HLL Infra Tech Services Limited: Ratings Reaffirmed Summary Of

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HLL Infra Tech Services Limited: Ratings Reaffirmed Summary Of October 09, 2020 HLL Infra Tech Services Limited: Ratings reaffirmed Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) [ICRA]BBB+(CE)(Stable); Cash credit- Long term 25.65 25.65 reaffirmed Non-fund based- Short term 21.00 21.00 [ICRA]A2(CE); reaffirmed Total 46.65 46.65 *Instrument details are provided in Annexure-1 Rating Without Explicit Credit [ICRA]BBB/[ICRA]A3+ Enhancement Note: The (CE) suffix mentioned alongside the rating symbol indicates that the rated instrument/facility is backed by some form of explicit credit enhancement. Earlier, the rating symbol for this instrument/facility used to be accompanied by the (SO) suffix. The change in suffix is not to be construed as a change in rating. This rating is specific to the rated instrument/facility, its terms and its structure and does not represent ICRA’s opinion on the general credit quality of the entity concerned. The last row in the table above also captures ICRA’s opinion on the rating without factoring in the explicit credit enhancement. Rationale The above rating is based on the strength of the corporate guarantee provided by HLL Lifecare Limited, the parent of HLL Infra Tech Services Limited, for the rated bank lines. The Stable outlook on this rating reflects ICRA’s outlook on the rating of the guarantor, HLL Lifecare Limited. Adequacy of credit enhancement For assigning the rating, ICRA has assessed the attributes of the guarantee issued by HLL in favour of the said instrument. The guarantee is legally enforceable, irrevocable, unconditional, covers the entire amount and tenor of the rated instrument and it does not have a well-defined invocation and payment mechanism. Given these attributes, the guarantee provided by HLL Lifecare Limited is adequately strong to result in an enhancement in the rating of the said instrument to [ICRA]BBB+(CE) against the rating of [ICRA]BBB without explicit credit enhancement. In case the guarantor’s rating undergoes a change in future, the same would reflect in the rating of the aforesaid instrument. The rating of this facility may also undergo a change if, in ICRA’s assessment, there is a change in the strength of the business links between the guarantor and the rated entity, or there is a change in the reputation sensitivity or there is a change in strategic importance of the rated entity of the guarantor. For detailed rationale of HLL, click here Salient covenants related to the credit enhancement, as specified in the guaranteed documents » The guarantors would be the principal debtors jointly with the borrower and accordingly, the guarantors shall not be entitled to and also hereby waive all the rights conferred on the guarantors under sections 133, 134, 135, 139, and 141 of the Indian Contract Act, 1872 » The guarantee is a continuing one for all the amounts advanced to the borrower under the said facilities as also for all interest, costs, charges, expenses and/ or other monies which may from time to time become due and remain unpaid to the bank 1 » The guarantors shall forthwith on demand by the bank deposit such sum or security as the bank may specify for the due fulfilment of their obligations Key rating drivers and their description Credit strengths Positive outlook for the healthcare industry: The healthcare industry is expected to grow at healthy rates supported by rising income levels, ageing population, growing health awareness, favorable Government policies such as Aayushman Bharat- Pradhan Mantri Jan Arogya Yojna (PMJAY) etc. and changing attitude of public towards preventive healthcare. Long and established track record of the parent (HLL) in the healthcare industry; with transfer of business and manpower from HLL to HITES, the latter has benefitted from the established name and track record of the former: HLL Infra Tech Services Limited (HITES) is a 100% subsidiary of HLL Lifecare limited (HLL). HLL Lifecare Limited is a 100% GoI- owned enterprise with an experienced management and a track record of nearly five decades in the contraceptives products, healthcare products, pharma and other traded products, contract and consultancy and healthcare services. In FY2016 the contract and consultancy and healthcare services business was shifted along with manpower to HITES. Status of the company as the executing agency for Ministry of Health and Family Welfare (MoHFW) provides preference in award of central and state government contracts: HITES was designated as an executing agency for MoHFW in November 2015. Being an executing agency for MoHFW, the company is able to get a number of contracts from GoI on nomination basis. Additionally, the company also gets preference in tenders floated by MoHFW, owing to its status of being an executing agency for the ministry. It is also designated as a National Procurement Support Agency (NPSA). At present more than 90% business of the company is from Central and various State Governments. Diversified sales mix across several verticals and diversified customer base: HITES