August 2010
CRISIL Reaffirms Ratings on Hero Group Entities following
Family Arrangement among Munjal Family Members
CRISIL had issued an update in May 2010 relating to the proposed family arrangement among
members of the Munjal family. The update note indicated that CRISIL would hold discussions with
members of the Munjal family to assess the impact of the family arrangement on the ratings of
entities in the Hero group, whose debt programmes and bank facilities have been rated by CRISIL.
CRISIL has completed its assessment of the ratings on entities in the Hero group, and reaffirmed all
ratings as indicated in Table 1. The reaffirmation factors in the contours of the family arrangement,
the performance of each group entity, and its business and growth strategies, and management
structure.
Table 1:
Hero Group Entity
CRISIL’s Existing Ratings
Rating Action
Hero Honda Motors Ltd
AAA/FAAA/Stable/P1+
Reaffirmed
Hero Honda Finlease Limited
AA+/FAAA/Stable/P1+
Reaffirmed
Rockman Industries Ltd
AA-/Stable/P1+
Reaffirmed
Hero Cycles Ltd
AA/Stable/P1+
Reaffirmed
Hero Motors Ltd
Reaffirmed
Munjal Showa Ltd
AA (SO)/Stable
(Guaranteed by Hero Cycles Ltd)
AA/Stable/P1+
Highway Industries Ltd
AA-/Stable/P1+
Reaffirmed
Sunbeam Auto Pvt Ltd
AA-/Stable/P1+
Reaffirmed
Hero Exports
BBB+/Stable/P2
Reaffirmed
Reaffirmed
CRISIL believes that despite the family arrangement, the business profiles of the rated entities remain
unchanged. Despite being managed by different family groups, all four rated automobile component
companies (i.e. Rockman Industries Ltd, Munjal Showa Ltd, Highway Industries Ltd and Sunbeam
Auto Pvt. Ltd.) will remain dependent on Hero Honda Motors Ltd (Hero Honda) for business
growth. CRISIL has been assured by the management of the various factions that the commercial
arrangements between the groups will continue unchanged. Any change in this stance by any of the
four family factions will remain a key rating sensitivity.
The financial risk profiles of most entities continue to be healthy. Besides, as part of the family
arrangement, management continuity has been ensured in all entities; the financial flexibility of each
promoter group remains adequate, though lower than that of the Munjal family as a whole.
CRISIL believes that the family arrangement will enhance the flexibility of family members to
diversify into new product segments, commence supplies to new customers, and venture into new
geographies. CRISIL will continue to monitor the new initiatives of each rated entity, and factor in
the impact of such initiatives on the rated entity’s credit risk profile.
The rating rationales for each of the rated entities is enclosed. Also are annexed frequently asked
questions (FAQs) on the family arrangement. This is a part of CRISIL’s initiative to explain to
investors and the lending community, the details of the Munjal family’s arrangement, and its impact
on the credit profile of the rated entities.
Frequently Asked Questions: Ratings of Hero Group Entities
following Family Arrangement among Munjal Family Members
What are the key features of the arrangement among members of the Munjal family?
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•
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•
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•
•
•
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The businesses and assets held by the Munjal family have been realigned among members of
the four founding promoters of the Munjal family — Mr. Brij Mohan Lall Munjal, Mr.
Satyanand Munjal, Mr. Om Prakash Munjal, and late Mr. Dayanand Munjal (represented
by his eldest son, Mr. Vijay Munjal).
The family arrangement has been done to avoid any future disputes and maintain peace and
harmony amongst the family groups.
All cross-holdings have been realigned such that each of the families managing the operations
have ownership of the respective entities.
The assets have been consolidated in the name of the members/entities of relevant family.
Existing management and control structures in various entities have been retained to ensure
there is continuity in business as before.
All previous formal and informal pacts by family members and their businesses not to
compete with each other directly will no longer apply.
The employees, suppliers, clients of different entities will remain unchanged.
As a part of realignment process under the family arrangement, Hero Cycles Ltd (Hero
Cycles) will restructure its cold-rolled (CR) division, to a new company, to be held by the
Brij Mohan Lall Munjal group.
As a part of the family arrangement, Hero Cycles will also restructure its Mangli unit, where
specialty cycles are made, and e-bikes are manufactured from imported kits on behalf of
Hero Exports, to a new company, Hero EcoTech Ltd, to be headed by Mr. Vijay Munjal.
Of the 29 per cent stake held by the Munjals in Hero Honda through different entities, 26
per cent stake will be held by the Brij Mohan Lall Munjal group, while the various family
members may choose to continue to hold or dispose off the remaining approximately 3 per
cent held by them or the entities belonging to them
How have the companies been distributed among members of the Munjal family?
