India\r\nRatings and Research (Ind-Ra) has upgraded Hella Infra Market\r\nPrivate Limited’s (Hella)\r\nLong-Term Issuer Rating to ‘IND A’ from ‘IND A-’ while resolving the Rating\r\nWatch Evolving (RWE). The Outlook is Stable. The instrument-wise rating actions\r\nare given below:
RDC Acquisition to Strengthen Market Position in RMC: Hella in September 2021 signed\r\na definitive agreement to purchase the entire stake of RDC from its\r\npromoters True North Trusteeship Private Limited (True North, 100% owner). The\r\nacquisition is likely to strengthen Hella’s market position, making it a\r\nleading player in India in the ready mix concrete (RMC) business. The\r\nacquisition would also result in synergies with respect to raw material\r\nsourcing, access to newer geographies and customers of RDC. The transaction has\r\nbeen entered into at an enterprise value of INR7.3 billion (equity value: INR6\r\nbillion). According to the management, the acquisition is expected to be funded\r\nthrough a debt of INR4 billion and existing cash balances from the equity\r\nproceeds received in 2QFY22. The management expects the acquisition to complete\r\nbefore end-December 2021.
Strong Revenue Growth; Improved Margins: Hella increased its monthly revenue run rate to INR5 billion in\r\nOctober 2021 (April 2021: INR2.9 billion; December 2020: INR1.3 billion,) led\r\nby an expansion of the product portfolio across various construction\r\nmaterials along with geographical expansion. This is despite the second covid wave\r\naffecting its key geographies of Mumbai, Bangalore, NCR, etc., and monsoon\r\naffecting construction activities. Along with the revenue growth, the company's\r\nEBITDA margins rose to around to 6.5% in October 2021 (7MFY22: 6.5%, FY21:\r\n5.2%, FY20: 3.5%), supported by an increasing revenue contribution of\r\nhigh-margin products such as chemicals and admixtures and own branded products.\r\nFurthermore, the benefit of scale has kicked in, leading to better absorption\r\nof overheads. The growth in revenue and margins led to an increase in EBITDA to\r\nINR326 million in October 2021 (7MFY22: INR1,834 million, 7MFY21: INR169.8\r\nmillion, FY21: INR641 million, FY20: INR123 million), which is significantly\r\nexceeding Ind-Ra's expectations.
Hella’s revenue has been doubling each year\r\nsince FY17 while EBITDA margins have hovered between 3%-7.6%. If the existing\r\nrun rate is maintained, Hella 's revenue could more than triple on a yoy basis\r\nin FY22. Revenue growth in FY23 is also likely to be supported by the\r\nacquisition of RDC which reported revenue of INR6.7 billion in FY21, down 19% yoy\r\ndue to a lower demand because of COVID-19 led business disruptions. RDC’s\r\nEBITDA margin however improved to 4.3% in FY21 (FY20: 3.8%), aided by a cost\r\nreduction. RDC reported EBITDA of INR287 million in FY21 (FY20: INR319 million).\r\nWith a recovery in demand and synergies, Ind-Ra expects RDC’s EBITDA in FY22 to\r\nbe higher than FY20.
Ind-Ra expects Hella’s consolidated margins to\r\nremain rangebound in the medium term as the business model has limited the scope of\r\nvalue addition although an increase in sales through tie-ups and own brand can\r\nboost the margins. However, profitability from new segments could be low\r\nin the initial period.
Fresh Round of PE Infusion,\r\nHigher-than-expected Funds Raised: Hella has continued to demonstrate its ability to raise\r\nequity from reputed existing investors. During August 2021, the company raised\r\none more round of equity (last one was in February 2021) to the tune of\r\nINR9.3 billion from Tiger Global, via the Singapore-based investment\r\naffiliate Internet Fund V Pte Ltd, in the form of Series D compulsorily convertible\r\npreference share. The company has also received the balance disbursement\r\nof INR3.5 billion in May 2021 out of the Series C investment raised in February\r\n2021. The sum of INR12.9 billion raised in FY22 is significantly higher\r\nthan Ind-Ra's expectation of around INR3.5 billion of equity. With completion\r\nof Series D funding, the company has successfully raised four rounds of equity\r\nof about INR20 billion over FY20-FY22 to aid the\r\ncontinued growth, with the valuations increasing to about USD2.5 billion in\r\nthe latest fund raise. The presence of reputed investors including Accel via Accel India V (Mauritius) Limited, Tiger Global (via a\r\nSingapore-based investment affiliate Internet Fund V Pte Ltd), Nexus Ventures\r\nPartners and Evolvence Group, a Dubai-based investment firm (via Evolvence\r\nIndia Fund III Limited) and their board participation not only support the company financially\r\nbut also provides strategic guidance and operational oversight while ensuring\r\nhigh standards of corporate governance practices.