has primarily four verticals- health infrastructure services (HIS), medical device procurement services (MDPS), facility management services (FMS) and bio medical engineering services (BMES). The revenues of the company are well diversified across different business verticals. Healthy order book position providing revenue visibility in the near to medium term: The company has healthy order book position which provides revenue visibility in the near to medium term. The order book includes setting up of new All India Institute of Medical Sciences (AIIMS), improvement of healthcare system in Republic of Guinea, construction of various facilities at Jawaharlal Institute of Postgraduate Medical Education & Research (JIPMER) etc. Healthy financial risk profile characterised by healthy profitability and low gearing; however high dividend payout may lead the company to rely on debt for meeting its working capital requirements: The revenue of the company witnessed nearly 122% YoY growth in FY2019 driven by healthy rate of project execution during the year. The major cost of operations includes employee costs and outsourcing charges incurred. Operating profits of the company was Rs 29.7 crore in FY2019 as against Rs 11.5 crore in FY2018 and following the higher operating profits net profits of the company increased to Rs 21.2 crore in FY2019 as against Rs 7.4 crore. In the absence of external debt during FY2019, gearing, coverage indicators remain healthy. Based on the provisional results, during the FY2020 the company has achieved revenues of ~Rs 272.7 crore and net profit of ~Rs 31.1 crore. Due to the impact of Covid related lockdowns on project execution, there is likely to be some degrowth in the revenues in FY2021, nevertheless with a healthy order book position as on date, the company is expected to increase its scale of operations beyond FY2021. 2 Credit challenges GoI’s intention to divest its 100% stake in HLL (Holding company); in case of a divestment the company may lose its status as the executing agency for MoHFW: The Government of India (GoI) has identified HLL Lifecare Limited as one of the PSUs from which it would disinvest through a 100% strategic stake sale. The Department of Investment and Public Asset Management (DIPAM) has floated the Request for Proposal (RFP) for selection of an asset valuer following the earlier appointment of a transaction adviser for the disinvestment. In case of divestment by the GoI the company may lose its status of being as an executing agency of Ministry of Health and Family Welfare which may impact its order inflow from the Central and State government. High competitive intensity in the health infrastructure services segments, facility management services and biomedical engineering services: In the HIS segment, the company faces competition from publics sector companies such as NBCC, EPIL, EIL and HSCC etc. In FMS and BMES segments the company faces competition from public as well private players such as Kirloskar, Trimod and AMB etc. In MDPS segment, the company is the market leader for the procurement by Central Government and State Government backed institutions. Liquidity position: Adequate The overall liquidity position of HITES is driven by the liquidity position of its guarantor, HLL. On standalone basis, liquidity position of HITES is expected to remain adequate supported by healthy cash and liquid investments, healthy cash accruals from operations, no major capex plans in the near to medium term and nil debt repayments. The liquidity is further supported by the undrawn bank limits. Rating sensitivities Positive triggers • Substantial improvement in the scale of operations and cash accruals • Improvement in the credit profile of HLL Lifecare Limited Negative triggers • Significant deterioration in the revenue, operating profits and debt protection metrices of the company • Deterioration in the credit profile of HLL Lifecare Limited or weakening of linkages with HLL Lifecare Limited Analytical approach Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Approach for rating debt instruments backed by third-party explicit support Parent/Group Company: HLL Lifecare Limited (HLL) Parent/Group Support The ratings are based on a corporate guarantee furnished by the parent HLL backing the bank lines of the company HITES. Consolidation/Standalone The rating is based on standalone financial statements of the HITES. About the company HLL Infra Tech Services Limited (HITES) was incorporated in April 2014 as a wholly owned subsidiary of HLL Lifecare Limited. HITES provides services in design, engineering and execution of construction projects. HITES also provides procurement and consultancy services to Government of India, State Governments and other institutions for procuring a 3 range of healthcare and hospital products, equipment and devices. It is designated as a National Procurement Support Agency (NPSA). About the guarantor: HLL Lifecare Limited HLL Lifecare Limited is a 100% GoI owned entity and was incorporated in 1966 for the production of male contraceptive sheaths and commenced operations in 1969.
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