRIL's revenues will remain vulnerable to cyclicality in investments in end-user industries.
In addition, IRIL's profitability is also susceptible to fluctuations in foreign exchange rates and prices of raw materials and components (primarily pig iron and steel). Material costs ranged from 60-65% of operating income over the past five years, reflecting the impact on the cost structure and operating margin. 
Upward Scenario: 
* Substantially improves its scale of operations, supported by an expansion in its product portfolio
* Significant increase in its market share in the existing product segments, and maintains its profitability.
Downward Scenario: 
* Significant debt-funded capital expenditure or acquisitions;
* Increases its exposure to group companies, or reports significant and sustained weakening in its operating profitability.


While the company had over Rs 770 crore of cash and equivalents on its books as of 31st March 2018, company announced a special dividend of Rs. 202 per equity share by utilizing cash to the extent of Rs 750 crores (including dividend distribution tax). While this has substantially impacted the liquidity profile of company, liquidity of around Rs 115 crore as of September 31, 2018 continues to remain adequate going forward, CRISIL expects dividend policy to normalise leading to cash buildup on books.

About the Company

IRIL was incorporated in 1921 as a subsidiary (74%) of Ingersoll Rand. IRIL 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. In May 2013, IRIL commissioned a plant in Chennai to manufacture a range of equipment, including bus and truck air conditioners and commercial heating, ventilation and air conditioning products. In fiscal 2016, the company has discontinued the operations at the Chennai plant on account of lack of future orders.

Key Financial Indicators
As on / for the period ended March 31 2018 2017
Revenue Rs crore 615 621
Adjusted profit after tax Rs crore 89 77
PAT margins % 14.5 12.2
Adjusted Debt/Adjusted Net worth Times NA NA
Interest coverage Times NA 88

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 Cash Credit NA NA NA 2.0 CRISIL AA+/Watch Developing
NA Letter of credit & Bank Guarantee NA NA NA 87.0 CRISIL A1+
NA Proposed Non Fund based limits NA NA NA 11.0 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  2.00  CRISIL AA+/Watch Developing      03-07-18  CRISIL AA+/Stable      23-12-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
            20-04-18  CRISIL AA+/Stable           
            23-03-18  CRISIL AA+/Stable           
Non Fund-based Bank Facilities  LT/ST  98.00  CRISIL A1+      03-07-18  CRISIL A1+      23-12-16  CRISIL A1+  CRISIL A1+ 
            20-04-18  CRISIL A1+           
            23-03-18  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
Cash Credit 2 CRISIL AA+/Watch Developing Cash Credit 2 CRISIL AA+/Stable
Letter of credit & Bank Guarantee 87 CRISIL A1+ Letter of credit & Bank Guarantee 87 CRISIL A1+
Proposed Non Fund based limits 11 CRISIL A1+ Proposed Non Fund based limits 11 CRISIL A1+
Total 100 -- Total 100 --
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 Engineering Sector
CRISILs Criteria for rating short term debt
Mapping global scale ratings onto CRISIL scale

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