Credit Metrics to Remain Comfortable: Given\r\nthe continuous improvement in EBITDA along with constant additional funding in\r\nthe form of equity and debt, Hella continued its net cash position in 7MFY22.\r\nThis was despite generating a negative cash flow from operations on account of\r\nworking capital requirements to fund the rapid revenue growth. The net debt stood\r\nat negative INR6.6 billion as of October 2021 (FYE21: negative\r\nINR1.3 billion), aided by the equity infusions in May and August\r\n2021. The net interest coverage (EBITDA/net interest expense) deteriorated\r\nyet remained comfortable at around 3.5x (FY21: 5.0x , FY20: 10.7x) due to an\r\nincrease in interest expense to fund the working capital requirements emanating\r\nfrom the rapid growth.
During FY21, RDC had a net leverage ratio of 2.0x\r\n(FY20: 1.8x). With increasing EBITDA and absence of significant debt-funded\r\ncapex, the net leverage is likely to improve in FY22 and thus will not\r\nsignificantly impact Hella’s net leverage.
Hella’s management has plans in its pipeline\r\nfor inorganic expansion and is in discussion with PE players for further funding.\r\nIn the meanwhile, it is raising term loans of INR12 billion to fund inorganic\r\nexpansion (including RDC). Ind-Ra expects acquisitions to be largely backed by\r\nequity funding (with debt only being an interim arrangement) which will keep the\r\ncredit metrics comfortable. However, acquisitions, if not backed by the equity\r\nfunding, could increase the net leverage ratio. Ind-Ra thus will continue to\r\nmonitor the developments in this regard.
Liquidity Indicator – Adequate, despite Exponential Growth: Post\r\nthe recent equity infusion, Hella had cash and cash equivalents of around\r\nINR11.2 billion as of October 2021 (FYE21: INR3.4 billion). It has\r\nreceived additional sanction of around INR6 billion in 7MFY22, increasing\r\nthe total sanctioned limit to INR9.4 billion. As a result of the continued\r\nfunding, the average utilisation of its working capital facilities\r\nwas comfortable at 55%-60% for the 12 months ended October 2021. Hella's working capital cycle remained long and almost flat\r\nat around 131 days in FY21 (FY20: 134 days). While the debtor days\r\nwere optically high at 144 days in FY21 (FY20: 143 days), the debtors\r\noutstanding stood at INR4.8 billion (around about 55 days of March 2021\r\nannualised revenue). The\r\nexponential growth plans and thus a constant requirement for working capital\r\nwill keep the cash flow from operations negative in FY22 as well. However,\r\nInd-Ra draws comfort from the available cash balances and Hella's ability to\r\nraise additional funds. Hella has also been able to reduce its\r\ninterest rates and cash collateral margin with some of the lenders, indicating\r\nimproved financial flexibility. The entity plans to streamline its lender base\r\nover the next few months.
Diversified Product Mix and Reducing Concentration towards Metro\r\nCities: Hella is expanding its presence in more\r\nprofitable and stable segments such as chemicals, admixtures and water-proofing\r\nsolutions along with a strong mix of other construction materials such as\r\ncement, steel, plywood and boards and electricals. The revenue base is well\r\ndiversified with steel & metals accounting for 20%-25% of the revenue\r\nin 7MFY22, followed by chemicals and cement at 15%-20% and balance from other\r\nproducts. The revenue contribution from steel & metal segment has grown to\r\n26% of the revenue in 7MFY22 (7MFY21: 14%, FY21: 16%). The company has launched\r\nnew segments namely flooring and plumbing in FY22 and has other new\r\nsegments in its pipeline. Moreover, the revenue base is diversified in terms of\r\nend-customers as well, which comprises both small- and large-scale\r\nmanufacturers, infrastructure companies, real estate developers, and some\r\nproportion of exports.
Hella’s revenue reliance on home-city Mumbai\r\ncontinued in 7MFY22 at 38% of revenue, but its contribution has reduced\r\nfrom 60% of revenue in 2HFY21 due to the increasing scale of operations in\r\nother geographies. The share of Bangalore remained 10%-15% while that of Pune,\r\nNCR and Hyderabad remained 4%-10% of the revenue in 7MFY22. To reduce the revenue\r\nconcentration from metro/tier 1 cities and diversify geographical\r\nconcentration, the company has expanded to new geographies such as West\r\nBengal, Punjab, Odisha mainly in Tier 2 cities which have large unorganised markets\r\nand has lower brand penetration.
Limited Track Record: The\r\ncompany was established and commenced its operations from 2016. The company is\r\npromoted by first-generation promoters, Aaditya Sharda and Souvik Sengupta, who\r\nindividually have a decade’s worth of industry experience.
