TVS Electronics Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 46.00 Crs. of TVS Electronics Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (19 Jun 2020)	Present
Fund Based	25.00	25.00	Long Term	BWR A- /Stable Reaffirmed	BWR A - /Stable Reaffirmation
Non Fund Based	21.00	21.00	Short Term	BWR A2+ Reaffirmed	BWR A2 + Reaffirmation
Non Fund Based	(10.00)	(10.00)	Short Term	BWR A2+ Reaffirmed	BWR A2 + Reaffirmation
Grand Total	46.00	46.00	(Rupees Forty Six Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The ratings of TVS Electronics Limited (TVSE or the company) continue to factor in the company's overall business and financial performance, comfortable credit profile marked by strong debt protection metrics and a low gearing, and growing market demand for newly introduced products. The ratings continue to draw strength from the strong parentage and brand equity of the TVS group, experienced and professional management and robust financial and risk management practices. The rating strengths remain constrained by the exposure to intense industry competition, technological obsolescence and forex risks.

Brickwork Ratings (BWR) takes note of the potential impact of the Covid-19 pandemic on the business and financial risk profiles of TVSE mostly during Q1FY21. However the recovery was quicker-than-expected and the profitability margins in H2FY21 were better than historical figures, backed by the launch of new product lines, which offered better margins. The company has not opted for the Covid-19-related RBI moratorium package in view of sufficient liquidity.

BWR believes TVSE’s business risk profile will be maintained over the medium term. The Stable outlook indicates a low likelihood of rating change over the medium term. The outlook may be revised to Positive if substantial growth in revenue and profitability strengthens the financial risk profile. The outlook may be revised to Negative with lower-than-expected revenue/cash accruals or a deterioration in profitability/debt indicators and/or significant increase in operating cycle, especially in view of any prolonged impact of Covid-19 and a deterioration in the capital structure due to debt-financed capital expenditure, thus weakening the company’s financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established market position :
TVSE has an operational track record of over three decades and is a part of TVS Group, an established and a reputed business group. The company has an experienced and professional management team with the support of TVS Group. The company’s robust internal control and risk management systems 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 :
The company has entered long-term agreements with various reputed mobile phone (HTC, Samsung, Xiaomi) and laptop (HP, Dell, Samsung) brands for its service and distribution networks. This gives revenue visibility for their services and distribution businesses. The company is in the advanced stages of discussion for onboarding two more marquee brands in the audio and lifestyle segment.
Consistent performance of products and services segments :
The products and technical services business lines have been delivering consistent revenue growth and margin improvement. During FY21, the product and solution division of the company contributed ~62% (PY : 58%) of the total revenue followed by customer and support services contributing ~31% (PY : 32%). The company’s printer and scanner products have seen an improvement in market share in FY21 vis-a-vis FY20. During FY21, TVSE extended its product lines with the launch of products such as surveillance cameras & recorders, web cameras, mobile printers, cash counters, and healthcare products such as pulse oximeters, IR thermometers and UV sanitisers. Reportedly, the fresh products have good demand in the market. Currently, the Customer Support Services business vertical looks after installations and technical service calls for over 25 brand partners, covering more than 15,000+ pin codes across India, with a very wide array of electronic product categories. TVSE has its service footprint across more than 427 districts in India for onsite services and retail network for customer walk-in services to 200 centres. TVSE has also forayed into e-waste management through setting-up the new repair facility in Tumkur (Karnataka) and leveraging it to carry out L3-L4 repairs and e-refurbishment. TVSE forayed into audio and lifestyle products for providing repair and maintenance services. TVSE aims to enhance its focus on B2C services by launching value-added services directly to the end consumer under the name TVS-E Assure.
Business plans and new initiatives :
As a part of various government initiatives such as Make in India and National Policy on Electronics 2019 (NPE 2019), the company plans to tie-up with OEMs for the expansion of both products and services. TVSE plans to bring in new solutions to cater to the evolving needs of the retail and e-commerce segments. TVSE also plans to strengthen the scanner products portfolio with RFID scanning capabilities and its related solutions for manufacturing, logistics and warehousing. In addition, projects are being signed up with leading brands for IT Infrastructure Management Services. TVSE is also targeting the medical devices market and has started to explore opportunities in the medical devices segment for repair and maintenance services in a phased manner. TVSE has started to explore new opportunities in the electric vehicles market segment for providing installation, repair and maintenance services. Additionally, TVSE plans to explore opportunities for providing break-fix and maintenance services for power products eyeing the UPS market. Additionally, the company aims to bring in more regional repair centres, aiming to reduce the company"s logistics and transportation costs alongside ensuring faster customer service.
Stable financial risk profile :
The company has achieved a total operating income of Rs.224.60 Cr in FY21 as against Rs.258.72 Cr in FY20. The EBITDA and PAT were Rs.8.55 Cr and Rs.0.77 Cr respectively for FY21 as against Rs.10.91 Cr and Rs.0.39 Cr respectively for FY20. The company’s financial risk profile continues to be comfortable, marked by comfortable debt protection metrics and low gearing levels. The ISCR was comfortable at 4.50 times for FY21 and the company does not have term loan borrowings. The tangible networth (TNW) was Rs.63.79 Cr (PY : Rs.63.90 Cr) as on 31 March 2021. Considering the intangible assets in the form of business rights related to the servicetec business, having an indefinite useful life, with a carrying value of Rs.15.18 Cr as on 31 March 2021 as part of the networth, the adjusted TNW was Rs.78.97 Cr as on 31March 2021. The total debt/TNW and total debt/Adjusted TNW continue to remain healthy, at 0.06 times and 1.38 times, respectively as on 31 March 2021.

