RATING RATIONALE
25Jan2022
Aditya Infotech Ltd.
Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 362.00 Crs. of Aditya Infotech Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (29 Apr 2021) |
Present | ||
| Fund Based | 280.00 | 282.00 | Long Term |
BWR A-/Negative
Reaffirmation and change in Outlook |
BWR A
/Stable Upgrade |
| (0.00) | (80.00) | ||||
| 2.00 | 0.00 | Short Term |
BWR A1
Reaffirmation |
_ | |
| Non Fund Based | 80.00 | 80.00 | Short Term |
|
BWR A1
Reaffirmation |
| (0.00) | (50.00) | ||||
| (0.00) | (50.00) | ||||
| Grand Total | 362.00 | 362.00 | (Rupees Three Hundred Sixty Two Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
Note: Earlier rated short-term fund-based facilities are merged into the current fund-based sub-limits.
RATING ACTION / OUTLOOK
Brickwork Ratings (BWR) has upgraded the ratings on the long-term bank loan facilities of Aditya Infotech Ltd. (AIL or the company) to BWR A/Stable from BWR A-/Negative and has reaffirmed the rating on the short-term bank loan facilities at BWR A1.
The upgrade reflects the company’s ability to build its market position as a leading distributor in the growing Surveillance Equipment industry, as reflected in its revenue, which has rebounded post the setback it faced in Q4 FY20 and Q1 FY21 due to the supply chain disruptions faced on account of the Covid-19 pandemic. Revenues were sustained at Rs 1171 crore in FY21 as against Rs. 1219 crore in FY20 despite having limited operations in H1FY21 on account of the lockdowns. Revenues substantially improved further by surpassing FY21 revenues in 9MFY22 with an estimated revenue of Rs 1382 crore. The profitability has also improved, supported by the ability to pass on increasing prices with ease. The Net Profit Margin (NPM), which was -0.03% in FY20, significantly improved to 2.23% in FY21 and continues to further improve to 4.1% for 6MFY22. The company has managed to grow and keep the working capital requirements under control, along with an improved conversion cycle, which led to a reduction in the utilisation of bank facilities and thereby significantly reduced the overall debt levels to Rs. 147 crore in FY21 (FY20: Rs 265 crore), thereby leading to an improved financial risk profile. The company will likely sustain its revenue and profitability because of its focus on adding new product categories and expanding its geographical footprint, along with plans to provide value-added services and bundled offerings to customers. Expected healthy demand for its products, mainly on the basis of increased penetration in tiered cities, will also benefit the company.
The ratings continue to reflect AIL’s established position in the Surveillance Equipment distribution business, its diverse customer base, long-standing relations with reputed principals, wide distribution network across India, and experienced management team. The ratings also factor in AIL’s strong financial risk profile, driven by comfortable gearing and healthy debt protection metrics. These strengths are partially offset by working capital-intensive operations, supplier concentration risks, and exposure to unhedged foreign exchange fluctuations.
Outlook: Stable
The outlook is assigned as Stable since BWR expects that AIL’s business risk profile will be maintained over the medium term.
KEY RATING DRIVERSCredit Strengths:
-
Established position in Surveillance Equipment distribution business, long-standing relations, and diversified geographical footprint :
AIL ranks among the top 10 Surveillance Equipment distributors in India. The company has a healthy network of over 45 full-fledged branches, including service branches for customer support and warehouses, and 3000+ channel partners covering over 300+ cities across India. AIL enjoys strong products, as well as principal profiles. The company’s indigenous brand CP Plus, a CCTV camera product package, is a leading and flagship security and surveillance brand. AIL has a long-standing relation with another principal supplier Dahua Technology Limited for which it acts as the super distributor for India. AIL is expected to further improve its business risk profile over the medium term, on the back of its established market position in the domestic Surveillance Equipment distribution business and continued healthy demand for its products.
-
Experienced management and strong risk management practices :
The company is promoted by Mr. Hari Shanker Khemka, Aditya Khemka and Rishi Khemka, who have over two decades of experience in this industry. The management team has experience of more than two decades in the surveillance equipment distribution business, which has helped develop strong relations with distribution partners. The promoters are actively involved in the daily operations. The top 10 customers contribute around 25% to the operating income. A diversified customer base, the policy of limiting credit exposure to a single customer, and limited credit offered to clients safeguard against counterparty credit risks. A robust management information system helps keep track of the credit history of channel partners and maintain credit records for each of them.
-
Strong financial risk profile :
The financial risk profile is strong. The capital structure, indicated by a low gearing of 0.76 times as on 31 March 2021, is driven by a networth of over Rs. 194 crore and a significant reduction of over 45% in debt as compared to FY20. BWR expects the networth to remain strong over the medium term because of a steady accretion to the reserves as the company is likely to follow a minimal dividend policy. The incremental working capital requirement is expected to be funded partially through cash accrual, and in the absence of any large debt-funded capital expenditure (capex) or acquisition, the gearing ratio is expected to remain below 0.7 times over the medium term. The interest coverage was at 2.5 times in FY21 and is expected to improve healthily over the medium term due to low debt levels.
-
Supplier concentration risk :
The company remains exposed to supplier concentration risk with the two major suppliers accounting for more than 80% of the supplies. In addition to CP Plus - an in-house brand manufactured by the AIL-Dixon JV, the company distributes the products of Dahua Technology Limited in India, thus reflecting increased dependency on these two entities.