Industry Risks: The company faces intense competition from the presence of a\r\nlarge number of dealers and traders in the construction material supply market along\r\nwith the entry of large building material manufacturers into B2C/online\r\nretailing, thereby limiting its bargaining power with its customers. As the\r\nmajor end-user industries are infrastructure and real estate companies, any\r\nslowdown in the economic conditions in these sectors may impact the flow of\r\norders and operating levels of the company.
Positive: Continued growth in the scale while\r\nmaintaining the EBITDA margins, working capital cycle and credit metrics in\r\nline with the expectations, in addition to an improvement in the liquidity\r\nprofile could result in a positive rating action.
Negative: Lower-than-expected\r\nEBITDA and/or a stretch in the working capital cycle leading to deterioration\r\nin the liquidity position or credit profile with net leverage exceeding 2.5x,\r\non a sustained basis, could lead to a negative rating action.
Incorporated\r\nin 2016, Hella is promoted by Souvik Pulakesh Sengupta and Aaditya Gajendra\r\nSharda. It is a provider of a comprehensive range of construction materials\r\nincluding RMC, aggregate, fly-ash, paints, construction chemicals, steel and cement.\r\nThe company’s business model includes cloud manufacturing, catering to business-to-business\r\nclients, and direct retailing of its own contract manufactured products and\r\nother branded products. The company provides contract manufacturing through non-branded\r\nmanufacturers under INFRA.MARKET brand by utilising the idle capacity of\r\nvarious plants in India. It also has distributors for various branded manufacturers\r\nand manages the supply chain. The company has expanded its product portfolio to\r\ninclude tiles, paints, pipes etc during\r\nFY22.
CONSOLIDATED FINANCIAL PROFILE
\r\n\r\n
| \r\n Parameters (INR million) | \r\n \r\n 7MFY22 | \r\n \r\n FY21 | \r\n \r\n FY20 | \r\n
| \r\n Revenue | \r\n \r\n 28,132 | \r\n \r\n 12,429 | \r\n \r\n 3,508 | \r\n
| \r\n EBITDA | \r\n \r\n 1,834 | \r\n \r\n 641 | \r\n \r\n 123 | \r\n
| \r\n EBITDA margins (%) | \r\n \r\n 6.5 | \r\n \r\n 5.2 | \r\n \r\n 3.5 | \r\n
| \r\n Net leverage (x) | \r\n \r\n -3.6 | \r\n \r\n -2.0 | \r\n \r\n -1.7 | \r\n
| \r\n Net interest\r\n coverage (x) | \r\n \r\n 3.5 | \r\n \r\n 5.0 | \r\n \r\n 10.7 | \r\n
| \r\n Source: Hella,\r\n Ind-Ra | \r\n
Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.
Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.
","participationDisclosures":null,"disclaimer":"ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.
","metaTags":"upgrade; construction materials","effectiveDate":"Dec 23, 2021 | Hella Infra Market Limited (Formerly Hella Infra Market Private Limited)","effectiveDateTime":"0001-01-01T00:00:00","dateOfCreation":"Dec 23, 2021","isDeleted":false,"isMigratedData":false,"viewCount":2190,"facebookShareCount":0,"linkedInShareCount":0,"googlePlusShareCount":0,"twitterShareCount":0,"ratingCriteriaReportsIDs":"5,8,10","pressReleaseStatus":"Publish","activity":"Created By UserID: 12","lastActivityDate":"12/23/2021 12:35:42 PM","currentRatings":"| \r\n Instrument Type | \r\n \r\n Date of Issuance | \r\n \r\n Coupon Rate | \r\n \r\n Maturity Date | \r\n \r\n Size of Issue (million) | \r\n \r\n Rating/Outlook | \r\n \r\n Rating Action | \r\n
| \r\n Working capital facility | \r\n \r\n - | \r\n \r\n - | \r\n \r\n - | \r\n \r\n INR7,500 | \r\n \r\n IND A/Stable/IND A1 | \r\n \r\n Long-term rating upgraded;\r\n Short-term rating affirmed; Off RWE | \r\n
| \r\n Proposed long term debt ^ | \r\n \r\n - | \r\n \r\n - | \r\n \r\n - | \r\n \r\n INR12,000 | \r\n \r\n IND A/Stable | \r\n \r\n Assigned | \r\n
| \r\n Instrument\r\n Type | \r\n \r\n Current\r\n Rating/Outlook | \r\n \r\n Historical Rating/Outlook/Rating\r\n Watch | \r\n ||||
| \r\n Rating Type | \r\n \r\n Rated Limits\r\n (million) | \r\n \r\n Rating | \r\n \r\n 11 October 2021 | \r\n \r\n 10 May 2021 | \r\n \r\n 4 February 2021 | \r\n |
