Press Release Hi Physix Laboratory India Private Limited March 12, 2020 Rating Amount Facilities Rating1 Rating Action (Rs. crore) Long term Bank CARE BB; Stable Reaffirmed 24.11 Facilities (Double B ;Outlook:Stable) 24.11 Total (Rs. Twenty Four crore and Eleven Lakh only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The reaffirmation of the rating assigned to the bank facilities of Hi Physix Laboratory India Private Limited (HPILPL) continue to be constrained by its modest scale of operations with moderate capitalisation, leveraged capital structure with moderate debt coverage indicators and stretched liquidity position. The rating is further constrained on account of project stabilization risk associated with the cap-ex undertaken. 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 HPIPL in a niche segment of testing and calibration. Rating Sensitivities Positive Factors Sustained increase in total operating income by more than 50%. Improvement in capital structure marked by overall gearing below 1.5x Improvement in debt coverage indicators with PBILDT interest coverage of more than 6x. Negative Factors Any un-envisaged large debt funded cap-ex leading to deterioration in capital structure and debt coverage indicators Decline in profitability margins with PBILDT margin lower than 30% Deterioration in liquidity profile of the company Detailed description of the key rating drivers Key Rating Weaknesses Modest scale of operation with moderate capitalization: Despite the growth, scale of operations remain modest at Rs.28.91 crore in FY19 as compared to Rs.11.55 crore in FY18. During 11FY20 ended February 2020, the company has achieved TOI of Rs.20.90 crore due to slowdown in the industry which affected the current year performance of the company. The net-worth base also remained moderate at Rs.13.57 crore as on March 31, 2019. However, the size of operations remains modest which restricts the financial flexibility of the company in times of industry downturn and deprives it from benefits of scale. Moderate capital structure and debt coverage indicators :The relatively moderate net-worth base of the company as compared to the high debt profile resulted in a moderate capital structure as marked by overall gearing ratio of 2.03x as on March 31, 2019 (as compared to 2.34x 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 moderate as reflected by interest coverage ratio of 4.43x and total debt to gross cash accruals of 2.96x as at the end of FY19. Project stabilization risk: HPIPL had completed its construction of building for testing of telecommunication and solar panels and is in process of purchase of machinery for EMI/EFC (Electromagnetic Interface) testing and telecommunication testing equipment. The total cost of the capex is Rs.12.68 crore. HPIPL had incurred Rs.10.50 crore as on March 03, 2020 toward construction and purchase of machinery funded through term loan and internal accruals. The stabilization and commercialization of the said project remains crucial to the overall financial risk profile of the company. Lower than envisaged level of cash flow generation from the debt funded capex will remain as the key rating monitorable. 1 1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited Press Release Key Rating Strengths Experienced and qualified promoters: HPIPL is promoted by first-generation entrepreneur Mr. Pankaj Rai (Founder Chairman and CEO) having an experience of two decades in the industry through HPIPL, Hi Physix Laboratories (HPL) and Perfect Instrumentation (PI). He is supported by a team of qualified and experienced professionals. Over the years, HPIPL has developed market for its services and established good relations with various customers. Long association with reputed and diversified clientele base 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 Crompton Greaves Consumer Electricals Limited, Panasonic, Surya Roshni Limited (rated CARE A1+/ CARE A1+ as on November 19,2019), Syska LED Lights Private Limited, Halonix Technologies Private, Wipro enterprise Limited (CARE AAA; Stable as on March 03, 2020), Osram Lightings Private Limited, Philips India Limited, Bajaj Electricals Limited (CARE A1 as on August 01, 2019), LG Electronics Inida Private Limited, Micromax Informatics (rated CARE BBB; Stable/CARE A3 as on April 4, 2019), Videocon group, 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 HPIPL has been able to get repeat orders from these clients. Healthy profitability margins: The profitability margins of the company though declined remained healthy during the year. The PBILDT margin stood at 49.85% in FY19 (as compared to 54.34% in FY18) The moderation in profit margins was on account of change in order mix. However, profitability increases in absolute terms and stood Rs.14.41 crore in FY19 as compared to Rs.6.25 crore in FY18 and PAT margin stood at 15.21% in FY19 (as compared to 19.45%s in FY18). The decline was mainly on account of significant increase in interest and finance charges. However, despite the same profitability remains healthy. Presence in niche segment of testing and calibration: HPIPL 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 Goniophotometer. Being one of the leaders to introduce new facilities gives the company competitive advantage over its competitors. HPIPL 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. HPIPL 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). HPIPL is accredited for its testing facilities according to IS & IEC 17025:2005 specifications. The company derives majority of its revenues from manufacturing industry, where the demand and industry performance is cyclical in nature, and is dependent on the overall economy. The operating performance of HPIPL is dependent on overall performance of end user industry. Liquidity analysis: Stretched Liquidity remained stretched marked by tightly matched accruals to repayment obligation and modest cash balance of Rs.0.48 crore. Thus limiting the financial flexibility of the company. Its capex requirements are modular and expected to be funded using debt which might further impact the liquidity amidst the performance of end user industry. The working capital requirements are met by internal accruals and cash credit facility which is utilized to the extent of 50% for last 12 months ended February 2020. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Methodology for Services Sector Companies CARE’s Policy on Default Recognition Financial ratios – Non-Financial Sector About the Company HPIPL 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 electro technical, optical, thermal, mechanical etc. 2 CARE Ratings Limited Press Release Brief Financials (Rs. crore) FY18(Audited) FY19 (Audited) Total operating income 11.55 28.91 PBILDT 6.25 14.41 PAT 2.23 4.40 Overall gearing (times) 2.34 2.03 Interest coverage (times) 3.77 4.43 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 Issue Rating assigned Instrument Issuance Rate Date (Rs. crore) along with Rating Outlook Fund-based - LT-Term - - March 2026 23.11 CARE BB; Stable Loan Fund-based - LT-Bank - - - 1.00 CARE BB; Stable Overdraft 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- LT 23.11 CARE BB; 1)CARE BB; 1)CARE BB; - - Term Loan Stable Stable Stable (26-Jul-19) (10-Jan-19) 2. Fund-based