Hyundai Steel India Private Limited

June 08, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument Rating Action
(Rs. crore) (Rs. crore)
Fund-based and non-fund based
USD 35.00 million USD 35.00 million [ICRA]A2+(S) reaffirmed
facilities
Fund-based and non-fund based
Rs. 90.00 crore Rs. 90.00 crore [ICRA]A2+(S) reaffirmed
facilities
[ICRA]A-(S)/Stable/[ICRA]A2+(S)
Fund-based sub-limits (Rs. 90.00 crore) (Rs. 90.00 crore)
reaffirmed
Fund-based facilities USD 10.00 million USD 10.00 million [ICRA]A3+ reaffirmed
Note: The letter S in parenthesis suffixed to rating symbol denotes that the rating is supported by a letter of comfort

Rating action
ICRA has re-affirmed the long-term rating and short term rating outstanding on the Rs. 90.00-crore fund-based (sub-limits)
facilities of Hyundai Steel India Private Limited (HSIPL) at [ICRA]A-(S) (pronounced ICRA A minus S) with a Stable outlook
1
and at [ICRA]A2+(S) (pronounced ICRA A two plus S). ICRA has also reaffirmed the short-term rating outstanding on the
USD 35.00-million fund-based and non-fund based bank facilities, and the Rs. 90.00-crore fund-based and non-fund based
bank facilities of HSIPL at [ICRA]A2+(S) (pronounced ICRA A two plus S). Further, ICRA has reaffirmed the short-term rating
outstanding on the USD 10.00-million fund-based based bank facilities of HSIPL at [ICRA]A3+ (pronounced ICRA A three
plus). The letter S in parenthesis suffixed to a rating symbol denotes that the rating is supported by a Letter of Comfort.
This rating does not represent ICRA’s opinion on the general credit quality of the issuer concerned.

Rationale
The re-affirmation of [ICRA]A-(S) (Stable) and [ICRA]A2+(S) ratings assigned to the company’s bank facilities are based on
among other factors the letter of comfort extended by HSIPL’s parent, Hyundai Steel Company, South Korea (HSC, rated
at Baa2/Stable by Moody’s), to the banks in favour of the rated facilities. Any change in Moody’s rating or outlook for HSC
can result in revision in rating or outlook of the rated facilities of HSIPL. In the event HSC withdraws its letter of comfort,
the ratings for the above-mentioned facilities would have to be reviewed.

In addition to the letter of comfort, the re-affirmation of the ratings continues to derive comfort from the operational and
financial support received from HSC and strong operational linkages with Hyundai Motor India Limited (HMIL), a leading
player in the domestic passenger vehicle (PV) market. The standalone operational and financial performance of HSIPL
remains consistent, characterised by steady volume and earnings growth, adequate coverage metrics and stable liquidity
position on the back of supplies made to HMIL and healthy credit enjoyed for imports from HSC. With a stable growth in
earnings and no major debt-funded expenditure envisaged, standalone interest coverage and total debt to operating profit
ratios are expected to improve to 4 times and 3.5 times, respectively in FY2019. However, earnings and capitalisation
metrics at the consolidated level have been limited by the continuing losses incurred by its subsidiary – Automotive Steel
Pipe India Private Limited (ASIPL). ICRA expects HSIPL’s support to ASIPL to be restricted at current levels going forward.
ASIPL’s funding requirements have been largely met through bank borrowings, which are also backed by letter of comfort

1
For complete rating scale and definitions, please refer to ICRA’s website www.icra.in or other ICRA Rating Publications.

1
from HSC and there has been no incremental support extended by HSIPL since FY2015. The ratings also consider the thin
operating margins in the business owing to limited value addition, vulnerability of cash flows to exchange rate fluctuations
with majority of the steel requirements imported from HSC, high dependence on HMIL and susceptibility of volumes to
cyclical trends in the automobile industry. The concentration risk is mitigated to an extent by HMIL’s strong market share
in the Indian passenger vehicle industry and healthy share of business enjoyed by HSIPL with the PV major. HSIPL’s ability
to improve its coverage indicators and liquidity position, supported by growth in volumes and earnings, would be the key
rating drivers.

Outlook: Stable
ICRA believes that HSIPL will continue to benefit from its established presence, strong linkages with HMIL and steady
volume growth anticipated in the domestic passenger vehicle industry during FY2019. The outlook may be revised to
Positive if revenues and earnings significantly exceed estimates and strengthen the financial risk profile. The outlook may
be revised to Negative if the earnings are lower than expected, or if there is any major debt-funded expenditure or support
extended to its subsidiary which would weaken its liquidity position.

Key rating drivers

Credit strengths
Operational and financial support received from the parent - HSIPL is a wholly-owned subsidiary of HSC, which in turn is
a part of the larger Hyundai Motor Group. HSC is the largest supplier of steel to Hyundai Motor Corporation (HMC, Korea),
which is among the major automobile manufacturers in South Korea. In addition to the letter of comfort, management
and technical support, HSIPL also receives financial support from HSC in the form of high credit period for steel imports,
supporting its liquidity position.