A key feature of the family arrangement includes ensuring that existing businesses continue to operate
as before. Family members who were in charge of operations and of managing the different
businesses, will continue to do so; accordingly, operating entities in the group have been divided as
follows:
Mr. Brij Mohan Lall Munjal group (comprising Mr. Brij Mohan Lall Munjal, Mrs. Renu Munjal
(wife of eldest son Late Mr Raman Kant Munjal), his sons, Mr. Suman Kant Munjal, Mr. Pawan
Munjal, Mr. Sunil Kant Munjal)
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Rockman Industries Ltd
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Hero Honda Motors Ltd
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Hero Honda Finlease Ltd
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Arrow Infra Ltd
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Hero Corporate Service Ltd
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Hero Mindmine Institute Ltd
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Hero Management Service Ltd
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Easy Bill Ltd
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Cold-Rolled (CR) division of Hero Cycles Ltd (To be restructured)
The late Mr. Dayanand Munjal group (comprising sons, Mr. Vijay Munjal, Mr. Ashish Munjal
and Mr. Ashok Munjal)
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Sunbeam Auto Ltd
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Munjal Castings
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Hero Exports
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Hero EcoTech Ltd
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Hero Electric
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Hero Eco Vehicles (P) Ltd
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Munjal Steels
Mr. Om Prakash Munjal Group (comprising Mr. Om Prakash Munjal and his son, Mr. Pankaj
Munjal)
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Hero Cycles Ltd (Cycles – GT Road, and Auto Rim Division, Ludhiana)
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Hero Motors Ltd
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Munjal Sales Corporation
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Hero Global Design Ltd
Mr. Satyanand Munjal group (comprising Mr. Satyanand Munjal and his sons, Mr. Yogesh
Chander Munjal, Mr. Suresh Chandra Munjal, Mr. Sudhir Munjal, Mr. Umesh Munjal and Mr.
Mahesh Munjal)
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Munjal Showa Ltd
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Shivam Autotech Ltd
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Highway Industries Ltd
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Majestic Auto Ltd
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Munjal Auto Components
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Munjal Auto Industries Ltd
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Satyam Auto Components Ltd
As part of the family arrangement, family members and the various entities have realigned the
holding of shares of companies in favour of respective family groups through internal and stock
market transactions.
What factors drive CRISIL’s reaffirmation of its outstanding ratings on Munjal family
owned entities?
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The business risk profiles of all companies remain unaffected by the family arrangement; also
management, employees, suppliers, and clients of all entities remain unchanged.
The four family-owned, CRISIL-rated entities in the automotive component space will
continue to derive the bulk of their revenues from Hero Honda; large investments have been
made by these entities to set up facilities to supply components to Hero Honda, and these
entities have established themselves as suppliers of top-quality components. It is in Hero
Honda’s interest to ensure that supplies are not disrupted. Despite initiatives to expand
customer and geographical spread, most Munjal family owned auto component suppliers will
continue to depend on Hero Honda, given its dominant position in the domestic motorcycle
industry.
Management continuity has been ensured in order that business operations are not
disrupted.
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The financial risk profiles of the various entities have improved over time; CRISIL expects
the same to continue.
Most rated entities belonging to the Munjal family are unlikely to undertake significant
capital spending in the near term; hence their requirements for funds may be met largely
from internal accruals.
The financial flexibility of members of the Munjal family is adequate; support from
respective promoter groups is expected to be forthcoming in the event of financial exigencies
in companies belonging to their respective groups.
Individual ‘Rating Rationales’ relating to the above companies are enclosed:
Rating Rationale
Hero Honda Motors Limited
Rs.1.25 Billion Cash Credit Limit *
AAA/Stable (Reaffirmed)
Rs.150.00 Million Non-Convertible Debenture
AAA/Stable (Reaffirmed)
Programme
Fixed Deposit Programme
FAAA/Stable (Reaffirmed)
Rs.160.00 Million Commercial Paper
P1+ (Reaffirmed)
Programme
Rs.4.00 Billion Letter of Credit Limit **
P1+ (Reaffirmed)
*Interchangeable with other fund-based facilities.
**Interchangeable with other non-fund-based facilities.
CRISIL’s ratings on the debt programmes and bank facilities of Hero Honda Motors Ltd (Hero
Honda) continue to reflect Hero Honda’s strong business risk profile, marked by leadership in the
motorcycles market in India, and robust financial risk profile, supported by large net worth,
negligible debt, and liquid surpluses. The ratings also factor in the restricted growth opportunities for
Hero Honda in the export market, and the company’s moderate presence in the economy segment of
motorcycles.
Hero Honda continues to be the market leader in motorcycles with a market share of 58.5 per cent in
2009-10 (refers to financial year, April 1 to March 31) The company’s strong brand appeal, wide
distribution and service network, and technical support from Honda Motor Co Ltd (HMC, rated
‘A+/Stable/A-1’ by Standard & Poor’s) strengthen its longstanding leadership position. Hero
Honda’s financial position remains buoyant on the back of its nearly debt-free status, robust cash
accruals, and large portfolio of liquid investments (more than Rs.52 billion as on March 31, 2010).
