Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Stable/Crisil A1+’ ratings on the bank facilities of Linde Engineering India Private Limited (LEIPL).

 

The ratings continue to reflect the established position of LEIPL as an offshore provider of engineering and engineering, procurement and construction (EPC) services for its parent, Linde PLC (rated ‘A/Stable/A-1' by S&P Global Ratings [S&P]). The ratings also factor in the healthy financial risk profile of LEIPL and strong business and financial support from the parent. These strengths are partially offset by modest order book position and exposure to intense competition and cyclicality in the EPC segment.

 

The revenue growth of LEIPL moderated by 30% y-o-y to reach the topline of Rs 801 crore in fiscal 2024, due to lower-than-expected execution in few large projects within the order book and slow buildup in the existing order book during the year. Although the revenue is estimated at Rs 1,100-1,200 crore in fiscal 2025 due to healthy execution in two large projects, the same is expected to remain rangebound at Rs 800-900 crore in the medium term, from fiscal 2026 onwards, due to limited order inflows. The company had an order book of Rs 1,171 crore as on December 31, 2024 (Rs 1,211 crore as on September 30, 2023), translating into low order book to revenue ratio of around 1.1 time for fiscal 2025. The operating margin is expected to moderate to ~8% in the medium term (16.6% in fiscal 2024) owing to execution of lower margin orders and low fixed cost absorption due to lower scale.

 

The financial risk profile remains healthy, as characterised by debt-free position, strong liquidity of free cash of Rs 170 crore and unutilised bank limit of Rs 54 crore as on December 31, 2024. Given limited capital expenditure (capex) and working capital requirement, no debt is expected to be drawn over the medium term.

Analytical Approach

In line with its parent notch-up framework, Crisil Ratings has notched up LEIPL’s standalone rating based on the expectation of strong support from the parent, Linde PLC.

Key Rating Drivers & Detailed Description

Strengths:

Established position as an offshore provider of engineering and EPC services to the global operations of parent: LEIPL is a wholly owned subsidiary of Linde PLC, formed after the merger of Linde AG and Praxair Inc in 2018. Linde PLC is the world’s largest industrial gas and engineering company, with annual sales of around $33 billion in calendar year 2024. The company has an established position in the global industrial gas industry. It also has an engineering division, catering to industrial gas plants.

 

The cost-effectiveness of technically skilled manpower in India makes LEIPL the preferred provider of engineering design support to the global EPC projects of its parent. Moreover, the company will remain critical to its parent’s operations in India and continue to enhance the competitive advantage of Linde PLC while bidding for orders globally. Although LEIPL operates as an independent subsidiary, it benefits from the technological know-how of its parent, which shall drive future growth.

 

Strong business and financial support from the parent: The company receives strong business support from the parent and executes contracts undertaken by Linde PLC in India. LEIPL is a designated hub for providing engineering services to the parent and group companies across the globe, from which it continues to receive significant orders. Common brand, full ownership and complete management control imply a strong moral obligation on the parent to support LEIPL if the need arises. Also, Linde PLC has provided letter of comfort to the company’s banks. The company will remain critical to Linde PLC's operations in India and will continue to benefit from the competitive position of the parent.

 

Healthy financial risk profile: The financial risk profile stood healthy owing to debt-free position of the company over the past decade and unencumbered cash surplus of Rs 170 crore as on December 31, 2024. Furthermore, prudent working capital management, with gross current assets (net of cash) under 100 days on the back of interest-free customer advances and back-to-back arrangements with the suppliers, lead to nil fund-based working capital utilisation. Given limited capital expenditure (capex) and working capital requirement, no debt is expected to be drawn over the medium term.

 

With an estimated dividend outflow of Rs 102 crore in fiscal 2025, total outside liabilities to tangible networth (TOLTNW) ratio is estimated to have moderated to 2.7-2.9 times as on March 31, 2025 (2.0 times as on March 31, 2024) due to moderation in networth to Rs 240-250 crore from Rs 297 crore last fiscal. Although the TOLTNW ratio is expected to reduce to 2.0-2.2 times in fiscal 2026 due to low dividend outflows, the same will remain at 3-4 times in the medium term, with expected increase in dividend outflows. However, higher-than-expected dividend outflow, significantly impacting the networth or cash surplus, will be a key rating sensitivity factor.

