Brickwork Ratings reaffirms the ratings with revision in outlook for the Bank Loan Facilities of Rs. 60.24 Crs. of Texcel Engineers Pvt. Ltd.
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (24 Jul 2020) |
Present | ||
Fund Based | 16.94 | 16.24 | Long Term |
BWR BB
/Stable Reaffirmed |
BWR BB
/Positive Reaffirmation and change in Outlook |
(0.00) | (3.00) | ||||
Non Fund Based | 41.00 | 44.00 | Short Term |
BWR A4
Reaffirmed |
BWR A4
Reaffirmation |
Grand Total | 57.94 | 60.24 | (Rupees Sixty Crores and Twenty Four lakhs Only) |
The rating reaffirmation of the bank loan facilities of Texcel Engineers Pvt. Ltd. ('TEPL' or 'the company') factors in the consistent performance during FY19-21, established track record and current order book of ~Rs. 500 Crs. The ratings continue to draw strength from the extensive experience of the promoters and long standing relationships with reputed clientele. However, the ratings remain constrained by working capital intensive operations with high dependence on external financing, increased gearing, the continuing customer concentration risk and uncertainty associated with business depending on outcome of competitive bidding.
Brickwork Ratings (BWR) notes that both the company had availed relief under the Covid moratorium package for March-August 2020 with Canara Bank and HDFC Bank and deferred scheduled payments for the period in line with the RBI guidelines. The company has been regular in debt obligation payments in the post-moratorium period, as confirmed by the bankers. The company has not opted for one time restructuring (OTR) of any loan under the RBI Resolution Framework for Covid-19-related Stress.
Revision in outlook from 'Stable' to 'Positive' takes into account the healthy order book position with regular order accretion giving revenue visibility for next 2-3 fiscals, diversification in industry concentration risk with fresh orders from the nuclear energy segment, steady increase in operating income and EBIDTA margins over the past three fiscals, improved operational performance post a poor Q1FY21 despite the disruptions due to the Covid-19 pandemic. The outlook may be revised to 'Negative' if there is decline in revenue and profitability and deterioration of gearing and debt coverage metrics, thereby weakening the financial risk profile of the company.
KEY RATING DRIVERSCredit Strengths:
The management is experienced in the business line with an established track record of more than three decades. Mr. M. P. Sudhakaran is the Managing Director having industry experience of around 30 years in this field. The directors are well supported by a team of technically qualified professionals, each with more than two decades of experience in their respective fields. The extensive experience of the management is expected to support the company operations.
The company started its commercial operations in 1987. Since then, it has been able to establish long and stable relationships with reputed clientele which includes Bharat Heavy Electricals Limited (BHEL), Doosan Power Systems India Private Limited, KC Cottrell India Private Limited and SIEMENS. BHEL has been their primary client since their inception and the company has been able to secure repeat orders from them. The company has an orderbook of ~Rs. 500 crs as on 31 Mar 2021 to be executed within next 2-3 years. Also, the company has been able to develop long term relationship with its suppliers.
The company's operating income increased from Rs. 51.54 Crs. in FY19 to Rs. 60.30 Crs. in FY20. Operating profit increased from Rs. 7.66 Crs. to Rs. 10.94 Crs. over the same period. However, net profit declined from Rs. 1.17 Crs. to Rs. 0.94 Cr. Increase in total debt as on 31Mar2020 resulted in marginal deterioration in gearing to 1.43 times. Debt coverage metrics given by ISCR and DSCR marginally deteriorated as on 31Mar2020 to 2.43 times and 1.20 times, respectively. Operating profit margin marginally improved while net profit margin marginally declined in FY20. Current ratio declined as on 31Mar2020 to 1.08 times. On a provisional basis in FY21, the company reported operating income, EBITDA and PAT of Rs. 64.81 Crs., Rs. 13.05 Crs. and Rs. 0.63 Cr., respectively. Further, the company has reported a revenue of ~Rs.16 crs in Q1FY21 on provisional basis. [P = Provisional]
The company gets its contracts through competitive bidding. The growth of business depends entirely upon the company’s ability to successfully bid for tenders and emerge as the lowest bidder. However, the risk is partly mitigated by the long experience of the company in executing contracts under the power sector.
In FY21 (P), top two customers of the company accounted for ~96% of total contract receipts. The current order book is also concentrated with almost the same top customers (BHEL and Doosan Power Systems India Pvt Ltd). However, BHEL is a Maharatna company and a PSU which takes up large volumes of EPC power projects all across the country. TEPL has also executed several smaller projects with various other reputed clients, but their primary client and source of revenue remains BHEL by choice, because of their ability and capacity to handle large numbers of mega plants in India, with critical boiler designs. The company has developed longstanding relationship with BHEL over the years. Besides, the credit risk profile of BHEL mitigates the counter party risk for the company to great extent. [P = Provisional]
The company’s operations were severely impacted by the pandemic in Q1FY21 due to lockdown, high turnover of workforce, steep increase in input cost and logistic issues. The billings and the receivables were also considerably impacted. The situation started improving in Q2FY21 after gradual lifting of the lockdown. The company was able to complete the work stalled due to the pandemic by using additional workforce and other resources. During the second wave of the pandemic too, the company faced issues related to supply chain/labour etc. apart from low billings and slow realization of receivables. However, the impact has not been as severe as the first wave. The impact of any further waves of the pandemic on the sector as a whole and the company in particular shall be a key monitorable.
