Indo National will hold a meeting of the Board of Directors of the Company on 10 February 2023.

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The agency has also downgraded the short rating on the debt instruments of INL to 'CRISIL A2+' from 'CRISIL A1'.

The credit rating agency said that the rating action reflects CRISIL Ratings expectations that INL's business performance will continue to be moderate compared with expectations, due to sluggish demand for dry-cell batteries, and delayed ramp-up of order execution at its subsidiary, Kineco Ltd (Kineco).

Besides, the company's operating profitability is also expected to be weaker than earlier expected, due to lower business levels, higher input prices, and stiff competitive pressures. Ergo, cash generation is expected to be lower than earlier anticipated, also impacting the company's debt metrics.

Though revenue grew by 7% during fiscal 2022 owing to order execution in railways/aerospace business under Kineco Ltd, and higher price realisations in the battery segment, the same was lower than anticipated.

There was a significant decline in dry-cell battery volumes by 24% on year, in fiscal 2022 and by 16% in the first half of fiscal 2023 on account of sluggish demand situation, resulting from lesser sales of covid gadgets, rechargeable products replacing various battery operated gadgets and increase in competitive pressure.

INL's operating profitability declined significantly from Rs.10.8% in fiscal 2021 to 4.7% in fiscal 2022, and is expected to remain at almost similar levels in fiscal 2023 due to limited ability of INL to pass higher input (zinc) prices, and increase in freight rates. Operating profitability further declined to 2.15% in the first half of fiscal 2023 despite multiple price increase in battery segment and softening of zinc prices, due to non-availability of input pass on clauses in many of Kineco's orders.

INL consequently reported a net loss of Rs.5.1 crore in the first half of fiscal 2023, compared to a profit after tax of Rs.13 crore in the corresponding period of fiscal 2022.

Revenue growth, will continue to be modest at less than 5% and driven by Kineco due to its healthy orderbook from Indian railways for supplying composite parts for Vande Bharat trains, and other turnkey projects for Garibrath and Tejas trains.

However, better absorption of fixed costs as a result of higher order execution, and slight softening of input costs, will improve operating margins resulting in overall margins of 4-6% for fiscal 2023 and beyond, which will still be lower compared with 10-12% anticipated earlier.

Nevertheless, cash accruals are expected to be between Rs.14-17 crores over medium term, adequate to meet term debt repayment obligations of Rs.~2-4 crore and to fund the moderate capital expenditure (capex) and working capital requirements. Higher order execution for Indian Railways/defense is expected to result in better absorption of fixed costs leading to improvement in cash generation and gradual improvement in debt metrics.

The ratings continue to reflect INL's established market position and brand in the domestic dry cell batteries industry, as well as its vast distribution network, diverse revenue profile through Kineco (composites for defence, railways and aerospace), and the company's moderate financial risk profile.

These strengths are partially offset by sluggish growth in the core domestic dry cell batteries business, supplier concentration risks, and susceptibility of operating profitability to volatile input prices and intense competition.

Chennai-based INL manufactures and sells dry cell batteries and trades in torches, emergency power back-up products, and LEDs. The company is the second-largest player in the dry cell batteries industry in India, with capacity of 78.5 crore battery per annum and a market share of above 30%.

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Indo National has received credit rating for bank loan facilities of Rs 85 crore as under:

Long term rating - CRISIL A-/ Negative (downgraded from CRISIL A/ Stable)
Short term rating - CRISIL A2+ (downgraded from A1)

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Net profit of Indo National declined 98.98% to Rs 0.09 crore in the quarter ended September 2022 as against Rs 8.83 crore during the previous quarter ended September 2021. Sales declined 13.47% to Rs 148.95 crore in the quarter ended September 2022 as against Rs 172.13 crore during the previous quarter ended September 2021.

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