The strong financial position allows the company to meet competitive challenges, in terms of pricing
and fresh investments.
However, the company has only a moderate market share in the ‘economy’ segment of motorcycles.
This segment, with its relatively low-priced offerings, remains partially insulated from any slowdown.
Also, Hero Honda’s growth in the export markets is restricted by the presence of its technology
partner, HMC, in all key markets world-wide.
Outlook: Stable
CRISIL believes that Hero Honda will retain its market leadership and highly favourable financial
risk profile over the medium term.
About the Company
Hero Honda was jointly promoted by the Ludhiana-based Munjal family and HMC in 1984. The
company began production of motorcycles in 1985. At present, the company has three plants: at
Dharuhera and Gurgaon (both in Haryana), and at Haridwar (Uttaranchal) with a combined
manufacturing capacity of 5.2 million units per annum. Following the recent family arrangement
among the Munjals, 26 per cent stake held in Hero Honda by the various Munjal family members,
has been transferred to the Brij Mohan Lall Munjal group. As at June 30, 2010, both promoter
groups held 26 per cent each in Hero Honda, banks, financial institutions and mutual funds held 37
per cent and the balance was spread among the general public, bodies corporate etc.
For 2009-10, Hero Honda reported a profit after tax (PAT) of Rs.22.32 billion (Rs.12.81 billion in
the previous year) on net sales of Rs.157.58 billion (Rs.123.19 billion).
Rating Rationale
Hero Honda Finlease Limited
Rs.920 Million Long-Term Bank Facility
Rs.50 Million Non-Convertible Debenture Programme
Fixed Deposit Programme
Rs.1250 Million Short-Term Debt Programme
Rs.1500 Million Short-Term Bank Facility
AA+/Stable (Reaffirmed)
AA+/Stable (Reaffirmed)
FAAA/Stable (Reaffirmed)
P1+ (Reaffirmed)
P1+ (Reaffirmed)
CRISIL’s ratings on the bank facilities and debt instruments of Hero Honda Finlease Ltd (HHFL)
continue to reflect the strong support HHFL receives from Hero Honda Motors Ltd (HHML, rated
‘AAA/FAAA/Stable/P1+’ by CRISIL) in particular. The ratings also continue to factor in HHFL’s
healthy asset quality, and comfortable capitalisation. These rating strengths are partially offset by
HHFL’s significant dependence on HHML for revenues, and its limited size and growth prospects.
HHFL receives operational, financial, and management support (including senior management) from
HHML. HHFL and HHML have five common directors. HHML also provides financial support to
HHFL through inter-corporate deposits (ICDs); as on March 31, 2010, HHFL had access to ICDs
of up to Rs.1.25 billion from HHML. On the operational front, HHML identifies dealers, vendors,
and vendors’ suppliers for financing by HHFL.
HHFL’s asset quality is healthy; as on March 31, 2010, the company did not have any nonperforming assets (NPAs) in its loan book. HHFL is also comfortably capitalised, reflected in its Tier
I capital adequacy ratio of 30.3 per cent of risk-weighted assets as on March 31, 2010. The company
operated at a moderate gearing in 2009-10 (refers to financial year, April 1 to March 31); as on
March 31, 2010, it had a gearing of around 3.5 times.
However, HHFL remains heavily dependent on HHML for revenues. HHFL lends to entities that
form a part of HHML’s supply chain. The performance of these entities is directly linked to
HHML’s performance. In addition, HHFL’s asset base, of Rs.2.93 billion as on March 31, 2010, is
small. At present, the entire business of HHFL comes from HHML and its related entities, and
HHFL does not intend to pursue direct retail lending or finance other asset classes. This restricts its
growth prospects.
Outlook: Stable
CRISIL believes that HHFL will continue to benefit from operational, financial, and managerial
support, from HHML. The outlook may be revised to ‘Positive’ in case of increase in HHFL’s
importance to HHML. Conversely, the outlook could be revised to ‘Negative’ in case of a decline in
the support that HHFL receives from HHML. An adverse change in the ownership structure of
HHFL, or, in CRISIL’s view, deterioration in HHML’s credit risk profile, could also lead to a
revision in the outlook to ‘Negative’.
About the Company
HHFL finances HHML’s dealers, vendors, vendors’ suppliers, and associates through hire-purchase
financing, leasing, loans, and bill discounting. HHML, its associate companies, and members of the
Munjal family hold a 64.8 per cent equity stake in HHFL, while HHML’s dealers, employees, and
associates hold the remainder.
Following the recent family arrangement among the Munjal Family (promoters of the Hero group),
HHFL will continue to be managed by Mrs. Renu Munjal, and will be part of the Hero group led by
Mr. Brij Mohan Lall Munjal.