Captive demand lends stability to earnings – HSIPL enjoys strong operational linkages with HMIL for being the largest
supplier of sheet metal requirements. HMIL provides the company with a large captive demand, with more than 95% of
HSIPL’s sales made to HMIL and its ancillaries. While this leads to customer concentration, HSIPL’s high share of business
and importance to HMIL, along with the strong market position of HMIL in the PV segment mitigates the risk to an extent.

Credit weaknesses
Operating margins restricted by low value addition – HSIPL’s operating margins remain low, constrained by limited value
addition in the business with a portion of sales generated from trading of imported steel. In addition, limited pricing power
and considerable dependence on imports (which is left partially un-hedged) expose earnings to exchange rate fluctuations.
However, the cost-plus-pricing model followed by HSIPL mitigates the impact of raw material price fluctuations on its
operating margins.

Modest consolidated financial profile – Losses incurred and high working capital requirements (largely funded through
bank debt) have constrained the financial profile of ASIPL, and consequently the consolidated financial performance of
HSIPL during the recent fiscals. The standalone financial profile remains supported by the steady growth in revenues and
earnings, in line with the volume growth of HMIL, and healthy supplier credit enjoyed from HSC, reducing external debt
requirements.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

2
Links to applicable criteria:

Corporate Credit Rating Methodology

Rating Methodology for Wind Power Producers

About the company:

Incorporated in 2006, HSIPL processes and trades in hot and cold rolled coils, catering to the steel requirements of Hyundai
Motors India Limited (HMIL) and its ancillaries. HSIPL was incorporated as a wholly-owned subsidiary of Hyundai Hysco Company
Limited (HHCL), Republic of Korea. In July 2015, HHCL was merged with HSC and as a result HSIPL became a wholly-owned
subsidiary of HSC. HSIPL holds a 55% stake in ASIPL (the rest held by HSC), which manufactures electric resistance welded (ERW)
pipes and cold-drawn steel pipes.

Key Financial Indicators

Fiscal FY2017 FY2018
(Audited) (Provisional)
Operating Income (Rs. crore) 2,431.1 2,667.1
PAT (Rs. crore) 38.7 54.9
OPBDIT/ OI (%) 1.6% 3.0%
RoCE (%) 17.5% 19.6%

Total Debt/ TNW (times) 0.5 0.8

Total Debt/ OPBDIT (times) 3.8 3.3
Interest coverage (times) 2.0 3.9

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

3
Rating history for last three years:
Chronology of Rating History
Current Rating (FY2018)
for the past 3 years
Date & Date &
Instrument Date & Date & Rating
Rating in Rating in
Amount Amount Rating in FY2016
Type FY2017 FY2017
Rated Outstanding*
June March November March
2018 2017 2016 2016
Fund-based
USD
and non- Short USD 4.6
1 35.00 [ICRA]A2+(S) [ICRA]A2+(S) [ICRA]A2+(S) [ICRA]A2+(SO)
fund based Term million
million
facilities
Fund-based
and non- Short Rs. 90.00 Rs. 90.00
2 [ICRA]A2+(S) [ICRA]A2+(S) [ICRA]A2+(S) [ICRA]A2+(SO)
fund based Term crore crore
facilities
Fund based (Rs. [ICRA]A-(S) [ICRA]A-(S) [ICRA]A-(S) [ICRA]BBB+(SO)
Long
3 (sub-limit) 90.00 - (Stable)/ (Stable)/ (Stable)/ (Positive)/
Term
facilities crore) [ICRA]A2+(S) [ICRA]A2+(S) [ICRA]A2+(S) [ICRA]A2+(SO)
Fund-based
USD
and non- Short USD 10.00
4 10.00 [ICRA]A3+ [ICRA]A3+ [ICRA]A3+ [ICRA]A3+
fund based Term million
million
facilities
*outstanding as on Mar 31, 2018

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

4
Annexure-1: Instrument Details
Date of Coupon Maturity Amount Rated Current Rating and
ISIN No Instrument Name
Issuance Rate Date (Rs. crore) Outlook
Fund-based and
USD 35.00
NA non-fund based - - - [ICRA]A2+(S)
million
facilities
Fund-based and
NA non-fund based - - - Rs. 90.00 crore [ICRA]A2+(S)
facilities
Fund based (sub- (Rs. 90.00 [ICRA]A-(S)(Stable)/
NA - - -
limit) facilities crore) [ICRA]A2+(S)
Fund-based and
USD 10.00
NA non-fund based - - - [ICRA]A3+
million
facilities

5
ANALYST CONTACTS
Jayanta Roy
+91 33 7150 1120
[email protected]

Balaji M
+91 44 4596 4317
[email protected]

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

6
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: [email protected]
Website: www.icra.in

Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87

Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294,
Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008,
Bangalore + (91 80) 2559 7401/4049
Ahmedabad+ (91 79) 2658 4924/5049/2008
Hyderabad + (91 40) 2373 5061/7251
Pune + (91 20) 6606 9999

© Copyright, 2018 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance,
which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to
timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest
information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and
reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable
care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in
particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA
or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely
as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents