|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 296.00 | ACUITE A- | Negative | Reaffirmed | Stable to Negative | - |
| Bank Loan Ratings | 329.00 | - | ACUITE A2+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 625.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
|
Acuité has reaffirmed the long-term rating of ‘ACUITE A-‘ (read as ACUITE A minus) and the short term rating of ‘ACUITE A2+’ (read as ACUITE A two plus) on the Rs. 625.00 crore bank facilities of Livguard Batteries Private Limited (LBPL). The outlook has been revised from ‘Stable’ to ‘Negative’. Rationale behind revision in outlook The revision in outlook follows the decline in profitability levels and moderation in financial risk profile. Group’s profitability has declined in FY 2022 wherein EBITDA margin has declined from 7.88% in FY 2021 (Audited) to 3.03% in FY 2022 (Audited) due to sharp increase in prices of lead which accounts for around 70% of the raw material cost for the group. Since the company could not pass on the sharp increase in raw material prices on to the customers hence overall profitability of the group declined leading to moderation in debt protection metrics wherein Interest coverage ratio moderated from 6.95 times in FY 2021 to 2.39 times in FY 2022 and DSCR moderated from 4.40 times in FY 2021 to 1.22 times in FY 2022. Debt-Ebitda moderated from 1.59 times in FY 2021 to 4.71 times in FY 2022. Since the aforementioned financial risk profile and levels of profitability is lower than Acuite’s expectations hence the outlook has been revised from “Stable” to “Negative”. However, rating has been reaffirmed taking cognizance of support of experienced management of the group, established market position of “Livguard” and “Livfast” brand and improvement in performance of the group in current year. Going forward the improvement in terms of revenue, profitability and the impact on debt protection metrics will remain key rating sensitivities for the group. |
| About Company |
| Incorporated in 2012, LBPL is a Gurugram-based company promoted by Mr. Rakesh Malhotra and Mr. Navneet Kapoor. The operations were commenced in the year 2015. The company is engaged in manufacturing of batteries for application in automotive, inverters and e-rickshaw. LBPL also manufactures power electronic products like inverters and voltage stabilizers among others for the domestic market. The company has four manufacturing units, three located in Himachal Pradesh and one in Haryana. LBPL is a part of Livguard Group which has dedicated distribution companies for further distribution of the products manufactured by LBPL. LBPL is the OEM for Liv guard Energy Technologies Private Limited (LETPL) incorporated in 2014 and Livfast Batteries Private Limited (LFBPL) incorporated in 2018. These two companies are having pan India and operating with 600+ distributors each in both the companies, with as dealer base of 20,000 each in both the companies. The group is selling its products under the brand name of “Livguard” and “Livfast”. |
Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has considered the consolidated business and financial risk profiles of Livguard Batteries Private Limited (LBPL), Livguard Energy Technologies Private Limited (LETPL) and Livfast Batteries Private Limited (LFPL), collectively referred to as ‘Livguard Group’. The consolidation is on account of common management, same value chain with business line synergies within the group. |
Key Rating Drivers
| Strengths |
| Experienced management and leading battery manufacturing operations Livguard Group commenced the battery business in 2014, whereas it started the commercial production in 2015. LBPL started manufacturing operations with automotive batteries and added other kinds of batteries such as e-rickshaw batteries, inverter batteries and solar batteries during the period 2016 to 2020. The promoters, Mr. Rakesh Malhotra and Mr. Navneet Kapoor have an established track record of manufacturing lead acid batteries for more than one and half decade through their previous venture 'Luminous Power Technologies Private Limited' which was completely sold to Schneider Electric in the year 2017. The promoters launched the brands 'Livguard’ and ‘Livfast' for automotive batteries and later expanded the same brands for inverter, inverter batteries, solar batteries and other products. LBPL is the manufacturing arm for LFBPL and LETPL, while the two companies are engaged in the distribution of the products across the country. Currently, the day to day operations of the group is managed by a strong second line of management. Livguard group benefits from its established presence in the market, backed by network of more than 600 distributors supplying to more than 10,000+ dealers across the country. The extensive experience of the promoters is also reflected through the healthy ramp -up of operations. The operating income of the group has reached Rs. 2663.74 Cr in FY 2022 (Audited) despite subdued demand in the first quarter of FY 2022 due to second wave of covid. Acuité believes that the group will continue to benefit