HHFL reported a profit after tax (PAT) of Rs.156 million on a total income of Rs.475 million for
2009-10, against a PAT of Rs.114 million on a total income of Rs.452 million for 2008-09.
Rating Rationale
Rockman Industries Limited
Rs.610.0 Million Long-Term Loans
Rs.300.0 Million Cash Credit
Rs.250.0 Million Buyer’s Credit
Rs.150.0 Million Letter of Credit*
* Interchangeable with bank guarantee.
AA-/Stable (Reaffirmed)
AA-/Stable (Reaffirmed)
P1+ (Reaffirmed)
P1+ (Reaffirmed)
CRISIL’s ratings on the bank facilities of Rockman Industries Ltd (Rockman) continue to reflect the
company’s healthy operating capabilities and its adequate and improving financial risk profile. The
ratings also continue to be driven by the support provided to Rockman by the Hero group, and the
strong business linkages with the group’s flagship, Hero Honda Motors Ltd (Hero Honda; rated
‘AAA/FAAA/Stable/P1+’ by CRISIL), India’s largest motorcycle manufacturer with nearly 54 per
cent share (as on June 30, 2010) in the domestic market. These rating strengths are partially offset by
the limited segmental, customer, and geographical diversity in Rockman’s revenues.
Outlook: Stable
CRISIL believes that Rockman’s credit profile will continue to benefit from steady offtake by Hero
Honda, and addition of new products to its portfolio. The outlook could be revised to ‘Negative’ in
case of deterioration in financial risk profile on account of a slowdown in revenue growth or
significant debt-funded capital expenditure. Conversely, better than expected revenue growth and
profitability, could result in the outlook being revised to ‘Positive’.
About the Company
Established in 1961 as a partnership firm, Rockman initially manufactured and supplied components
and chains to the bicycle sector. In 1999, it diversified into the manufacture of high-pressure
aluminium die-cast components and automotive chains for Hero Honda. Having exited the bicycle
chains and components business in November 2005, it now manufactures only auto components.
The company has a manufacturing facility at Ludhiana, and machining assembly and painting units
at Delhi and Gurgaon. In 2008-09 (refers to financial year, April 1 to March 31), it commissioned a
greenfield manufacturing facility at Haridwar for catering to the requirements of Hero Honda,
besides supplying to Munjal Showa Ltd (Munjal Showa rated ‘AA/Stable/P1+’ by CRISIL) and
Autofit (P) Ltd.
Following the recent family arrangement among the Munjal Family (promoters of the Hero group),
Rockman will continue to be managed by Mr. Suman Kant Munjal, and will be part of the Hero
group led by Mr. Brij Mohan Lall Munjal.
For 2009-10, Rockman reported a profit before tax of Rs.573.3 million (net profit of Rs.115.1
million in 2008-09) on net revenues of Rs.6.5 billion (Rs.3.7 billion).
Rating Rationale
Hero Cycles Limited
Rs.800 Million Cash Credit Limits
Rs.800 Million Letter of Credit Limits*
Rs.800 Million Short-Term Debt Programme
*Interchangeable with bank guarantees.
AA/Stable (Reaffirmed)
P1+ (Reaffirmed)
P1+ (Reaffirmed)
CRISIL’s ratings on Hero Cycles Ltd’s (Hero Cycles’) debt programme and bank facilities continue
to reflect the steady performance of Hero Cycles’ bicycle business, supported by its market leadership
in India, and its strong financial risk profile. The ratings also factor in Hero Cycles’ large liquid
surplus of about Rs.3.0 billion as on March 31, 2010. These rating strengths are partially offset by
the moderate susceptibility of Hero Cycles’ operating profitability to volatility in input prices, and
the company’s significant exposure to group company, Hero Motors Ltd (Hero Motors; rated
‘AA(so)/Stable’ by CRISIL), which is not expected to yield significant returns over the medium term.
Following a recent family arrangement among the Munjals (the promoters of the Hero group), Hero
Cycles is now part of the Om Prakash Munjal group, which also includes Hero Motors, and Munjal
Sales Corporation. Mr. Om Prakash Munjal’s brothers and their sons have stepped down from the
board of Hero Cycles. Besides, the low-profit-generating cold-rolled (CR) division, which was
tempering the overall profitability of Hero Cycles, is now being transferred to a new company
belonging to the Brij Mohan Lall Munjal group. In addition, the Mangli unit of Hero Cycles,
where the company manufactures specialty bicycles and e-bikes, will also be hived off to a newly
formed company, which will be part of Dayanand Munjal group. Also, Hero Cycles has transferred
its ownership in Munjal group companies (barring Hero Motors), to the members of the Munjal
family, including its 8-per-cent ownership in Hero Honda Motors Ltd (HHML; rated
‘AAA/FAAA/Stable/P1+’).
