Allied Digital Services Ltd.

Brickwork Ratings reviewed the ratings for the Bank Loan Facilities of Rs. 35.90 Crs. of Allied Digital Services Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (18 Mar 2021)	Present
Fund Based	32.16	30.90	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Stable Reaffirmation
Non Fund Based	0.00	5.00	Short Term	BWR A3 Assignment	BWR A3 Reaffirmation
	(5.00)	(3.75)
	(0.00)	(8.75)
Grand Total	32.16	35.90	(Rupees Thirty Five Crores and Ninety lakhs 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

Brickwork Ratings has reaffirmed the long term rating at BWR BBB-/Stable and short-term rating at BWR A3 for the Bank Loan Facilities of Rs.35.90 Crore of Allied digital Services Limited. BWR believes that Allied digital Services Limitedbusiness risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term.

BWR has essentially relied upon the audited financial statements of Allied digital Services Limited for FY19,FY20,FY21 and 9MFY22 and projections of FY22 and FY23 and publicly available information and information/clarifications provided by the company’s management.

The rating reaffirmations continue to take into account the experienced management with long track record in the IT industry, Modest scale of operations with comfortable profitability margins,comfortable capital structure and debt coverage indicators. The rating is constrained by customer concentration risk, working capital intensive nature of business and foreign currency fluctuation risk.

KEY RATING DRIVERS

Credit Strengths:

Experienced management with long track record in the IT industry :
The company has a successful track record of more than three decades in the same line of business. ADSL is spearheaded by experienced promoters who possess average experience of more than three decades. Mr.Nitin shah, Chairman and Managing Director of ADSL holds a degree in electrical engineering and a PG Diploma in computer Management with an experience of more than four decades. He is also supported by an experienced and well qualified team and highly trained field engineers. With an established track record of operation, directors of ADSL have developed strong relationships with suppliers, customers and other stakeholders in the industry.
Modest scale of operations :
The scale of operations remains modest with TOI has marginally improved and stood at Rs.96.19 crore (vis-a-vis Rs.93.79 crore as on FY20) on back of increase in sale of services during the year. Moreover, the company has achieved TOI of Rs.77.60 Crore for 9MFY22 (vis-a-vis Rs.69.89 Crore 9MFY21) with an order book of Rs.315 crore to be executed by 2026
Comfortable capital structure and debt coverage indicators :
The capital structure of ADSL remained comfortable and stagnant over last year with Total Debt/TNW at 0.12 times as on March 2021 (vis-a-vis 0.12 times as on March 2020). Total networth remained at Rs. 444.72 crore as on March 2021(vis-a-vis Rs.430.83 crore as on March 2020) with adjusted networth stood at Rs.270.84 crore as on March 2021.DSCR and ISCR remained comfortable and stood at 5.74 times and 4.44 times as on March 2021 (vis-a-vis 3.59 times and 3.44 times as on March 2020) and the same has improved over last year on back of decline in interest cost from Rs.6.99 crore to Rs.3.69 crore owing to lowing level of utilization of its working capital limits during the year.
Declining although comfortable profitability margins :
The operating profit margin remained moderate and stood in the range of 20%-35% during FY19-FY21 although the same has marginally declined and stood at 20.70% (via-a-vis 23.67% in FY20) due to increase in direct operating expenses, employee cost, legal and outsourcing expenses etc. furthermore, the PAT margin has also marginally declined and stood at 8.08% in FY21 (Vis-a-vis 8.41% in FY20).

Credit Risks:

Customer concentration risk :
The customer profile of the company is concentrated with the top 5 customers comprising ~85% of the net sales in FY21 out of which 42% of the sales is from its group company i.e. Allied Digital LLC. Majority of the revenue is from the USA and it is also exposed to risk of tender based operations, so any changes in regulation, quality standards, policy will directly affect the business. Thus revenue and profitability partially depends on the ability of the company to secure new tenders.
Highly working capital instensive nature of business :
The operations of ADSL are highly working capital intensive on account of funds being blocked in inventory and receivables which has resulted in higher gross current asset days of 798 days for FY21. Thus the inventory period stood at 223 days as the company has to maintain inventory to gauge customers demand and the collection period stood at 575 days although the company provides a credit period of 45 to 90 days. Moreover as on January 2022 the debtors outstanding stood at Rs.145.86 crore including setoff debtors Rs.32.88 crore and Rs.28.77 crore is from its subsidiary and Rs.13.64 crore from Govt of Maharashtra.
Foreign currency fluctuation risk :
The company derived about 40-45% of its overall revenues from exports, thus it is exposed to foreign currency fluctuation risk.

