RATING RATIONALE
10Oct2023
TVS Electronics Ltd.
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 67.00 Crs. of TVS Electronics Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (12 Jul 2022) |
Present | ||
| Fund Based | 56.00 | 46.00 | Long Term |
BWR A/Stable
Upgraded and change in outlook |
BWR A
/Stable Reaffirmation |
| (4.50) | (4.50) | ||||
| (10.00) | (10.00) | ||||
| Non Fund Based | 21.00 | 21.00 | Short Term |
BWR A1
Upgrade |
BWR A1
Reaffirmation |
| (10.00) | (10.00) | ||||
| (6.00) | (6.00) | ||||
| Grand Total | 77.00 | 67.00 | (Rupees Sixty Seven Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
The rating reaffirmation of the bank loan facilities of TVS Electronics Limited (TVSE or the company) continues to draw strength from the strong parentage and brand equity of TVS, experienced and professional management, stable and consistent financial profile marked by low gearing and long term agreements with reputed clientele. The rating action also factors the company’s various initiatives to augment its business profile through acquisitions and providing a wider offering with the on-going modernisation and upgradation of its Tumkur facility. The rating strengths remain constrained by the exposure to intense industry competition with moderate scale of operations, technological obsolescence and forex risks.
The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR believes TVSE’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained increase in the scale of operations with improvement in the profitability results in an improved financial risk profile with stabilisation of new products lines and services, thereby strengthening the business profile. The outlook may be revised to Negative with lower-than-expected revenue/cash accruals or a deterioration in the profitability/gearing indicators and/or a significant increase in the operating cycle, and/or a deterioration in the capital structure due to fresh debt-financed capital expenditure, thus weakening the company’s financial risk profile.
Credit Strengths:
-
Experienced management and established market position
:
TVSE has an operational track record of over three decades and has been a part of the TVS group, an established and reputed business group. The company has an experienced and professional management team, and the robust internal control and risk management systems of the company are expected to mitigate possible risks on price movements and technological obsolescence. TVSE has demonstrated the management's agility and awareness through the addition of new products that are in demand. The company is expected to continue to explore fresh opportunities.
-
Long-term agreements with reputed brands and a diversified long term customer base :
The company has long-term agreements with reputed clientele such as Dell, HP, fiserv for providing various products and services. Also, the company caters to various reputed clients in the Retail, Banking, Shipping & Logistics, Defence, PSUs and DISCom sectors providing a well diversified customer base.
-
Stable operational performance supported by business plans and initiatives
:
The company currently has two segments, namely Product and Solutions, and Customer Service. The Product and Solutions segment continues to be the major revenue driver with ~70% (PY:68%) of total revenue, followed by the Customer Services segment which contributed to ~30% (PY:32%) of revenue. The revenue from Product and Solutions segment registered a growth of ~18% where as the Customer Service segment grew by 9% in FY23 on YOY basis.
As part of its long-term strategy to improve the scale of operations with sustainable improvement in the margins, the company has acquired business of GTID Solutions Development Private Limited (Apnapay) and invested in M/s Swiftomatics Services Private limited (RoyalPos) to support the growth inorganically. The said acquisitions and investment are expected to be leveraged with existing distribution networks to widen its sales from retail, currently at ~50% of the topline. Additionally, the company has been incurring capital expenditure for the modification and addition of facilities in the Tumkur factory. The capex for setting up lines for Contract Manufacturing Services has been commissioned and lines for Electronic Manufacturing Services, as part of the Make in India Initiative, are expected to be operational by end of FY24. The capex incurred is expected to help the company provide a wider offering including POS systems, handheld devices, billing applications, weighing scales, and other related products.
