Rating Rationale
October 26, 2023 | Mumbai
LEDVANCE Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.50 Crore
Long Term RatingCRISIL A-/Stable (Reaffirmed)
Short Term RatingCRISIL A2+ (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 A-/Stable/CRISIL A2+’ ratings on the bank facilities of LEDVANCE Private Limited (LEDVANCE India; formerly, OSRAM India Pvt Ltd [OSRAM India]).

 

Operating income in calendar year 2022 (CY22) grew by around 30% to Rs 185 crore, as compared to CY21, due to increase in demand after the Covid-19 pandemic and improving product mix. In the first nine months of CY23, operating income stood around Rs 135 crore.

 

Operating profitability improved to around 11% in CY22 and expected to remain at 9.0-9.5% in CY23 due to declining prices of light emitting diode (LED). The company is focusing on establishing the Ledvance brand with marketing and sales strategies.

 

The financial risk profile has improved, with liquidity increasing to Rs 29 crore as on September 30, 2023, due to better cash accrual. Liquidity remains further supported by fund-based bank limit of Rs 15 crore, which largely remains unutilised. In addition, there is no long-term debt in the company.

 

The ratings reflect the support LEDVANCE India receives from its immediate parent -- LEDVANCE GmbH -- which in turn is supported by the ultimate parent -- MLS Co Ltd (MLS). The ratings continue to factor in steady financial risk profile. These strengths are partially offset by modest market presence, exposure to intense competition and vulnerability to technological obsolescence.

Analytical Approach

CRISIL Ratings has notched up its ratings on the bank facilities of LEDVANCE India for support received from parent, LEDVANCE GmbH, which in turn is backed by the ultimate parent, MLS. Previously, CRISIL Ratings had notched up its ratings for support received from MLS through LEDVANCE GmbH.

Key Rating Drivers & Detailed Description

Strengths:

  • Technical, managerial, and financial support from parent, LEDVANCE GmbH

LEDVANCE India continues to receive strong technical, managerial, and financial support from LEDVANCE GmbH. The parent company provides technological know-how and supplies high-end lights, which are not easily available in India. The parent has provided letters of support to banks for working capital limit. Ledvance GMBH is a forward integration for MLS, as MLS manufactures LED packages (LED chips) used in lights. MLS also provides commitment letter to Ledvance GMBH for financial support.

 

  • Improvement in financial risk profile

The financial risk profile has improved owing to the focus of the management on profitability and continuing the asset light business model, leading to healthy cash accrual. Net cash accrual improved to Rs 26 crore in CY22 from Rs 9 crore in CY21 (nine-month period). The company has no term debt and financial flexibility is supported by cash and bank balance of Rs 29 crore as on September 30, 2023, along with unutilised bank limit.

 

Weaknesses:

  • Modest presence in the Indian lighting industry

After being carved out from OSRAM India, LEDVANCE India has been expanding into new product segments, including LEDs and luminaires but has modest market presence. Operating income is expected at around Rs 190 crore in CY23. The company continues to utilise the OSRAM brand for many of its lighting products and markets them under the LEDVANCE brand. Change in product mix to drive revenue growth will remain a key monitorable over the medium term.

 

  • Vulnerability to technological obsolescence and intense competition

Business remains susceptible to the risk of technological obsolescence because of the introduction of more energy-efficient products in the lighting industry. To adapt to these advancements, the company plans to focus on trading, with no capital expenditure, and introduction of new product segments over the medium term. It should continue to receive product support from its immediate to adapt to the changing technology requirements. Furthermore, intense competition from large players and cheaper imports may continue to constrain scalability, pricing power and profitability.

Liquidity: Adequate

Cash and bank balance stood at Rs 29 crore as on September 30, 2023. The fund-based limit of Rs 15 crore remains unutilised. The company has no term debt and cash accrual will be sufficient to meet any incremental working capital requirement in the absence of any major capital expenditure.

Outlook: Stable

The business risk profile of LEDVANCE India will remain supported by its growing presence in the Indian lighting industry and improving diversification in its product portfolio. The financial risk profile will be aided by a debt-free balance sheet and strong support from the parent.

Rating Sensitivity factors

Upward factors

  • Significant improvement in scale, leading to revenue more than Rs 500 crore on a sustained basis with stable double-digit profitability
  • Substantial improvement in the credit risk profile of LEDVANCE GmbH

 

Downward factors

  • Weakening operating performance, leading to operating margin below 4%
  • Diminution in support or weakening of the credit risk profile of LEDVANCE GmbH

About the Company

LEDVANCE India is a wholly owned subsidiary of LEDVANCE GmbH, which was formed as a part of the global restructuring undertaken by OSRAM AG, a leading global lighting products manufacturer. LEDVANCE India, renamed from OSRAM India effective July 20, 2016, was formed as part of the restructuring and holds the traditional lighting business in India, with LEDVANCE GmbH being the holding company for the traditional lighting business globally. LEDVANCE India has two regional sales offices and seven distribution centres across India.

 

On July 26, 2016, OSRAM AG announced the split of the general lighting lamps business into LEDVANCE GmbH, and subsequent sale of LEDVANCE GmbH to a Chinese consortium comprising -- strategic investor IDG Capital Partners, Chinese lighting company MLS, and financial investor Yiwu. During April 2018, MLS has taken over the full ownership of LEDVANCE GmbH by means of a share deal with the strategic investor IDG Capital and the financial investor Yiwu. Along the lines of the global split, the domestic business was split into general lighting lamps (LEDVANCE India) and speciality lighting (OSRAM Lighting Pvt Ltd; ‘CRISIL A-/Stable/CRISIL A1’).

 

LEDVANCE India achieved revenue of Rs 135 crore and profit after tax (PAT) of Rs 114 crore for the first nine months of CY23.

Key Financial Indicators

As on/for the period ended December 31

Unit

2022

2021

(nine months)

Operating income

Rs crore

185

106

PAT

Rs crore

26

9

PAT margin

%

14%

8.3

Adjusted debt/adjusted networth

Times

--

--

Interest coverage

Times

184

396

 

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 with outlook

NA

Cash Credit

NA

NA

NA

15

NA

CRISIL A-/Stable

NA

Non-Fund Based Limit

NA

NA

NA

17

NA

CRISIL A2+

NA

Proposed Short Term Bank Loan Facility

NA

NA

NA

18

NA

CRISIL A2+

 

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/ST 33.0 CRISIL A2+ / CRISIL A-/Stable   -- 29-07-22 CRISIL A2+ / CRISIL A-/Stable 08-09-21 CRISIL A2+ / CRISIL A-/Stable 27-02-20 CRISIL A2+ / CRISIL A-/Stable CRISIL A/Stable
      --   --   -- 27-05-21 CRISIL A2+ / CRISIL A-/Stable   -- --
Non-Fund Based Facilities ST 17.0 CRISIL A2+   -- 29-07-22 CRISIL A2+ 08-09-21 CRISIL A2+ 27-02-20 CRISIL A2+ CRISIL A1
      --   --   -- 27-05-21 CRISIL A2+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15 Deutsche Bank CRISIL A-/Stable
Non-Fund Based Limit 17 Deutsche Bank CRISIL A2+
Proposed Short Term Bank Loan Facility 18 Not Applicable CRISIL A2+
Criteria Details
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
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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