Rating Rationale
February 28, 2018 | Mumbai
Johnson Controls-Hitachi Air Conditioning India Limited
Long-term rating upgraded to 'CRISIL AA/Stable'; Ratings Withdrawn
 
Rating Action
Total Bank Loan Facilities Rated Rs.250 Crore
Long Term Rating CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Stable'; Rating Withdrawal)
Short Term Rating CRISIL A1+  (Rating Reaffirmed and Withdrawal)
 
Rs.60 Crore Short Term Debt (Including Commercial Paper) CRISIL A1+ (Rating Reaffirmed and Withdrawal)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its long-term rating on the bank facilities of Johnson Controls-Hitachi Air Conditioning India Ltd (JCHAC India) to 'CRISIL AA/Stable' from 'CRISIL AA-/Stable'. The rating on the short-term debt has been reaffirmed at 'CRISIL A1+'.
 
CRISIL has, simultaneously, withdrawn the ratings at the company's request and on receipt of no-dues certificates from ICICI Bank Ltd, State Bank of India and Standard Chartered Bank; and no objection certificate from Yes Bank Ltd. The rating action is in line with CRISIL's policy on withdrawal of ratings.
 
The upgrade reflects stronger financial support now available to JCHAC India from its parent, Johnson Controls-Hitachi Air Conditioning Ltd (JCHAC)'in the form of working capital lines drawn from its global banking arrangement. JCHAC continues to provide technological and managerial support to its Indian subsidiary. In addition, the upgrade factors in JCHAC India's healthy revenue growth and stable operating profitability.
 
The ratings continue to reflect JCHAC India's established market position in the room air conditioners (ACs) industry in India and strong financial risk profile. These strengths are partially offset by exposure to volatility in raw material prices and foreign exchange rates as well as intense competition in the industry.

Analytical Approach

For arriving at the ratings, CRISIL has applied its framework for mapping global scale ratings to CRISIL's scale. The ratings factor in support from the parent, JCHAC.

Key Rating Drivers & Detailed Description
Strengths
* Established market position: JCHAC India had a healthy market share of around 11% in the Indian AC market in fiscal 2017, supported by the wide recognition of the Hitachi brand. Hitachi maintains strong brand equity as a manufacturer of technologically advanced and premium quality products in the residential and commercial AC market.  It continues to expand its footprint in the mass premium segment while simultaneously diversifying into the lower priced AC segment in Tier-II and -III cities. This is reflected in the strong compound annual growth rate of 20% in revenue over the five years through March 2017.
 
* Strong financial risk profile: Financial risk profile remains strong, with a gearing of 0.14 time as on March 31, 2017, and interest coverage and net cash accruals to total debt ratios of 38 times and 2.1 times, respectively, for fiscal 2017. The financial risk profile is expected to remain strong over the medium term, backed by healthy accrual and the absence of large capital expenditure plans.
 
* Financial, managerial and technical support from JCHAC: JCHAC India receives considerable financial, managerial, and technological support from its parent. The financial support is reflected in guaranteed bank lines for JCHAC India's working capital requirements while the managerial support is reflected in the parent's involvement in JCHAC India's policy making, with key management personnel being from JCHAC. Technological support received includes access to the latest technology and designs and introduction of new products.

Weakness
* Exposure to volatility in raw material prices and foreign exchange rates: Raw materials, primarily copper, aluminium, and steel (including compressors), account for more than 60% of cost structure; 55-60% of the raw materials are imported. This exposes profitability to volatility in raw material prices and forex rates.
 
* Intense competition in the industry: Intense competition in the consumer durables industry limits profitability.

Outlook: Stable
CRISIL believes JCHAC India will continue to receive technological, financial and managerial support from its parent JCHAC. Further it is likely to maintain a healthy business risk profile, supported by its established market position in the AC industry and its improved operating efficiencies. Its financial risk profile is also expected to remain healthy over this period, with limited debt and healthy cash accrual.
About the Company

JCHAC India was incorporated in 1984 as Acquest Air-conditioning Systems Pvt Ltd, promoted by the Lalbhai group of India. It became a joint venture of the Lalbhai group and Hitachi in 1999. Hitachi Ltd purchased the entire shareholding of the Lalbhai group in 2003. JCHAC India manufactures and trades in the Hitachi brand of home appliances in India. It manufactures a range of ACs for residential and commercial spaces, which include room ACs such as window and split ACs; and packaged ACs such as concealed splits, ductables, ceilings, and cassettes. The company also sells specific cooling solutions for the telecommunications sector, variable refrigerant volume systems, and large AC applications. In addition, it trades in refrigerators, AC spares and stabilisers, washing machines and chillers.
 
JCHAC was established on October 1, 2015 as a joint venture (JV) between Hitachi and Johnson Controls Inc. Hitachi carved out and contributed its AC business to the JV. JCI acquired a 60 percent stake of the carved-out business and Hitachi continues as a 40 percent shareholder of this venture.
 
For the nine months ended December 31, 2017, net profit was Rs 60 crore on total income of Rs 1,558 crore against PAT of Rs 56 crore on total income of Rs 1,359 crore in the corresponding period of previous fiscal.

Key Financial Indicators
As on / for the period ended March 31   2017 2016
Revenue Rs crore 1,986 1,649
Profit after tax Rs crore 81 50
PAT margin % 4.1 3.0
Adjusted debt/adjusted networth Times 0.14 0.49
Interest coverage Times 38.09 10.87
These are CRISIL adjusted numbers and do not match directly with the numbers reported by the company

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 Short Term Debt (Including
Commercial Paper)
NA NA 7-365 days 60.00 Withdrawal
NA Cash Credit NA NA NA 100.00 Withdrawal
NA Letter of Credit and
Bank Guarantee*
NA NA NA 150.00 Withdrawal
*Bank Guarantee is fully interchangeable with Letter of Credit
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Short Term Debt (Including Commercial Paper)  ST  60  Withdrawal    No Rating Change    No Rating Change  01-04-16  CRISIL A1+  06-02-15  CRISIL A1+/Watch Developing  CRISIL A1+ 
                    08-01-15  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  100  Withdrawal    No Rating Change    No Rating Change  01-04-16  CRISIL AA-/Stable  06-02-15  CRISIL AA-/Watch Developing  CRISIL AA-/Positive 
Non Fund-based Bank Facilities  LT/ST  150  Withdrawal    No Rating Change    No Rating Change  01-04-16  CRISIL A1+  06-02-15  CRISIL A1+/Watch Developing  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 100 Withdrawal Cash Credit 100 CRISIL AA-/Stable
Letter of credit & Bank Guarantee* 150 Withdrawal Letter of credit & Bank Guarantee* 150 CRISIL A1+
Total 250 -- Total 250 --
*Bank Guarantee is fully interchangeable with Letter of Credit
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 Consumer Durable Industry
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000
 jyoti.parmar@crisil.com

Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023
Sachin.Gupta@crisil.com


Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329
nitesh.jain@crisil.com


Pragya Sareen
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
Pragya.Sareen@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. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is an agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers.

We are 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


About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets 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 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY NOTICE

CRISIL respects your privacy. We 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 and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit https://www.crisil.com/en/home/privacy-and-cookie-notice.html. You can view the Company’s Customer Privacy at https://www.spglobal.com/corporate-privacy-policy

Last updated: April 2016


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of 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 providing or intending to provide any services in jurisdictions where CRISIL 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 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 or otherwise 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 Rating 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 assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL 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.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL 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 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 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. CRISIL’s public ratings and analysis 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 web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING 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 a prior written consent of CRISIL.

All rights reserved @ CRISIL