-
Stable financial risk profile :
The company has achieved operating revenue of Rs.353.49 Crs during FY23 (Rs 307.92 Crs for FY22) thereby achieving a 15% increase in revenue on a Y-o-Y basis. The company has achieved an EBITDA of Rs 19.79 Crs in FY23(PY: Rs 26.61 Crs). The EBITDA was impacted on account of increase in Employee Benefit Expenses, increased raw material costs, consolidation of factories amongst other expenses. PAT stood at Rs 9.52 Crs in FY23(PY: Rs 15.10 Crs). Although the profitability margin declined in FY23, the company expects to improve the margin with addition of new services and products in FY24, which will boost the scale of the operations. The company’s Tangible Networth improved from Rs.77.75 Crs as on 31 March 2022 to Rs. 87.27 Crs as on 31 March 2023 due to the retention of profits. Considering the intangible assets in the form of business rights, having an indefinite useful life, with a carrying value of Rs.11.87 Crs as on 31 March 2023 as part of the networth, the adjusted TNW works out to be Rs.99.14 Crs as on 31 March 2023 as against Rs.90.57 Crs as on 31 March 2022. The company’s TOL/TNW position remained stable at 1.37 times as on 31 March 2023 as against 1.41 times as on 31 March 2022. The total Debt/TNW remained comfortable at 0.11 times as on 31 March 2023 (PY: 0.05 times). The ISCR and DSCR were adequate at 14.45 times and 13.13 times during FY23. The company has achieved an operating revenue of Rs.89.84 Crs, EBITDA of Rs 2.55 Crs and PAT of Rs 0.32 Crs during Q1FY24.
-
Intense competition and moderate scale of operations :
The company operates in an intensely competitive and fragmented electronics industry. The company's moderate scale of operations are vulnerable to a certain extent to the periodic, regular renewal of its agreements with various clients. However, TVSE benefits on account of its strong brand presence and long-term relation with reputed clients.
-
Exposure to technological obsolescence and forex risks :
The company deals in technology-related products and services, which requires frequent upgradation and calls for additional investment. A significant portion of purchases would be through direct/indirect imports, resulting in margin susceptibility to forex fluctuations. However, the risk is partially mitigated by the availability of hedging limits from its lenders.
For arriving at its ratings, Brickwork Ratings has adopted a standalone approach and applied its rating methodology as detailed in the Rating criteria below. The company does not have subsidiaries as on 31 Mar 2023.
RATING SENSITIVITIES
The company's ability to improve its revenue and profitability through the consolidation of factories and strengthen its business profile would be key rating sensitivities.
Upward:
- Substantial growth in revenue and profitability, strengthening the financial risk profile.
- Stabilisation of new product lines with an increased scale of operations resulting in higher contribution to revenue and profitability on a sustained basis
Downward:
- Deterioration in key credit metrics owing to pressure on operating profits due to competition, sharp rise in receivables levels, or fresh capex.
The company’s liquidity position is considered adequate considering adequate EBITDA to adequately cover the debt obligations. The EBITDA stood at Rs 19.79 Crs as on 31 Mar 2023 which was sufficient to cover the interest cost of Rs 1.37 Crs. Average utilization of working capital limits have remained below 40% over the past six months. Cash and cash equivalents have improved to Rs.11.35 Crs as on 31 March 2023 when compared to Rs.10.93 Crs as on 31 March 2022. Current ratio has improved to 1.41 times as on 31 March 2023 when compared to 1.39 times as on 31 March 2022. The EBITDA stood at Rs.2.55 Crs for Q1FY24 which was sufficient to cover interest and finance charges of Rs. 0.29 Crs for Q1FY24. The installment for the Term loan from Axis Bank commenced from Sep 2023 on a quarterly basis at Rs 0.94 Crs. The company has adequate net cash accrual of Rs 16.51 Crs as on 31 Mar 2023 and Rs 35.92 Crs as on 31 Mar 2024(Proj) to cover the debt obligations of Rs 2.82 Crs in FY24 and Rs 5.64 Crs in FY25 respectively. The company’s cash and cash equivalent position as on date stood at Rs ~34 Crs, which includes Rs 25 Crs worth of investment in Mutual funds and remaining amount in current accounts.
ABOUT THE ENTITY| Macro Economic Indicator | Sector | Industry | Basic Industry |
|---|---|---|---|
| Information Technology | Information Technology | IT - Services | IT Enabled Services |
TVS Electronics Limited (‘TVSE’ or ‘the company’ ), Chennai, founded in 1986 as an IT peripheral manufacturer, is currently a leading transaction automation IT product manufacturer and service provider. TVSE has its production/repair facilities presently at Tumkur (Karnataka). The company is listed on the BSE and NSE. TVSE’s business consists of two revenue segments, viz., (a) Products and Solutions and (b) Customer Support Services. The products cater to seven broad sectors, viz., Retail – SME, Government, BFSI, Hospitality, Healthcare, E-commerce and Transport, Large Format Retail (LFR) Stores and Quick Service Restaurants (QSRs). Currently, the company operates through 40 centres and caters to over 25 brand partners covering more than 19250 pin codes across India with a service footprint across 490 districts for onsite services and retail network for customer walk-in services through 345 centres. Mr. Gopal Srinivasan is the company’s chairman, and Mrs.Srilalitha Gopal is the managing director.