-
Exposure to foreign exchange fluctuation :
The company sources its products from China and is, therefore, exposed to currency fluctuation risk. However, the company enters hedging contracts, largely covering currency fluctuation risks. Additionally, AIL remains exposed to geopolitical risks on account of higher indirect dependence on China since the AIL-Dixon JV imports ~85% of its supplies from China. While the risk remains, the overall high dependence of the industry on Chinese supplies and the fact that there have been no major supply disruptions provide comfort.
-
Intense competition :
Intense competition from the other major market players operating in the security and IT hardware segment could impact the company’s revenue and profitability. This has also necessitated continued investments in technological advancements by the company.
-
Working-capital-intensive distribution business :
The company’s distribution business is highly working-capital-intensive and thrives on credit sales. Given the limited number of established competitors in its domestic market, AIL, based on mutual understanding with its vendors, extends the credit period considering the increase in lead time involved in such transactions. This leads to a higher working capital requirement. However, the impact on AIL is partially alleviated as its suppliers/principals allow credit periods to the company on similar lines. In addition, with the business increasing over time, the conversion cycle has been gradually lowered (34 days as on 31 March 2021, as against 70 days as on 31 March 2019). This is clearly evidenced in the declining net working capital levels in the last three years.
For arriving at its ratings, BWR has considered AIL’s standalone financials and applied its rating methodology as detailed in the Rating Criteria
RATING SENSITIVITIES
Positive: A significant and sustained improvement in profitability and sustenance of other key financial parameters
Negative: A material deterioration in revenues, profitability and capital structure would result in a negative rating action.
LIQUIDITY INDICATORS - Strong
The liquidity is strong; the company has limited reliance on working capital borrowings, with its working capital facilities of Rs 300 crore being utilised at an average of only 50% over the past six months through November 2021. AIL is expected to generate accruals of over Rs 70 crore in FY22 and FY23 against minimal repayment obligations of Rs 8.13 crore and Rs 13.77 crore, respectively. The liquidity is further supported by unencumbered cash and bank balances of over Rs 90 crore as on 30 September 2021. The current ratio was adequate at 1.3 times, as on 31 March 2021.
ABOUT THE ENTITYAditya Infotech Ltd. (AIL or the company), incorporated in 1995, provides technology-driven security and safety solutions with special expertise in Electronic Video Surveillance Products and Solutions. It is headquartered at Noida (NCR). AIL, founded by Mr. Aditya Khemka, is a part of Noida-based Aditya Group, having business interests in various areas from newsprint, real estate, and textiles to software, media, and entertainment products, and electronic security technology.
AIL distributes security surveillance products such as CCTV cameras, DVR, video door phones, time attendance, and access controls. AIL’s indigenous brand CP Plus, a CCTV camera product, is a flagship brand of the company, contributing 60% - 70% of its total sales and commanding a significant market share in the electronic surveillance industry.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 1170.81 | 1219.28 |
| EBITDA | Rs.Crs. | 59.43 | 42.07 |
| PAT | Rs.Crs. | 26.15 | -0.36 |
| Tangible Net Worth | Rs.Crs. | 194.61 | 168.02 |
| Total Debt/Tangible Net Worth | Times | 0.76 | 1.58 |
| Current Ratio | Times | 1.30 | 1.21 |
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)
| Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 282.00 |
BWR A/Stable
(Upgrade) |
29Apr2021 |
BWR A-Negative
(Reaffirmation and change in Outlook) |
14Mar2020 |
BWR A-Stable
(Reaffirmation) |
29Mar2019 |
BWR A-Stable
(Reaffirmation) |
| FB SubLimit | LT | (80.00) |
BWR A/Stable
(Upgrade) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Fund Based | ST | NA |
NA
|
29Apr2021 |
BWR A1
(Reaffirmation) |
14Mar2020 |
BWR A1
(Reaffirmation) |
29Mar2019 |
BWR A1
(Reaffirmation) |
| Non Fund Based | ST | 80.00 |
BWR A1
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| NFB SubLimit | ST | (50.00) |
BWR A1
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| (50.00) |
BWR A1
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| Grand Total | 362.00 | (Rupees Three Hundred Sixty Two 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 | |
|---|---|
|
Arbez Noshir Karbhari Ratings Analyst arbez.k@brickworkratings.com |
Chintan Dilip Lakhani Director- Ratings chintan.l@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 | HDFC Bank | Working Capital Term LoanOut-standing | 2.53 | _ | 2.53 | |
| 2 | HDFC Bank | Stand by Line of CreditSanctioned | _ | _ | 0.00 | |
| 3 | HDFC Bank | Working Capital Demand LoanSanctioned | 50.00 | _ | 50.00 | |
| Sub-Limit (ILC/FLC/BG) Sanctioned | (50.00) | |||||
| 4 | Tamilnad Mercantile Bank Limited | GECLOut-standing | 25.00 | _ | 25.00 | |
| 5 | Tamilnad Mercantile Bank Limited | ILC/FLC/BGSanctioned | _ | 80.00 | 80.00 | |
| Sub-Limit (Cash Credit) Sanctioned | (80.00) | |||||
| 6 | Tamilnad Mercantile Bank Limited | Working Capital Demand LoanSanctioned | 120.00 | _ | 120.00 | |
| 7 | Un tied portion | Facilities FB (CC/TL/OD)Proposed | 22.47 | _ | 22.47 | |
| 8 | Yes Bank | Working Capital Term LoanOut-standing | 12.00 | _ | 12.00 | |
| 9 | Yes Bank | Working Capital Demand LoanSanctioned | 50.00 | _ | 50.00 | |
| Sub-Limit (ILC/FLC/BG) Sanctioned | (50.00) | |||||
| Total | 282.00 | 80.00 | 362.00 | |||
| TOTAL (Rupees Three Hundred Sixty Two Crores Only) | ||||||
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