CRISIL believes that the aforementioned restructuring of business divisions will impact Hero Cycles’
revenues in 2010-11 (refers to the financial year, April 1 to March 31). However, Hero Cycles’
overall profitability will improve as its low-margin CR division will be hived off. Also, a large part of
the debt on its balance sheet, which pertained to the CR division, will move to the new company,
thereby lowering Hero Cycles’ gearing and strengthening its debt protection metrics. On the other
hand, Hero Cycles will no longer benefit from the steady cash flows generated from its 8-per-cent
ownership in HHML; the impact of this will be partially offset by the treasury income which will be
generated from Hero Cycles’ large liquid surpluses.
Hero Cycles is the leader in both the standard and special bicycle markets in India, with an overall
market share of about 40 per cent. A nationwide distribution network and the strategic location of its
plants near vendors support its operations, and permits competitive pricing of its bicycles. The
bicycle division registered a healthy growth in revenues in 2009-10, supported by a strong focus on
special bicycles and improvement in realisations. Hero Cycles’ financial risk profile remains healthy,
supported by a comfortable capital structure and strong debt protection metrics. Hero Cycles’
financial flexibility is supported by its large liquid surplus, invested largely in mutual funds.
However, Hero Cycles’ operating profitability, which improved to over 10.9 per cent in 2009-10
from 7.7 per cent in 2008-09, remains moderately vulnerable to movements in prices of iron and
steel, the key inputs involved in the manufacture of bicycles. Also, Hero Cycles’ support to weak
group associate, Hero Motors, in which it holds about 40 per cent stake, remained high, at around
Rs.2.4 billion as on June 30, 2010. Hero Motors has reported losses for the past three years, and is
not expected to break-even at the net level in the medium term, resulting in negligible returns for
Hero Cycles, and also tempering its return on capital employed.
Outlook: Stable
CRISIL believes that Hero Cycles’ business and financial risk profiles will benefit from the proposed
transfer of the low-margin and working-capital-intensive CR division. Hero Cycles’ liquidity is likely
to remain robust, supported by steady cash flows from the bicycle business and sizeable investments
in mutual funds, which will also help offset the impact of Hero Cycles’ exposure to the loss-making
Hero Motors. The outlook may be revised to ‘Positive’ if Hero Cycles gradually reduces its exposure
to Hero Motors, and maintains strong business performance. Conversely, more-than-expected
support provided to Hero Motors or significant deterioration in business performance may lead to a
revision in the outlook to ‘Negative’.
About the Company
Incorporated in 1956, Hero Cycles is the largest cycle manufacturer in the world. Hero Cycles has a
manufacturing capacity of 5.5 million bicycles per year, with facilities at Ludhiana (Punjab). It also
manufacturers automotive rims and components. The company is closely held by the Om Prakash
Munjal family.
For 2009-10, Hero Cycles reported a profit after tax of Rs.3.0 billion (Rs.0.58 billion for 2008-09)
on net revenues of Rs.17.0 billion (Rs.14.9 billion).
Rating Rationale
Hero Motors Limited
Rs.400 Million Non Convertible Debenture Issue*
AA (so)/Stable (Reaffirmed)
Rs.100 Million Non Convertible Debenture Issue*
AA (so)/Stable (Reaffirmed)
*Backed by unconditional and irrevocable corporate guarantees from Hero Cycles Ltd
CRISIL’s rating on Hero Motors Ltd’s (Hero Motors’) non-convertible debenture issues continues
reflect the unconditional and irrevocable guarantees that Hero Motors has received for its
aforementioned debt programmes from its group company, Hero Cycles Ltd (Hero Cycles, rated
‘AA/Stable/P1+’ by CRISIL). The guarantees cover the principal and interest obligations on the
aforementioned debenture programmes. The ratings are supported by a payment mechanism to
ensure the timely fulfilment of the debt obligations on the rated instruments. Thus, the ratings also
reflect the credit strength of the guarantor, Hero Cycles.
For arriving at its rating, CRISIL has combined the business and financial risk profiles of Hero
Motors and its 66.67 per cent subsidiary, Munjal Kiriu Industries Pvt Ltd (Munjal Kiriu).
Outlook: Stable
The rating outlook on Hero Motors is based on CRISIL’s rating on the guarantor, Hero Cycles.
About the Company
Hero Motors, incorporated in 1998, is part of the O P Munjal group, whose flagship company is
Hero Cycles. Hero Motors supplies automotive components to India’s largest motorcycle
manufacturer, Hero Honda Motors Ltd (rated ‘AAA/FAAA/Stable/P1+’), and exports engine
components to Bombardier Rotax, Austria. Hero Cycles owns nearly 41 per cent of Hero Motors.
