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Hi Physix Laboratory Private Limited July 26, 2019 Rating Amount Facilities Rating1 Rating Action (Rs. crore) CARE BB; Stable Long-term Bank Facilities 26.61 Reaffirmed (Double B; Outlook: Stable) 26.61 Total facilities (Rupees Twenty Six crore and Sixty One lakh only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The rating assigned to the bank facilities of Hi Physix Laboratory India Pvt. Ltd (HPLPL) continue to be constrained by its small scale of operations with moderate capitalisation, moderate solvency position and modest liquidity position. The rating is further constrained on account of project stabilisation risk associated with the cap-ex undertaken during FY19 (Provisional; refers to a period from April 1 to March 31). The above constraints partially outweigh the comfort derived from the experience and qualification of the promoters, healthy profitability margins, long association with reputed clientele, and presence of HPLPL in a niche segment of testing and calibration as well as favourable outlook for the industry. The ability of the company to further increase its scale of operations, improve its solvency position while maintaining its profitability and managing its working capital requirements efficiently are the key rating sensitivities. Further, stabilisation of the debt funded cap-ex undertaken will remain crucial for the overall financial risk profile.

Detailed description of the key rating drivers Key Rating Weakness Small scale of operation with moderate capitalization: The total operating income(TOI) of the company has seen a significant y-o-y growth and stood at Rs.28.88 crore and a PAT of about Rs.6.05 crore in FY19 (Provisional; refers to a period from April 1 to March 31), as compared to TOI of Rs.11.50 crore and PAT of Rs.1.66 core in FY18 (A). However, despite the growth, the size of operations remains small which restricts the financial flexibility of the company in times of stress and deprives it from benefits of scale. The networth base remained modest at Rs.16.46 crore as on March 31, 2019. Moderate capital structure and debt coverage indicators The relatively modest networth base of the company as compared to the high debt profile resulted in a moderate capital structure as marked by overall gearing ratio of 1.50x as on March 31, 2019 (as compared to 2.64x as on March 31, 2018). The improvement in the same was mainly on account of the accretion of profits to reserves during the year. Moreover, with healthy profitability and moderate gearing levels, the debt coverage indicators though deteriorated remained comfortable as reflected by interest coverage ratio of 4.43x and total debt to gross cash accruals of 2.22x as at the end of FY19 (Provisional). Moderate liquidity indicators The liquidity position on the company remains moderate with a current ratio of 1.16x as on March 31, 2019. The operations of the company are moderately working capital intensive in nature with an operating cycle of 09 days. Due to the service nature of business, the company has no inventory and suppliers. The working capital requirements of the company are met by the overdraft limit, the utilization of which remained at moderate levels. Project stabilization risk: HPLPL has completed its process to modify the existing building for testing of telecommunication and solar panels. The total cost of the project was Rs.35.35 crore. HPLPL has incurred the complete cost toward construction and the same is now operational. The stabilization and commercialization of the said project remains crucial to the overall financial risk profile of the company.

Key Rating Strengths Experienced and qualified promoters: HPLPL is promoted by first-generation entrepreneur Mr. Pankaj Rai (Founder Chairman and CEO) having an experience of two decades in the industry through HPLPL, Hi Physixs Laboratories (HPL) and Perfect Instrumentation (PI). He is ably supported by a team of qualified and experienced professionals. Over the years, HPLPL has developed market for its services and established good relations with various customers. Long association with reputed and diversified clientele base:

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications 1 CARE Ratings Limited

