| Spur Technologies Private Limited | ||||
| Rating downgraded to 'CRISIL BBB+ '; Continues on 'Watch Negative' | ||||
| Rating Action | ||||
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| 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 downgraded its rating on the long-term bank facilities of Spur Technologies Pvt Ltd (Spur) to ’CRISIL BBB+‘ from 'CRISIL A-'; the rating continues on 'Rating Watch with Negative Implications'.
The downgrade reflects a similar rating action on the parent, Hero Cycles Ltd (HCL; ‘CRISIL A+/CRISIL A1+/Watch negative’), reflecting weak operating performance of the remaining cycles business of HCL post the demerger of the automobile components business into Hero Motors Ltd (‘CRISIL A+/Stable/CRISIL A1+’). Revenue stood at ~Rs 2100 crore in fiscal 2023 (similar to the previous fiscal); though there has been a slight improvement in the operating profits for the domestic cycles business in fiscal 2023, slower-than-expected turnaround in the subsidiaries led to continued operating loss for the overall business. Also, the improvement in the domestic cycles business in fiscal 2023 was lower than expected. Ramp up in subsidiaries, leading to expected turnaround in the overall operating profitability in fiscal 2024, will be a key monitorable. . The rating continues on watch negative because the company has announced the demerger of its cycles business along with the operating subsidiary -- Hero e-cycles Ltd (HECPL; ‘CRISIL A+/CRISIL A1+/Watch Negative’) -- to a new entity, Hero Cycles Group Pvt Ltd (HCGPL), which will be owned directly by the promoters of HCL. The transaction is pending requisite approvals. CRISIL Ratings is engaging with the management and will resolve the watch once there is clarity on the balance sheets of the entities post the demerger.
The management has indicated steps including monetisation of non-core assets in the near term; timely execution of these liquidity events, thereby leading to significant reduction in debt, will remain a key rating sensitivity factor.
The rating also factors in the strong operational, managerial and financial linkages with, and expectation of need-based support from, the parent, HCL. The business risk profile of Spur is supported by the experienced management and strong prospects in the premium components business. These strengths are partially offset by risks related to the project phase of manufacturing operations, leading to a weak financial risk profile. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong operational, financial and managerial linkages Spur shares with HCL. |
Key Rating Drivers & Detailed Description Strengths: Strong support from the parent, HCL Being a wholly owned subsidiary of HCL, Spur receives strong operational, financial and managerial support from the parent. Majority of sales are to various group entities, and the company also plans to cater to global markets such as Europe.
HCL exercises management control over Spur, including oversight on daily operations and the treasury. The parent has provided inter-corporate deposits of Rs 5 crore to fund capital expenditure (capex) in Spur; it has also provided a shortfall undertaking to the bankers of Spur. HCL is likely to provide need-based support to Spur for timely interest and debt servicing, while the operations ramp up.
Benefits from the experienced management and strong opportunity for premium components Spur has the same management as HCL, which is the largest bicycle manufacturer in the domestic market. The promoters have decades of experience in the cycles segment. Spur is targeting sales of higher-end components for premium bicycles in the domestic market as well export markets such as Europe. It has built capabilities and is forging customer relationships for the same. Ability of the management to capture market share in the competitive markets will be a key monitorable.
WeaknessesModest scale of trading operations; manufacturing still in the project phaseTill fiscal 2022, trading operations formed the entire revenue, which was below Rs 26 crore for the past three fiscals. While the company has set up manufacturing facilities and commenced production, revenue is estimated to be around Rs 31 crore for fiscal 2023 due to subdued demand. Ability to ramp up operations will remain key rating sensitivity factor going forward.
Subdued debt protection metrics: Networth was modest at Rs 2 crore as on March 31, 2022. The company plans to raise external debt of Rs 21-23 crore by March 2023, to fund its working capital requirement and capex towards the new manufacturing facility. Hence, debt protection metrics may remain subdued. HCL is expected to provide need-based support for timely servicing of debt. Better cash accrual, leading to improvement in debt protection metrics, will be a key monitorable. |
Liquidity: Strong Liquidity of Spur is mainly driven by its strong financial linkages with HCL, which is expected to provide need-based support for timely debt servicing. Cash and liquid investments of around Rs 3 crore as on December 31, 2022, should be sufficient to service interest payment in fiscal 2023. However, financial support is expected from HCL in fiscal 2024 since modest cash accrual may not be adequate to cover the debt obligation of Rs 5 crore. Furthermore, Spur has adequate financial flexibility, being a part of the Hero Cycles group. |
Rating Sensitivity factors Upward factors
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About the Company Spur was incorporated in 2014 as a wholly owned subsidiary of HCL. The company trades in bicycle components and spares such as forks, handlebars and rims. It is setting up a manufacturing facility for various components with a focus on the premium segment and export sales. The sales are mostly to group entities with plans to diversify its clientele. |
About the Parent Incorporated in 1956, HCL is the largest bicycle manufacturer in the world. The company has capacity to manufacture 65 lakh bicycles per year, with units in Ludhiana (Punjab), Bihta (Bihar) and Ghaziabad (Uttar Pradesh). It also produces automobile rims and components. Operations are managed by Mr Pankaj Munjal and his family members.
In fiscal 2016, the group completed three acquisitions: Firefox Bikes (Firefox), Insync Bikes (Insync) and BSH Ventures Pvt Ltd (BSH). Firefox is a leading player in the premium bicycles segment in India and currently sells over 100 different models. Insync is one of the top three distributors of bicycles, e-bikes, bicycle parts and accessories, with presence across Europe. BSH is a bicycle manufacturer based in Sri Lanka, with a state-of-the-art manufacturing plant that will supplement sales of HCL in southern India and Europe.
HCL entered the commercial real estate business through Munjal Hospitality Pvt Ltd (MHPL) and acquired an under-construction hotel property in Gurugram (Haryana) in fiscal 2012. In 2019, the company diluted its 60% stake in MHPL for a consideration of Rs 438 crore. In the same year, it acquired the HNF brand in Germany, aiming to emerge as a full-range supplier in the European market. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*interchangeable with capex letter of credit upto Rs 10 cr |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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