During 2007-08 (refers to financial year, April 1 to March 31), Hero Motors signed a joint venture
(JV) and technical collaboration agreement with Sumitomo Corporation, and Kiriu Corporation,
Japan (Kiriu). In the same year, Hero Motors sold 33.4 per cent stake in its ferrous casting unit at
Manesar to Sumitomo Corporation and Kiriu. The JV, Munjal Kiriu, manufactures automotive
components, particularly disc brakes, drums, and knuckles. In August 2008, Hero Motors acquired
an assembly facility in Halol, Gujarat, from Delphi Corporation for making chassis systems (rear
axles assembly and front corner modules) for General Motors India Ltd. Hero Motors set up another
unit for chassis assembly in Talegaon, Maharashtra, and hived off its entire chassis system division
into a separate company, Hero Motors Chassis Systems Pvt Ltd (HMCSPL), in 2008-09. In
February 2010, Hero Motors entered into a JV with ZF India Pvt Ltd, wherein 50 per cent stake in
HMCSPL was transferred to ZF India Pvt Ltd, after which HMCSPL was renamed ZF Hero Chassis
Systems Pvt Ltd.
For 2009-10, Hero Motors (consolidated with Munjal Kiriu) reported a net loss of Rs.175.80 million
(Rs.275.40 million for the previous year) on net sales of Rs.2.81 billion (Rs.2.19 billion).
Rating Rationale
Munjal Showa Limited
Rs.667.6 Million (JPY1754.5 Million) LongAA/Stable (Reaffirmed)
Term Loans
Rs.21.9 Million (JPY42.9 Million) Long-Term
AA/Stable (Withdrawn)
Buyers Credit
Rs.150.0 Million Cash Credit *
AA/Stable (Reaffirmed)
Rs.470.0 Million Letter of Credit **
P1+ (Reaffirmed)
Rs.22.5 Million Bank Guarantee
P1+ (Reaffirmed)
Rs.60.0 Million Commercial Paper Programme
P1+ (Reaffirmed)
*Interchangeable with bank overdraft.
**Interchangeable with short-term loan up to Rs.50 million.
CRISIL’s ratings on Munjal Showa Ltd’s (Munjal Showa’s) commercial paper programme and bank
facilities continue to reflect the company’s healthy operating efficiencies, its continuing business
linkages with Hero Honda Motors Ltd (HHML, rated ‘AAA/FAAA/Stable/P1+’ by CRISIL), and its
comfortable financial risk profile. These rating strengths are partially offset by the company’s limited
segment and geographic diversification, which leads to low bargaining power with, and pricing
pressure from, original equipment manufacturers. CRISIL has also withdrawn its rating on Munjal
Showa’s long-term buyer’s credit facility as the same has been completely repaid.
Outlook: Stable
CRISIL believes that Munjal Showa will maintain its comfortable business and financial risk profiles
over the medium term. The outlook may be revised to ‘Positive’ if the company further diversifies its
customer profile, and maintains its financial risk profile. Conversely, the outlook may be revised to
‘Negative’ in case of sluggish revenue growth, decline in profitability or higher-than-anticipated debtfunded capital expenditure, impacting the company’s overall credit risk profile.
About the Company
Munjal Showa was promoted by the erstwhile Hero group in 1987, in technical and financial
collaboration with Showa Corporation of Japan. Following the family arrangement among the
Munjals, Munjal Showa will continue to be managed by Mr. Yogesh Munjal, representing the
Satyanand Munjal group. Presently, the holding company of Mr. Yogesh Munjal and Showa
Corporation have equity holdings of 39 per cent and 26 per cent, respectively, in Munjal Showa,
while public shareholding and institutional holdings are about 22 per cent and 13 per cent,
respectively. There is no impact on Munjal Showa’s business operations and its supply arrangement
with HHML, following the family arrangement among the Munjals.
Munjal Showa manufactures front forks and shock absorbers for two-wheelers, and struts and
window balancers for four-wheelers. HHML, India’s largest two-wheeler manufacturer, accounted
for about 77 per cent of the company’s revenues in 2009-10 (refers to financial year, April 1 to
March 31), with the remainder coming from Maruti Suzuki India Ltd (‘AAA/Stable/P1+’), Honda
Motorcycle & Scooter India (Pvt) Ltd, and Honda SIEL Cars India Ltd.
Munjal Showa reported a net profit of Rs.246.1 million on net revenues of Rs.9.9 billion in 2009-10,
compared with a net profit of Rs.206.9 million on net revenues of Rs.8.3 billion in 2008-09.
Rating Rationale
Highway Industries Ltd
Rs.298.9 Million Long-Term Loan*
Rs.36.7 Million Long-Term Loans
Rs.150.0 Million Cash Credit
Rs.7.5 Million Bank Guarantee
AA-/Stable (Reaffirmed)
AA-/Stable (Withdrawn)
AA-/Stable (Reaffirmed)
P1+ (Reaffirmed)
CRISIL’s ratings on the bank loan facilities of Highway Industries Ltd (HIL) continue to reflect the
company’s healthy operating efficiencies, its continuing business linkages with Hero Honda Motors
Ltd (HHML, rated ‘AAA/FAAA/Stable/P1+’ by CRISIL), and its comfortable financial risk profile.
