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Rationale
The ratings draw
comfort from Rane Holdings Limited's (RHL) position as the holding company of
the Rane Group (Group) of companies and its strategic importance to the
promoters; the hands-on management; and, the healthy credit profile of majority
of the large investee entities. RHL's five key investee entities are auto
component manufacturers, exposing its revenues to cyclicality in the automobile
industry. Nevertheless, within the auto component industry, revenues are well
diversified across products (steering products, friction material, valve train,
seat belts, light metal castings and air bags); and across domestic original
equipment manufacturers (OEM), domestic replacement and exports. RHL encourages
its group companies to fund their capital requirements on their own merits,
while usually limiting its role to that of a strategy provider – however, the
company is open to creeping acquisitions and stake increases in the group
companies. The holding company has invested Rs. 170.0 crore in Rane (Madras)
Limited (RML) during FY2018 – H1 FY2022 to support its acquisition, with the
balance Rs. 15.0 crore of the committed investments to be invested by end of
FY2022. RHL has also invested Rs. 8.5 crore in Rane T4U Private Limited (Rane
T4U) in H1 FY2022 towards meeting the latter's working capital
requirements/financial commitments. Over the past four and half years, the hold
co has also invested ~Rs. 30.0 crore (USD 4.52 million) in Auto Tech I, L.P, USA,
an auto venture capital fund in the United States of America (USA), with
residual investment commitments of Rs. 3.6 crore (USD 0.48 million) over the
next one year. The company does not envisage major investments post FY2022.
RHL, as the holding company, derives its revenues from dividends (from investee
companies), trademark fees for the use of the ‘Rane' brand and income earned
from extending common services on general management, training, information
technology (IT), infrastructure and business development support. With no
operations of its own, the standalone entity remains modest-scaled, with
revenues of Rs. 65.1 crore in FY2021 and Rs. 49.2 crore in H1 FY2022.
Nevertheless, it enjoys healthy margins aided by a lean cost structure and the
operating profit margins remained strong in FY2021 (despite decline in top line
of ~33% on a YoY basis), aided by cost saving initiatives undertaken by RHL.
The company has moderate debt levels (Rs. 75.7 crore as on Sep 30, 2021),
repayment obligations and letter of comfort-related potential liabilities for
its scale of operations. Nevertheless, RHL's standalone debt and letter of
comfort given, compared to the market value of its unencumbered listed
investments has been low for the last seven years, lending strong financial
flexibility to the company. ICRA also draws comfort from RHL's ability to
access capital markets at short notice and its strong relationships with
lenders.
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