owing to the extensive experience of the promoters and established brand name in the battery industry. Moderate financial risk profile Financial risk profile of the group has moderated in FY 2022 as can be seen from moderate net worth and average debt protection metrics. Tangible net worth stood at Rs. 450.58 Cr as on 31st March 2022 as against Rs. 448.35 Cr for FY 2021. Total debt has increased and stood at Rs. 428.64 Cr in FY 2022 as against Rs. 351.86 Cr in FY 2021. Total debt of Rs. 428.64 Cr in FY 2022 consists of Rs. 92.46 Cr of long term debt, Rs. 302.95 Cr of working capital borrowings and Rs. 33.23 Cr of CPLTD. Consequently, Debt to Equity ratio has increased from 0.78 times in FY 2021 to 0.95 times in FY 2022. Interest Coverage Ratio has declined from 6.95 times in FY 2021 to 2.39 times in FY 2022 due to decline in profitability levels. Similarly, DSCR has moderated from 4.40 times in FY 2021 to 1.22 times in FY 2022 due increase in CPLTD portion. TOL/TNW has moderated from 2.71 times in FY 2021 to 2.95 times in FY 2022 while Debt-EBITDA has moderated from 1.59 times in FY 2021 to 4.71 times in FY 2022. |
| Weaknesses |
| Working capital intensive nature of operations The group has working capital intensive nature of operations and has observed stretch as compared to previous year as evident from gross current assets (GCA) of 179 days for FY2022 as against 170 days for FY 2021. The team has observed deterioration when compared to previous year’s numbers and the deterioration is majorly on account of stretched inventory period. Debtors’ days stood at 79 days for FY2022 as against 100 days in the previous year, while inventory days stood at 85 days in FY 2022 as against 52 days for FY2021. Creditors’ payment period also increased to 123 days as on 31st March 2022. Higher sales value during last quarter with an average debtors’ realisation period of 45 days resulted in high amount of debtors (Rs. 566.41 crore) as on March 31, 2022. Demand for inverter and batteries is seasonal and peaks during summer when power cuts are frequent. Thus, sales of inverters and batteries bunch up during the last quarter of the fiscal (ending in March) and the first quarter of the next fiscal (ending June), and remains comparatively leaner for the rest of the year. Further, current ratio of the group stood at 1.17 times for FY2022. Average bank Limit utilization stood at 69.73% for the period between April 2021 and July 2022. Susceptibility to fluctuations in raw material cost and Intense competition in some battery segments Operating margin is susceptible to fluctuations in prices of inputs, mainly Lead, which accounts for more than 70 percent of total raw material cost. The operating margins are also dependent on prices of raw material (i.e. lead) which is highly volatile in nature. The increase in prices of ‘Lead’ led to moderation in operating margins of the group in FY 2022. It is exposed to intense competition in the replacement battery market in the automobile segment from the market leaders. |
| Rating Sensitivities |
|
| Material Covenants |
| None. |
| Liquidity Position |
| Adequate |
| Groups liquidity position is adequate. In FY 2022 group generated net cash accruals of Rs. 36.33 Cr against maturing debt obligation of Rs. 22.84 Cr. Going forward group is expected to generate NCA of Rs. 102.54 Cr and Rs. 116.36 Cr against maturing debt obligation of Rs. 33.23 Cr and Rs. 31.53 Cr in FY 2023-24 respectively. Out of total investments of Rs. 201.06 Cr in fixed deposits, Rs. 40 Cr is unencumbered while rest of the amount is lien marked as margin money. In FY 2022 cash and bank position stood at Rs. 34.92 Cr. Group has total fund based working capital limits of Rs. 375 Cr wherein average utilization stood at 69.73% for the period between April 2021 and July 2022 giving the group buffer of Rs. 112.50 Cr for working capital support. |
| Outlook: Negative |
| Acuité believes that Livguard group will continue to benefit over the medium term due to its experienced management and established track record however the financial risk profile will continue to be at an average level. The outlook may be revised to ‘Stable’ in case the group registers higher-than expected growth in revenues, profitability and the Debt-Ebitda position of the company remains below 2.5 times. The rating may be downgraded if the group’s financial risk profile does not improve in the current fiscal on account of lower operating revenue and profitability. |
| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 2663.74 | 2570.98 |
| PAT | Rs. Cr. | 8.46 | 142.45 |
| PAT Margin | (%) | 0.32 | 5.54 |
| Total Debt/Tangible Net Worth | Times | 0.95 | 0.78 |
| PBDIT/Interest | Times | 2.39 | 6.95 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
| None. |
| Applicable Criteria |
|
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm |
| Note on Complexity Levels of the Rated Instrument |
| In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in. |
|
| |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Contacts |
| Analytical | Rating Desk |
| About Acuité Ratings & Research |