ANALYTICAL APPROACH - Standalone

The ratings of ADSL are arrived at on a standalone basis after independent evaluation of its financial risk profile. For arriving at its ratings, BWR has applied its rating methodology as detailed in the rating criteria hyperlinks.

RATING SENSITIVITIES

Positive: Significant growth in revenue, improvemnent in working capital cycle and overall improvement in financial performance of the Company.

Negative: Lower than expected revenues affecting the profitability margins, coverage ratios, liquidity, working capital cyscle and gearing ratios are the key negative sensitivities.

LIQUIDITY INDICATORS - Adequate

The liquidity profile of the company remained adequate with cash and bank balance of Rs.6.09 crore as on January 31, 2022 and Rs.2.93 crore as on March 2021. Its working capital utilization stood at ~59.06% for the last eight months ended January, 2022. Current ratio of the company stood at 2.91 times as on March 2021. The company has repayment of obligation of Rs.0.50 crore for FY23. Moreover, the company has net accruals stood at Rs.18.72 crore as on March 2021.

ABOUT THE ENTITY

Allied Digital Services Limited was established in 1984 under the name of Digital Data Services and was then incorporated as Allied Digital Services Private limited(ADPL) in 1995. Later in 2006, the company was converted into a Public company. The Company is listed in BSE and NSE. ADSL is engaged in designing, developing, deploying and delivering end-to-end IT Infrastructure services with IT consulting,services providers and system integrator offering the entire spectrum of infrastructure solutions and services to various across 35 countries like torrance, wilmington, dublin, london, milan, helsinki, madrid, brussels, singapore, sydney, India etc. System integrator mainly includes services like digital workspace services, digital enterprises infrastructure transformative solutions, cybersecurity services, cloud services and support to multi lingual, multi channel service desks etc.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	96.19	93.79
EBITDA	Rs.Crs.	19.91	22.20
PAT	Rs.Crs.	7.77	7.89
Tangible Net Worth	Rs.Crs.	444.72	430.83
Total Debt/Tangible Net Worth	Times	0.12	0.12
Current Ratio	Times	2.91	2.70

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Nil

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	30.90	BWR BBB-/Stable (Reaffirmation)	18Mar2021	BWR BBB- Stable (Reaffirmation)	03Mar2020	BWR BBB-Stable (Upgrade)	16Oct2019	BWR BB+Stable (Assignment)
Non Fund Based	ST	5.00	BWR A3 (Reaffirmation)	NA	NA	03Mar2020	BWR (Withdrawal)	16Oct2019	BWR A4+ (Assignment)
NFB SubLimit	ST	(3.75)	BWR A3 (Reaffirmation)	18Mar2021	BWR A3 (Assignment)	NA	NA	NA	NA
NFB SubLimit	ST	(8.75)	BWR A3 (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		35.90	(Rupees Thirty Five Crores and Ninety lakhs 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.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Durga Lalit Purohit Ratings Analyst durga.lp@brickworkratings.com	Sushil Kumar Chitkara Director - Ratings Board : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Allied Digital Services Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Barclays Bank	Working Capital Term Loan - Sanctioned	11.75	_	11.75
2	Indian Bank	Cash Credit - Sanctioned	15.00	_	15.00
	Sub-Limit (Bank Guarantee) - Sanctioned		(3.75)
	Sub-Limit (Letter of Credit) - Sanctioned		(8.75)
3	Indian Bank	Bank Guarantee - Sanctioned	_	5.00	5.00
4	Indian Bank	Term Loan - Sanctioned	1.65	_	1.65
5	Indian Bank	Term Loan - Sanctioned	2.50	_	2.50
Total			30.90	5.00	35.90
TOTAL (Rupees Thirty Five Crores and Ninety lakhs Only)

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