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With the promoters’ extensive industry experience coupled with marketing effort, the company has been able to establish strong relationship with its customers. The company is associated with reputed customers which are a part of the Crompton Greaves Consumer Electricals Limited, Panasonic, Surya Roshni Limited (rated CARE A+/ CARE A1 as on April 04, 2019), Syska LED Lights Private Limited (rated CARE BBB+/ CARE A3; Stable as on January 15, 2018), Halonix Technologies Private Limited, Limited, Osram Lightings Private Limited, Philips India Limited, Bajaj Electricals Limited (CARE A1+ as on December 20, 2018), LG Electronics India Private Limited, , , Onida Electronics, Haier, Canadian Solar, TATA power Solar Systems Limited and others. These companies have respectable position in their respective industries. Because of the reputed clientele, the credit risk remains low. In the past also HPLPL has been able to get repeat orders from these clients. Healthy profitability margins The profitability margins of the company remained healthy during the last two years. The PBILDT margin stood at 49.67% in FY19 (as compared to 54.34% in FY18) and PAT margin stood at 20.96% in FY19 (as compared to 19.02% in FY18). The decline was mainly on account of change in the revenue mix. However, despite the same profitability remains healthy. Presence in niche segment of testing and calibration: HPLPL is one of the few companies that provide complete solar panel testing, photometry testing and complete testing facility for LED products with C type Mirror Goniophoto meter. Being one of the leaders to introduce new facilities gives the company competitive advantage over its competitors. HPLPL is accredited by National Accreditation Board for Testing and Calibration Laboratories (NABL) Department of Science & Technology, Government of India. NABL is member of International Laboratory Accreditation Cooperation (ILAC) Asia Pacific Laboratory Accreditation Cooperation (APLAC) which ensures international acceptability of its results. HPLPL laboratory is recognized by Bureau of Indian Standards (BIS) Ministry of Consumer Affairs, Government of India and under its Laboratory Recognition Scheme for Testing (in the areas of electro – technical, optical, thermal and mechanical). HPLPL is accredited for its testing facilities according to IS & IEC 17025:2005 specifications. Favorable Industry Outlook: The outlook for testing laboratories is positive backed by the various government initiatives on different electrical and electronic equipment’s in regards to safety and durability of the products introduced in Indian market. The key drivers for demand are increasing lifestyle, increasing awareness and disposal income.

Analytical Approach: Standalone

Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition CARE’s Methodology for Services Sector Companies Financial ratios (Non-Financial Sector)

About the Company HPLPL was incorporated on 29 September 2009 and is engaged in the business of providing testing and calibration services mainly to Electrical equipment companies at its facility located at MIDC, Ranjangaon, Pune. The company provides services like testing facilities for electronic testing, photometric testing, electrical testing etc. and calibration facilities like electrotechnical, optical, thermal, mechanical etc. Brief Financials (Rs. crore) FY18(A) FY19 (P) Total operating income 11.50 28.88 PBILDT 6.25 14.32 PAT 1.66 6.05 Overall gearing (times) 2.64 1.50 Interest coverage (times) 3.77 4.43 A: Audited P: Provisional

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure-2

Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Size of the Rating assigned Instrument Issuance Rate Date Issue along with Rating (Rs. crore) Outlook Fund-based - LT-Term Loan - - March 2026 25.61 CARE BB; Stable Fund-based - LT-Bank Overdraft - - - 1.00 CARE BB; Stable 2 CARE Ratings Limited

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Annexure-2: Rating History of last three years Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s) (Rs. crore) assigned in assigned in assigned in assigned in 2019-2020 2018-2019 2017-2018 2016-2017 1. Fund-based - LT-Term LT 25.61 CARE BB; 1)CARE BB; - - Loan Stable - Stable (10-Jan-19) 2. Fund-based - LT-Bank LT 1.00 CARE BB; 1)CARE BB; - - Overdraft Stable - Stable (10-Jan-19) Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

Contact us Media Contact

Name: Mr. Mradul Mishra Contact no.: +91-22-6837 4424 Email ID: [email protected]

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Group Head Name: Ms. PrateecheeMisra Group Head Contact no.:020-40009026 Group Head Email ID:[email protected]

Business Development Contact

Name: Mr.Rahul Nigam Contact no.: 020-40009051 Email ID:[email protected]

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