Credit Risks:

Intense competition :
The company operates in an intensely competitive and fragmented electronics industry. 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 is through imports, resulting in margin susceptibility to forex fluctuations. However, the company has availed bank facilities in foreign currency to mitigate forex risk.
Impact of Covid-19 and general market slowdown :
The entire economy across various sectors is reeling under the impact of the second wave of Covid-19. Muted demand from end-user segments is expected to have a direct impact on TVSE’s business profile. However, barring initial disruptions, the company has recovered at a faster pace. Moreover, IT/ITES products and services witnessed a surge in demand in the current situation, which has turned beneficial for the company. During FY21, despite the pandemic-induced disruptions, TVSE ensured business continuity in the servicetec segment, by proactively framing a detailed SOP for safety of field engineers and employees, and in walk-in-centres. Additionally, TVSE is exploring fresh opportunities by adding new product lines such as surveillance camera solutions, pulse oximeters, temperature screening devices and sanitising devices, which are in demand.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale). The company does not have subsidiaries.

RATING SENSITIVITIES

The company's ability to successfully stabilise its fresh business initiatives, improve its revenue and profitability through the newly added products 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

Prolonged impact of Covid-19, affecting revenues and cash flows due to a disruption in production and demand, leading to a material deterioration in its financial risk profile and liquidity
Significant deterioration in profitability margins and/or significant debt-funded capex

LIQUIDITY INDICATORS - Adequate

The company’s liquidity position is adequate, as seen in the average working capital utilisation of below 50% during the last 12 months. Cash and cash equivalents were around Rs.9 Cr as on 31 March 2021 (including the fixed deposits and mutual fund). The Current Ratio was 1.44 times, and Net Cash Accruals/Total Debt was 2.35 times as on 31 March 2021. The EBITDA is sufficient to cover interest and finance charges. The company does not have long-term borrowings as on date. BWR notes that on account of adequate liquidity, the company has not opted for the Covid-19-related RBI moratorium relief package.

ABOUT THE ENTITY

TVS Electronics Limited (TVSE), Chennai, is a part of the TVS group, managed by Mr Gopal Srinivasan, who also heads TVS Capital Funds Ltd. Founded in 1986 as an IT peripheral manufacturer, it is now a leading Transaction Automation IT Product manufacturer and service provider. TVSE has its production/repair facilities at Dehradun (Uttarakhand), Chennai (TN) and Tumkur (Karnataka). The company is listed on the BSE and NSE. TVSE’s business consists of three revenue segments, viz., (a) Products & Solutions (b) Customer Support Services and (c) Distribution & Fulfillment 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 (QSR).

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	224.60	258.72
EBITDA	Rs.Crs.	8.55	10.91
PAT	Rs.Crs.	0.77	0.39
Tangible Net Worth	Rs.Crs.	63.79	63.90
Total Debt/Tangible Net Worth	Times	0.06	0.32
Current Ratio	Times	1.28	1.21

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

N.A.

ANY OTHER INFORMATION

Nil

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	25.00	BWR A-/Stable (Reaffirmation)	19Jun2020	BWR A-/Stable (Reaffirmed)	02May2019	BWR A-/Stable (Upgraded)	02Mar2018	BWR BBB+/Stable (Reaffirmed)
Non Fund Based	ST	21.00	BWR A2+ (Reaffirmation)	19Jun2020	BWR A2+ (Reaffirmed)	02May2019	BWR A2+ ()	02Mar2018	BWR A3+ (Reaffirmed)
NFB SubLimit	ST	(10.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		46.00	(Rupees Forty Six Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

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.

Analytical Contacts
Naveen S Manager - Ratings Board : +91 80 4040 9940 naveen.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

TVS Electronics Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Cash Credit - Sanctioned	15.00	_	15.00
2	ILC/FLC/BG - Sanctioned	_	20.00	20.00
3	Cash Credit - Sanctioned	10.00	_	10.00
Sub-Limit (BG/LC) - Sanctioned		(10.00)
4	Credit Exposure Limit (CEL) - Sanctioned	_	1.00	1.00
Total		25.00	21.00	46.00
TOTAL (Rupees Forty Six Crores Only)

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