These rating strengths are partially offset by HIL’s exposure to pricing pressures from original
equipment manufacturers (OEMs), and the limited customer and segmental diversification in its
revenue profile. CRISIL has also withdrawn its rating on the company’s Rs 36.7 million long-term
loans as the same has been completely repaid.
Outlook: Stable
CRISIL expects HIL to diversify its business risk profile through increased focus on exports, even as
demand from HHML is expected to remain steady. The company is also expected to maintain its
comfortable financial risk profile over the medium term, supported by steady cash generation and
moderate capital spending. Higher-than-anticipated debt-funded capital or a steep decline in business
levels and operating profitability could result in the outlook being revised to ‘Negative’. Conversely,
the outlook could be revised to ‘Positive’ if HIL reports higher-than-expected growth in business,
including through higher exports, strengthening its financial risk profile significantly.
About the Company
HIL was set up in 1971 by the Munjals of the erstwhile Hero group to manufacture free-wheels for
bicycles manufactured by Hero Cycles Ltd (rated ‘AA/Stable/P1+’). Subsequently, the company also
set up a unit in Ludhiana to manufacture special purpose machines for the erstwhile Hero group
companies. In 1986, HIL set up a unit at Gurgaon to manufacture aluminium die-cast components
to meet the requirements of HHML. However, HIL ran its Gurgaon and Ludhiana units as separate
divisions. In the interest of operational and management convenience, HIL demerged its Gurgaon
unit in April 1999 into a new company, Sunbeam Auto Pvt. Ltd (rated ‘AA-/Stable/P1+’).
Subsequently, HIL commenced supply of crankshafts, connecting rods, and kick-starters to HHML.
It also supplies cold and hot forgings, machining, and sub assemblies for two- and three-wheelers. At
present, HIL has three units in Ludhiana. Its major customer is HHML, which contributed 95 per
cent to its revenues in 2009-10 (refers to financial year, April 1 to March 31).
Following the recent family arrangement among the Munjals, HIL will continue to be managed by
Mr. Umesh Munjal, representing the Satyanand Munjal group. Presently, Mr Umesh Munjal holds
the entire equity in HIL through UM holdings, an investment company. CRISIL expects HIL’s
business operations and its supply arrangement with HHML, to remain as earlier, when Sunbeam
was part of the larger Hero group.
For 2009-10, HIL reported a profit after tax (PAT) of Rs.67.3 million (Rs.75.3 million in the
previous year), on net sales of Rs.1.29 billion (Rs.1.13 billion).
Rating Rationale
Sunbeam Auto Pvt. Ltd
Rs.350 Million Cash Credit *
Rs.220 Million Bank Guarantee**
Rs.350 Million Short-Term Debt Programme
AA-/Stable (Reaffirmed)
P1+ ( Reaffirmed)
P1+ ( Reaffirmed)
*Interchangeable with packing credit foreign currency loan; **Interchangeable with letter of credit.
CRISIL’s ratings on Sunbeam Auto Pvt Ltd’s (Sunbeam’s) debt programme and bank facilities
continue to reflect the company’s healthy market position in the domestic aluminium die-cast
component (ADCC) business, derived from its continuing business relationship with India’s leading
two-wheeler manufacturer, Hero Honda Motors Ltd (HHML, rated ‘AAA/FAAA/Stable/P1+’ by
CRISIL), and its comfortable financial risk profile. These rating strengths are partially offset by
Sunbeam’s exposure to the risks related to customer and segmental concentration in its revenue
profile, and pricing pressure from original equipment manufacturers (OEMs).
Outlook: Stable
CRISIL believes that Sunbeam will maintain its business risk profile because of its association with
HHML, which is expected to continue to post healthy revenue growth over the medium term, and
Sunbeam’s initiatives to diversify its customer base. The outlook may be revised to ‘Positive’ in case
of higher-than-expected improvement in Sunbeam’s business levels and profitability. Conversely, the
outlook may be revised to ‘Negative’ in case of lower-than-anticipated off-take and profitability,
impacting the company’s key debt protection metrics and gearing levels.
About the Company
Sunbeam was incorporated as a subsidiary of Highway Industries Ltd (rated ‘AA-/Stable/P1+’), part
of the erstwhile Hero group. Following the recent family arrangement among the Munjals, Sunbeam
will continue to be managed by Mr. Ashok Munjal, representing the Dayanand Munjal group.
