Credit rating agency CRISIL has downgraded Naveen Munjal-led Hero Electric Vehicles Private Ltd on the pretext that the company defaulted on its loans. HEVPL has been downgraded to ‘CRISIL D/CRISIL D’ from ‘CRISIL B/CRISIL A4’.
“CRISIL Ratings has removed its ratings on the bank facilities of Hero Electric Vehicles Private Limited (HEVPL) from 'Rating Watch with Negative Implications' and has downgraded the ratings to ‘CRISIL D/CRISIL D’ from ‘CRISIL B/CRISIL A4’,” CRISIL said in a note.
The rating action reflects a delay in servicing of debt obligations due to poor liquidity.
“There has been a sharp deterioration in the financial risk profile due to continued operating losses, stretch in liquidity due to buildup of subsidy receivables and lower than expected equity infusion from external investors,” CRISIL noted.
CRISIL Ratings noted that there are ongoing investigations by relevant authorities against various industry players, including HEVPL.
The company had received a notice from The Ministry of Heavy Industries for demand of subsidy availed by company of Rs 133 crore till date. This matter concerns the allegations against players of not meeting the eligibility norms for availing of the FAME (Faster Adoption and Manufacturing of Electric Vehicles) 2 subsidy, such as required localisation of components.
This has led to a build-up of subsidy receivables, which increased to around Rs 516 crore as on March 31, 2023, from Rs 62 crore a year ago, constraining liquidity.
“The ratings also factor in the weak operating performance owing to operating loss stretched liquidity leading to reliance on external funding and high capital requirement for expansion plans. These strengths are offset by the established brand of HEVPL, backed by the extensive experience of its promoters and the high growth potential of the domestic electric two-wheeler (E2W) industry,” Crisil noted.
HEVPL is one of the largest manufacturers of electric two-wheelers in India. It also received subsidies under the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India Phase-II (FAME-II) scheme. Under the scheme, companies sell vehicles to customers at subsidised prices and are later reimbursed by the government.
CRISIL said Hero Electric is yet to be reimbursed for around Rs 516 crore of subsidies it passed to its customers. The government has also sent notices to the company to return subsidies it received earlier to the tune of Rs 133 crore, as per CRISIL.
It reported a loss of Rs 70 crore in FY23, compared to a loss of Rs 26 crore in FY22. It has a debt of Rs 170 crore.
Negating the loan default charge, a Hero Electric spokesperson told The Economic Times that there is no default on the company's part.
"Banks don’t take kindly to money stuck with the government. In our case, more than Rs 570 crore in subsidies was passed on by us to the customers through an approved and accepted process mandated by the Ministry of Heavy Industries, which has not been reimbursed for almost 24 months. This situation naturally leads to downgrade of ratings and can affect all companies that focus solely on pure play electric mobility, unlike others that have diverse business lines," the Hero Electric spokesperson said.
HEVPL is facing tough competition from other upcoming brands such as Ola Electric, TVS Motor, Ather Energy and Ampere. It sold around 25,500 scooters between January and June this year, as per available data.
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