| Key Parameters | Units |
FY 21-22 (Audited) |
FY 22-23 (Audited) |
FY 23-24 (Unaudited - Midterm_Q1) |
|---|---|---|---|---|
| Operating Revenue | Rs.Crs. | 307.92 | 353.49 | 89.84 |
| EBITDA | Rs.Crs. | 26.61 | 19.79 | 2.55 |
| PAT | Rs.Crs. | 15.10 | 9.52 | 0.32 |
| Tangible Net Worth | Rs.Crs. | 78.70 | 87.27 | Not Available |
| Total Debt/TNW | Times | 0.05 | 0.11 | Not Available |
| Current Ratio | Times | 1.39 | 1.41 | Not Available |
The terms of sanction include standard covenants normally stipulated for such facilities.
NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY
Nil.
ANY OTHER INFORMATIONNil
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2023) | 2022 | 2021 | 2020 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 46.00 |
BWR A/Stable
(Reaffirmation) |
12Jul2022 |
BWR AStable
(Upgraded and change in outlook) |
23Jun2021 |
BWR A- Stable
(Reaffirmation) |
19Jun2020 |
BWR A- Stable
(Reaffirmation) |
| 0.00 |
NA
|
28Feb2022 |
BWR A-Stable to Positive
(Reaffirmation and change in Outlook) |
NA |
NA
|
NA |
NA
|
||
| FB SubLimit | LT | (4.50) |
BWR A/Stable
(Reaffirmation) |
12Jul2022 |
BWR A/Stable
(Upgrade) |
NA |
NA
|
NA |
NA
|
| (10.00) |
BWR A/Stable
(Reaffirmation) |
12Jul2022 |
BWR A/Stable
(Upgrade) |
NA |
NA
|
NA |
NA
|
||
| Non Fund Based | ST | 21.00 |
BWR A1
(Reaffirmation) |
12Jul2022 |
BWR A1
(Upgrade) |
23Jun2021 |
BWR A2+
(Reaffirmation) |
19Jun2020 |
BWR A2+
(Reaffirmation) |
| 0.00 |
NA
|
28Feb2022 |
BWR A2+
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
||
| NFB SubLimit | ST | (10.00) |
BWR A1
(Reaffirmation) |
28Feb2022 |
BWR A2+
(Reaffirmation) |
23Jun2021 |
BWR A2+
(Reaffirmation) |
19Jun2020 |
BWR A2+
(Reaffirmation) |
| NFB SubLimit | ST | (6.00) |
BWR A1
(Reaffirmation) |
12Jul2022 |
BWR A1
(Upgrade) |
NA |
NA
|
NA |
NA
|
| Grand Total | 67.00 | (Rupees Sixty Seven Crores Only) | |||||||
BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
Hyperlink/Reference to applicable Criteria| Analytical Contacts | |
|---|---|
|
Revathy Thamizharasu Rating Analyst revathy.t@brickworkratings.com |
Saakshi Kanwar Associate Director - Ratings saakshi.k@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|---|
| 1 | Axis Bank Ltd. | Term LoanSanctioned | 15.00 | _ | 15.00 |
| Sub-Limit (Capex LC) Sanctioned | (4.50) | ||||
| 2 | Axis Bank Ltd. | Cash CreditSanctioned | 6.00 | _ | 6.00 |
| Sub-Limit (LC/BG) Sanctioned | (6.00) | ||||
| 3 | IDFC First Bank Limited | Cash CreditSanctioned | 15.00 | _ | 15.00 |
| 4 | IDFC First Bank Limited | ILC/FLC/BGSanctioned | _ | 20.00 | 20.00 |
| 5 | RBL Bank | Credit Exposure Limit (CEL)Sanctioned | _ | 1.00 | 1.00 |
| 6 | RBL Bank | Cash CreditSanctioned | 10.00 | _ | 10.00 |
| Sub-Limit (BG/LC) Sanctioned | (10.00) | ||||
| Sub-Limit (WCDL) Sanctioned | (10.00) | ||||
| Total | 46.00 | 21.00 | 67.00 | ||
| TOTAL (Rupees Sixty Seven Crores Only) | |||||
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