Why was Hero Electric's rating downgraded, how did the company survive?

Hero Electric's rating has been downgraded by Crisil, Crisil says that the company is unable to pay its debt due to lack of liquidity. The main reason for this cash crunch is said to be non-compensation by the government in lieu of subsidy.

Credit rating agency Crisil has given a big blow to Naveen Munjal's Hero Electric Vehicles Pvt Ltd and has downgraded the company's rating. The rating has been downgraded because of the company's default in loan repayment. HEVPL has been downgraded from 'CRISIL B/CRISIL A4' to 'CRISIL D/CRISIL D'.

The action of downgrading the rating means that the loan shows a position to be serviced on time due to poor liquidity. Crisil said that there has been a sharp deterioration in the financial risk profile due to persistent operational losses, reduction in liquidity due to non-receipt of subsidy and lower than expected equity inflows from external investors.

What is the charge on the companies

According to the information, the Central Government has adopted a strict stand against the companies claiming subsidy wrongly under the Fame 2 scheme. In the month of May, the government had sent recovery notices to 7 companies. It was said in the notice that these companies have not followed the norms for claiming under FAME 2. In which violation of essential local sourcing rules was also included. Because of which the subsidy of the companies was banned.

Subsidy not received for two years

According to media reports, Hero Electric has given a subsidy of Rs 570 crore to its customers. This subsidy has been given under the process, which has been approved and mandated by the Ministry of Heavy Industries. But now this subsidy is becoming a sore throat for the company. The company has not received compensation for this subsidy for two years. Due to which the company is feeling financial crunch.

170 crore debt on the company

HEVPL is one of the largest manufacturers of electric two-wheelers in India. It also received subsidy under the FAME II scheme for faster adoption and manufacturing of electric and hybrid vehicles. Under the scheme, companies sell vehicles at subsidized prices to customers and are later reimbursed by the government. Crisil said that Hero Electric has not yet been paid subsidy of about Rs 516 crore given to its customers.

According to Crisil, the government has also sent a notice to the company to return the subsidy of Rs 133 crore received earlier. The company recorded a loss of Rs 70 crore in FY 2023, while in FY 2022 there was a loss of Rs 26 crore. It has a debt of Rs 170 crore.