 

Weaknesses:

Modest order book position: LEIPL had an order book of Rs 1,171 crore as on December 31, 2024 (Rs 1,211 crore as on September 30, 2023), translating into low order book to revenue ratio of around 1.1 time for fiscal 2025. Around 77% of the order book comprises orders from the parent or group companies; this share is expected to remain high in the near term owing to substantial opportunities from the group companies to promote new technology domestically.

 

Exposure to intense competition and cyclicality in the EPC industry, with risk related to contingent liabilities: The EPC segment for processing plants is highly fragmented, resulting in stiff competition. LEIPL is also susceptible to cyclicality inherent in the industry, which mirrors the cyclicality in end-user industries. Revenue depends on the capex plans of end-user segments such as steel, oil and gas, petrochemicals and pharmaceuticals. Given LEIPL's presence in the highly competitive and cyclical EPC segment, it is vulnerable to volatility in income and profitability.

 

Due to the nature of business, LEIPL has sizeable off-balance sheet liabilities, primarily bank guarantees given to clients. Hence, the company is exposed to the liquidity risk that may arise out of these contingent liabilities.

Liquidity: Strong

Liquidity remained strong, with unencumbered cash and equivalents of Rs 170 crore and undrawn fund-based limit of Rs 54 crore as on December 31, 2024, and debt-free position. The company primarily depends on non-fund-based facilities to fund its working capital requirement, wherein the utilisation was 29% on average for the 12 months through December 2024. Net cash accrual is expected to remain at Rs 40-50 crore in fiscal 2026 and negative over the medium term on account of dividend payouts.

Outlook: Stable

LEIPL will continue to benefit from support and linkages with Linde PLC. LEIPL is likely to maintain healthy profitability and capital structure, with negligible external debt.

Rating sensitivity factors

Upward factors

• Substantial and sustainable increase in revenue and profitability, leading to networth of more than Rs 300 crore
• Sustenance of the prudent working capital management and capital structure

 

Downward factors

• Higher-than-expected decline in revenue and/or any further reduction in operating margin, leading to lower-than-expected net cash accrual
• Significant stretch in the working capital cycle impacting on the liquidity position
• Higher-than-expected dividend outflow, impacting tangible networth
• Downgrade in S&P's rating on Linde PLC by more than two notches

About the Company

LEIPL was established in 1987 as a wholly owned subsidiary of Linde PLC. The Linde group is the world's leading supplier of industrial, process and specialty gases with operations across 100 countries. LEIPL primarily partners with Linde PLC in implementing lump-sum turnkey EPC contracts for hydrogen and synthesis gas plants in India and nearby countries. It also extends detailed offshore engineering support to the parent's global operations.

About the Parent

Linde AG merged with US peer, Praxair Inc, in 2018, becoming the largest industrial gases company in the world. The combined group, Ireland-incorporated Linde PLC, has about $33 billion in annual sales. It provides industrial gases (atmospheric and specialty) through onsite, merchant and package distribution to diversified end markets such as petroleum, chemicals, refining, manufacturing, metals and mining, healthcare and food and beverage. The group also has an engineering business, including procurement, project management and construction of industrial plants. Furthermore, Linde PLC has a surface technologies business that supplies wear-resistant and high-temperature, corrosion-resistant metallic and ceramic coatings and powders.

Key Financial Indicators*

Particulars	Unit	FY24	FY23
Operating Income	Rs crore	801	1148
Profit after tax (PAT)	Rs crore	108	69
PAT margin	%	13.4	6
Adjusted debt/adjusted networth	Times	0	0
Adjusted interest coverage	Times	9.3	6.4

*Crisil Ratings adjusted numbers

Any other information: Not Applicable