| \r\n Issuer rating | \r\n \r\n Long-term | \r\n \r\n - | \r\n \r\n IND A/Stable | \r\n \r\n IND A-/RWE | \r\n \r\n IND A-/Stable | \r\n \r\n IND\r\n BBB+/Positive | \r\n
| \r\n Working\r\n capital facility | \r\n \r\n Long-term/short-term | \r\n \r\n INR7,500 | \r\n \r\n IND\r\n A/Stable/IND A1 | \r\n \r\n IND\r\n A-/RWE/IND A1/RWE | \r\n \r\n IND\r\n A-/Stable/IND A1 | \r\n \r\n IND\r\n BBB+/Positive/IND A2+ | \r\n
| \r\n Proposed long\r\n term debt | \r\n \r\n Long-term | \r\n \r\n INR12,000 | \r\n \r\n IND A/Stable | \r\n \r\n - | \r\n \r\n - | \r\n \r\n - | \r\n
| \r\n Instrument\r\n Type\r\n | \r\n \r\n\r\n Complexity\r\n Indicator\r\n | \r\n \r\n
|---|---|
| \r\n Working\r\n capital facility\r\n | \r\n \r\n\r\n Low\r\n | \r\n \r\n
| \r\n Proposed long\r\n term debt\r\n | \r\n \r\n\r\n Low\r\n | \r\n \r\n
India Ratings and Research (Ind-Ra) is India's SEBI registered credit rating agency committed to providing India's credit markets accurate, timely, and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market.
\r\nInd-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance companies, urban local bodies, and structured finance and project finance companies.
\r\nHeadquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Gurugram, Hyderabad, Kolkata, and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India and the Reserve Bank of India.
\r\nInd-Ra is a 100% owned subsidiary of the Fitch Group.
","industry":"Other Construction Materials","industryName":null,"isRACPriority":true,"fileName":null,"isAWCTriggerCompleted":true,"isRACMailSent":true,"racMailSentDateTime":"0001-01-01T00:00:00","primaryAnalyst":null,"priority":null,"primaryAnalystName":"Aravind B","primaryAnalystDesignation":"Analyst","primaryAnalystCompanyName":"India Ratings and Research Pvt Ltd","primaryAnalystAddress":"Harmony Square 3rd Floor, Door No. 48 & 50 Prakasam Street T Nagar Chennai - 600017","primaryAnalystContactNumber":"+91 44 43401748","secondaryAnalystName":"Khushbu Lakhotia","secondaryAnalystDesignation":"Associate Director","secondaryAnalystCompanyName":null,"secondaryAnalystContactNumber":"+91 33 4030 2508","tertiaryAnalystName":null,"tertiaryAnalystDesignation":null,"tertiaryAnalystCompanyName":null,"tertiaryAnalystContactNumber":null,"additionalAnalystName":null,"additionalAnalystDesignation":null,"additionalAnalystCompanyName":null,"additionalAnalystContactNumber":null,"chairpersonName":"Abhishek Bhattacharya","chairpersonDesignation":"Senior Director and Head Large Corporates","chairpersonCompanyName":null,"chairpersonContactNumber":"+91 22 40001786","mediaRelationName":"Ankur Dahiya","mediaRelationDesignation":"Senior Manager – Corporate Communication","mediaRelationCompanyName":null,"mediaRelationContactNumber":"+91 22 40356121","issuerInformationStatus":null,"detailedRationaleOfRatingAction":null,"nonCooperationByTheIssuer":null,"limitationsRegardingInformationAvailability":null,"listOfKeyRatingDrivers":null,"liquidity":null,"disclosuresForCERating":null,"disclosuresForProvisionalRating":null,"anyOtherInformation":null,"keyFinancialsIndicators":null,"correctionInPreviousRatingActionCommentary":null,"showLoginToContinueReading":"N","racDisclosure":null,"temp1":null,"temp2":null,"totalRowsCount":null,"totalPageCount":null,"ratingCriteriaList":[{"criteriaReportID":"5","title":"Corporate Rating Methodology","documentPath":"https://www.indiaratings.co.in/data//Uploads/CriteriaReport/2020/Corporate Rating Methodology.pdf"},{"criteriaReportID":"8","title":"Parent and Subsidiary Rating Linkage","documentPath":"https://www.indiaratings.co.in/data//Uploads/CriteriaReport/2019/Parent and Subsidiary Rating Linkage.pdf"},{"criteriaReportID":"10","title":"Short-Term Ratings Criteria for Non-Financial Corporates","documentPath":"https://www.indiaratings.co.in/data//Uploads/CriteriaReport/2020/Short-Term Ratings Criteria for Non-Financial Corporates.pdf"}]}]