Rating Rationale
November 10, 2023 | Mumbai
Vertiv Energy Private Limited
Rating placed on 'Watch Positive'
 
Rating Action
Total Bank Loan Facilities RatedRs.235.33 Crore
Long Term RatingCRISIL A/Watch Positive (Placed on ‘Rating Watch with Positive Implications’)
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 placed its rating on the bank facilities of Vertiv Energy Private Limited (VEL) on ‘Rating Watch with Positive Implications’.

 

The rating action follows similar rating action taken by S&P on Vertiv Group Corp (VGC). On November 02, 2023, S&P placed VGC on ‘CreditWatch Positive’ while reaffirming ratings at ‘BB-’ owing to strong operating performance and deleveraging. CRISIL Ratings shall resolve the watch with appropriate rating action upon resolution of credit watch by S&P.

 

The ratings also reflect the strong financial risk profile of VEL. These strengths are, however, partially offset by the significant dividend outflow, and exposure to cyclicality in end-user segments.

 

The company registered revenues of Rs.2,820 crore and operating profitability of Rs. 324 crore during fiscal 2023 as against Rs. 2,259 crore and Rs. 259 crore, respectively, during fiscal 2022. VEL continued to register healthy revenue growth in fiscal 2023, and operating margins remained stable at 11.5% during the same period.

 

The dividend pay-out ratio moderated to 57% in fiscal 2023 from 74% in fiscal 2022. The financial risk profile continues to remain strong owing to gross debt free balance sheet and strong liquidity of around Rs 280 crore as on March 31, 2023.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has taken a standalone view on the credit profile of VEL. It has applied the parent notch-down criteria to factor in the linkages between VEL and VGC, and the high dividend payout to VGC.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong business risk profile, backed by diversified product profile and strong clientele: VEL manufactures diversified products suitable for various end-user segments, such as power, thermal, telecom, information technology and edge infrastructure, and other varied segments. The company also provides operations and maintenance services for its products, and this is a highly profitable segment contributing nearly 30% of overall revenue. VEL caters to over 15,000 customers, which include leading players across segments.

 

  • Robust financial risk profile: VEL has strong debt protection metrics and adequate cash and cash equivalents (around Rs 280 crores as on March 31, 2023). Capital structure marked by Total Outside Liabilities to Adjusted Networth (TOL / ANW) continues to remain stable at 1.96 time as on March 31, 2023 as against 1.86 time as on March 31, 2022. The company is likely to maintain a debt-free balance sheet over the medium term.

 

Weaknesses:

  • Significant dividend outflow, though expected to moderate: VEL followed an aggressive dividend policy, having paid out over two times of its profit after tax (PAT) as dividend in fiscal 2019. However, the dividend payout has moderated to around 57% in fiscal 2023 from 74% in fiscal 2022. Nevertheless, dividends are paid out after meeting the internal business and financial requirements. CRISIL Ratings understands that going forward, VEL would not be leveraging its balance sheet to pay out dividends to its parent and not make any special dividend payments.

 

  • Exposure to cyclicality in end-user segments: VEL’s products have applications in various segments including data centres, power, air, and telecom segments. Hence, the business risk profile remains susceptible to performance of these end-user sectors. However, catering to a diversified clientele across each segment reduces vulnerability to cyclicality across industries.

Liquidity: Strong

VEL had strong liquidity of around Rs 280 crore as on March 31, 2023. It is expected to follow a moderate dividend payout ratio, where payout will be made only after meeting the business and financial requirements. Fund-based limit of Rs 27 crore remains largely unutilized; Furthermore, the company does not have any debt obligations.

Rating Sensitivity factors

Upward factors:

  • Sustained growth in the net sales with operating profitability of 15%.
  • Upgrade in the credit ratings of the ultimate parent, Vertiv Group Corporation.

 

Downward factors:

  • Substantial dividend payout to the parent by leveraging VEL’s balance sheet, leading to debt to earnings before interest, tax, depreciation, and amortisation of over 0.2-0.3 time.
  • Weaker-than-expected profitability or any major debt funded capex.
  • The ratings will also remain sensitive to the credit ratings of the ultimate parent, VGC.

About the Company

VEL designs, builds, and services critical infrastructure that enables vital applications for data centers, communication networks and commercial and industrial facilities. It supports the growing mobile and cloud computing markets with a portfolio of power, thermal, and infrastructure management solutions, including the Chloride®, Liebert®, NetSure™, and Trellis™ brands.

About the Group

The Ohio, Columbus- based Vertiv Group Corp primarily manufactures power and thermal management equipment and provides services for data and communication centres. It also builds products and software for commercial and industrial use.

Key Financial Indicators - CRISIL Ratings adjusted numbers

Particulars

Unit

2023

2022

Revenue

Rs crore

2,820

2,259

Profit after tax (PAT)

Rs crore

220

181

PAT margin

%

7.8

8.0

Adjusted debt/adjusted networth

Times

0.00

0.00

Adjusted Interest coverage

Times

104.37

108.44

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 the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit* NA NA NA 26.7 NA CRISIL A/Watch Positive
NA Bank Guarantee* NA NA NA 208.63 NA CRISIL A/Watch Positive

*Interchangeable between Bank Guarantees / Standby Letter of Credit (SBLC)

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 26.7 CRISIL A/Watch Positive   -- 30-11-22 CRISIL A/Positive 01-09-21 CRISIL A/Positive   -- CRISIL A-/Stable
      --   --   -- 26-02-21 CRISIL A-/Positive   -- --
Non-Fund Based Facilities LT 208.63 CRISIL A/Watch Positive   -- 30-11-22 CRISIL A/Positive 01-09-21 CRISIL A/Positive   -- CRISIL A2+
      --   --   -- 26-02-21 CRISIL A1   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee* 74.45 Standard Chartered Bank Limited CRISIL A/Watch Positive
Bank Guarantee* 0.18 Citibank N. A. CRISIL A/Watch Positive
Bank Guarantee* 50 Kotak Mahindra Bank Limited CRISIL A/Watch Positive
Bank Guarantee* 84 ICICI Bank Limited CRISIL A/Watch Positive
Cash Credit* 10 Kotak Mahindra Bank Limited CRISIL A/Watch Positive
Cash Credit* 6 ICICI Bank Limited CRISIL A/Watch Positive
Cash Credit* 0.7 Citibank N. A. CRISIL A/Watch Positive
Cash Credit* 10 Standard Chartered Bank Limited CRISIL A/Watch Positive
*Interchangeable between Bank Guarantees / Standby Letter of Credit (SBLC)
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Mapping global scale ratings onto CRISIL scale
Criteria for notching down standalone ratings of companies based on support extended to parent
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for rating short term debt

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