Presently, Mr Ashok Munjal and his wife, Mrs Neelam Munjal, hold the entire equity in Sunbeam
through Munjal Holdings, an investment company of Mr. Ashok Munjal. Even post the family
arrangement, CRISIL expects Sunbeam’s business operations and its supply arrangement with
HHML, to remain as earlier, when Sunbeam was part of the larger Hero group.
Sunbeam’s manufacturing facilities in Gurgaon were set up in 1986 to meet HHML’s ADCC
requirements. The plant has a casting capacity of 41,555 tonnes per annum and is located close to
HHML’s Gurgaon and Dharuhera (Haryana) plants, and Maruti Suzuki India Ltd’s (MSIL’s,
‘AAA/Stable/P1+’) Gurgaon plant. Sunbeam is the principal supplier of ADCCs to HHML and
presently supplies a major portion of HHML’s requirements of crank cases, cylinder heads, brake
levers, clutch levers, cylinder case covers, grips, and holders. Rico Auto Industries Ltd (Rico) and
Rockman Industries Ltd (Rockman; ‘AA-/Stable/P1+’), another Hero group company, are the other
principal suppliers to HHML. Sunbeam, Rico and Rockman supply about one-third each of
HHML’s ADCC requirements. HHML sources a major portion of its ADCC requirements of
Haridwar plant (commissioned in April 2008) largely from Rockman.
Increasing supplies by Rockman has been tempering Sunbeam as well as Rico’s revenue growth. To
counter this, Sunbeam is attempting to increase focus on the export markets and increase the number
of components supplied to the Dharuhera and Gurgaon facilities of HHML. Sunbeam also has a
technical tie-up with Honda Foundry, Japan, to manufacture pistons for HHML. For 2009-10
(refers to financial year, April 1 to March 31), Sunbeam reported a profit after tax of Rs.129.6
million (Rs.66.1 million in the previous year) on net sales of Rs.7.49 billion (Rs.7.80 billion).
Rating Rationale
Hero Exports
Rs.160 Million Cash Credit Limit
BBB+/Stable (Reaffirmed)
Rs.45 Million Proposed Long-Term bank loan
BBB+/Stable (Reaffirmed)
facility
Rs.655 Million Export packing Credit^
P2 (Reaffirmed)
Rs.150 Million Bill Discounting facility
P2 (Reaffirmed)
Rs.160 Million Letter of Credit*
P2 (Reaffirmed)
Rs.10 Million Bank Guarantee
P2 (Reaffirmed)
*Interchangeable with bank guarantee of upto Rs.10 million
^Interchangeable with bill discounting facility of Rs.150 million and letter of credit facility of Rs.100
million
CRISIL ratings on the bank facilities of Hero Exports continue to reflect Hero Exports’ moderate
business risk profile, marked by strong business linkages with Hero Cycles Ltd (Hero Cycles, rated
‘AA/Stable/P1+‘by CRISIL) and average but improving financial risk profile. These rating strengths
are partially offset by intense competition Hero Exports faces from Chinese players and its
vulnerability to volatility in foreign exchange rates.
Outlook: Stable
CRISIL believes that Hero Exports’ revenues and profitability will improve gradually, supported by
the increase in its order book and better penetration of e-bikes. Hero Exports’ financial risk profile
has benefited from the recent equity infusion from its promoters and is likely to improve further
because of expected improvement in profitability and reduction in derivative-related losses. The
outlook may be revised to ‘Positive’ if Hero Exports’ revenues and profitability improve more than
expected. Conversely, the outlook may be revised to ‘Negative’ in case of sluggish profitability, and if
the firm undertakes larger-than-expected debt-funded capital expenditure programme.
About the Firm
Hero Exports was set up in 1993 as a partnership firm, by the Munjal brothers of the Hero group, as
the export arm of Hero Cycles. Following the recent business re-arrangement among the Munjals,
Hero Exports will continue to be managed by Mr. Vijay Munjal, representing the Dayanand Munjal
group.
Presently, Hero Exports has three partners, Mr Vijay Munjal and his sons, Mr. Naveen Munjal and
Mr. Gaurav Munjal. Hero Exports will continue to be the export arm of Hero Cycles. Apart from
exporting bicycles and bicycle components and spares procured from Hero Cycles, the firm also
manufactures battery-operated bikes and medical equipment.
For 2009-10 (refers to financial year, April 1 to March 31), the firm reported a net loss of Rs.97.1
million on net sales of Rs.1.5 billion, against a net loss of Rs.195.9 million on net sales of Rs.2.1
billion for the previous year.
Disclaimer
CRISIL has taken due care and caution in preparing this report. Information has been obtained by CRISIL from sources
which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any
information and is not responsible for any errors in transmission and especially states that it has no financial liability
whatsoever to the subscribers/ users/ transmitters/ distributors of this report. No part of this report may be reproduced in
any form or any means without permission of the publisher. Contents may be used by news media with due credit to
CRISIL.
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