The company operations are working capital intensive as reflected in high receivable days resulting in high dependence on the bank borrowings. It also needs investments in plant & machinery depending upon the nature and needs of projects in hand. Although the working capital intensity is as per general industry trends, the borrowings lead to finance cost and repayment obligations, impacting operating and net profit and the credit risk profile of the company.
For arriving at its ratings, Brickwork Ratings has adopted a standalone approach and applied its rating methodology as detailed at the end of the document.
RATING SENSITIVITIES
Ability of the company to increase its scale of operations and profitability on a sustainable basis without deterioration in gearing and debt coverage metrics would be key rating sensitivities. Given the increase in debt repayment obligations starting FY21, debt service coverage ratio would be a key monitorable.
Positive:
Negative:
Liquidity of the company is stretched marked by high fund based working capital limit utilization of ~90% from banks in past six months, high debt repayment obligations, low cash and cash equivalents. Increase in debt levels in FY20 and FY21 (P) have increased the debt repayment obligations and finance cost of the company for FY21-24 period. Cash balance as on 31Mar2021 (P) was low at Rs. 0.91 Cr. Current ratio was moderate at 1.36 times as on 31Mar2021 (P).
ABOUT THE ENTITYTexcel Engineers Private Limited was incorporated on 27Aug1987 at Chennai, Tamil Nadu. The company is ISO 9001:2015 certified and engaged in undertaking and completion of vast range of turnkey contracts in the infrastructure sector as EPC contractor. The company is a sub-contractor for Bharat Heavy Electricals Limited (BHEL). Subcontracts from BHEL contribute major portion of the company's revenue.
Mr. M.P. Sudhakaran, Mrs. P.G. Jayanthi, Mr. M.S. Abhilash and Mr. Jiji T Sukumar are the directors of the company.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 60.30 | 51.94 |
EBITDA | Rs.Crs. | 10.94 | 7.66 |
PAT | Rs.Crs. | 0.94 | 1.17 |
Tangible Net Worth | Rs.Crs. | 28.71 | 27.80 |
Total Debt/Tangible Net Worth | Times | 1.43 | 1.13 |
Current Ratio | Times | 1.08 | 1.38 |
The terms of sanction include standard covenants normally stipulated for such facilities.
Not applicable
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 | 16.24 |
BWR BB/Positive
(Reaffirmation and change in Outlook) |
24Jul2020 |
BWR BB/Stable
(Reaffirmed) |
28Feb2019 |
BWR BB/Stable
(Downgraded) |
30May2018 |
BWR BB+/Stable
(Reaffirmed) |
FB SubLimit | LT | (3.00) |
BWR BB/Positive
(Reaffirmation and change in Outlook) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
Non Fund Based | ST | 44.00 |
BWR A4
(Reaffirmation) |
24Jul2020 |
BWR A4
(Reaffirmed) |
28Feb2019 |
BWR A4
(Reaffirmed) |
30May2018 |
BWR A4
(Reaffirmed) |
Grand Total | 60.24 | (Rupees Sixty Crores and Twenty Four lakhs 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 CriteriaAnalytical Contacts | |
---|---|
Swarn Saurabh Senior Rating Analyst swarn.s@brickworkratings.com |
Saakshi Kanwar Senior Manager 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 | Canara Bank | Overdraft against Book Debts (ODBD)Sanctioned | 10.00 | _ | 10.00 |
2 | Canara Bank | Bank GuaranteeSanctioned | _ | 32.00 | 32.00 |
3 | Canara Bank | Term LoanOut-standing | 0.14 | _ | 0.14 |
4 | Canara Bank | Term LoanOut-standing | 1.12 | _ | 1.12 |
5 | Canara Bank | Term LoanOut-standing | 1.76 | _ | 1.76 |
6 | Canara Bank | Emergency Credit Line Guarantee Scheme (ECLGS)Out-standing | 2.44 | _ | 2.44 |
7 | Canara Bank | Working Capital Demand LoanOut-standing | 0.78 | _ | 0.78 |
8 | HDFC Bank | Bank GuaranteeSanctioned | _ | 12.00 | 12.00 |
Sub-Limit (Cash Credit) Sanctioned | (3.00) | ||||
Total | 16.24 | 44.00 | 60.24 | ||
TOTAL (Rupees Sixty Crores and Twenty Four lakhs Only) |
The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.
About Brickwork RatingsBrickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.
Disclaimer
Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.
BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).
BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.
The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.
BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.
BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.
Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.
BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.
This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.
BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.