Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 706.50 Crs. of Elecon Engineering Company Ltd.
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (21 Sep 2021) |
Present | ||
Fund Based | 235.50 | 207.50 | Long Term |
BWR A- /Stable
Reaffirmation |
BWR A
/Stable Upgrade |
Non Fund Based | 499.00 | 499.00 | Long Term |
BWR A-/Stable
Reaffirmation |
BWR A
/Stable Upgrade |
Grand Total | 734.50 | 706.50 | (Rupees Seven Hundred Six Crores and Fifty lakhs Only) |
Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Elecon Engineering Company Ltd (EECL or "The Company"). The upgrade takes into account EECL’s improvement in the profitability margins, substantial reduction in debt over the past three years, significant reduction in contingent liabilities, comfortable and improving capital structure, healthy cash flow generation, sustained and significant reduction in the Material Handling Equipment (MHE) division debtors, and adequate liquidity in the form of unencumbered cash and bank balances, along with unused bank lines.
KEY RATING DRIVERSCredit Strengths:
On a consolidated basis, EECL’s Operating Earnings before Interest, Tax, Depreciation, and Amortization (Op. EBITDA) margins have improved significantly to 20.98% in FY22 (FY21: 18.10%) and net margins have also improved significantly to 11.64% in FY22 (FY21: 5.49%). Similarly, on a Standalone basis, Elecon’s Op. EBITDA margins have improved to 21.53% in FY22 (FY21: 18.19%) and the net margins have improved significantly to 10.75%. (FY21: 4.55%) This is mainly on account of the increased share of the Transmission Equipment (TE) division from 67.81% in FY18 to 88.70% in FY22 in the total operating income and the reduction of the operating losses at the MHE division.
On a consolidated basis, EECL’s debt level was reduced from Rs. 590.48 Crs. in FY18 to Rs. 132.44 Crs in FY22. The reduction in debt (mainly from internal accruals) was on account of the prepayment of the NCD worth Rs 97.14 Crs. in August 2021 and the prepayment of debt by Radicon Transmission UK totaling Rs 99.8 Crs. in December 2021. The prepayment of the high-cost NCD (Coupon rate 14.5% to 17.5%) has helped the company lower its finance cost and has further strengthened its financial risk profile, as reflected in the strong coverage ratios. On a consolidated basis, the company’s ISCR has improved from 3.13x in FY21 to 6.64x in FY22, and the DSCR from 2.16x in FY21 to 2.96x in FY22. The company has confirmed that there are no plans for any new debt-funded capex in the next 2-3 years.
On a consolidated basis, EECL’s contingent liabilities in FY22 have been reduced to Rs. 170.87 Crs. (FY21 Rs. 542.36 Crs.), which is 18.39% (FY21: 68.29%) of the Tangible Networth. The higher contingent liabilities were mainly on account of the corporate guarantees provided to overseas subsidiaries FY21: Rs. 374.7 Crs (FY20: Rs. 355.08 Crs.) The company has repaid the loan outstanding against these corporate guarantees from its internal cash accruals and thus, the guarantees have been released.
On a consolidated basis, EECL’s free cash flow (FCF) has seen significant growth from Rs. 19 Crs in FY18 to Rs. 238.2 Crs. in FY22, thus enabling EECL more flexibility in its working capital requirements and bringing down its total debt. The FCF generation capacity is likely to be enhanced, going forward, as EECL has been bringing down its operating losses in the MHE division. The average fund-based limit utilisation has been at 58% in the past 4 months ending April 2022. EECL has a scheduled principal repayment obligation of Rs 6.1 Crs. in FY23 towards a term loan facility of Rs 35 Crs. from Bajaj Finance, which can be easily met through internal accruals.
The consolidated gross receivables, which were as high as 50% of consolidated Net Sales in FY21, have reduced to 35% in FY22. The receivable days over the last year have shown an improvement from FY21:197 days to FY22:141 days. Furthermore, the company has completed all the legacy projects from the MHE division, which historically led to higher receivables days. The company is confident of receiving approximately 100 Crs. by FY23 from these projects.
The company’s operations are working-capital-intensive in nature, driven by elongated inventory levels and stretched receivables. A significant portion of the receivables is retention money, which is maintained with customers when the company’s products are used in major projects, and the payment of the same is held up until project completion. While EECL’s receivables have reduced as of FY22; the realisation of the remaining old receivables remains a key rating sensitivity, going forward.
The MHE division, which is dependent mainly on the thermal power sector to provide turnkey project services, has been making losses for the last five years ended FY22. Delays in project execution, lengthy working capital cycles, and headwinds in the thermal power sector have led the company to register losses continuously. BWR understands from the management that due to a change in the business model, EECL has stopped accepting large orders and turnkey projects, and is now concentrating only on the supply of MHE and their spares, which has resulted in the improved performance of the MHE division from FY22 onwards. Due to the turnaround efforts, the MHE division's PBIT losses have substantially reduced from FY21: -36.22% to FY22: -0.47%.
For arriving at its ratings, BWR has assessed the consolidated and standalone financials of EECL, audited quarterly results till Q4FY22, public information, and information/clarification received from the company. BWR has applied its rating methodology as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Positive: A sustained improvement in revenue, the sustenance of key financial metrics, and an improvement in receivables and in the MHE division's performance shall result in a positive rating action.
Negative: Any debt-funded expansion adversely affecting the credit profile, a deterioration in revenue and/or financial metrics, the non-realization of receivables as projected and a further stretch in the working capital cycle would result in a negative rating action.
LIQUIDITY INDICATORS - Adequate
The average fund-based limit utilisation has been 58% in the past 4 months ended April 2022. For FY23, the expected NCA is Rs. 65 crores, and Rs 6.1 crores is the fixed repayment obligation. As of 31 March 2022, EECL on a consolidated basis had Rs.76.4 Crs. unencumbered cash and bank balance. The company also had Rs.27.15 Crs. as deposits with banks earmarked as margin money.
ABOUT THE ENTITYElecon Engineering Company Limited manufactures and sells power transmission and material handling equipment in India and internationally. The company operates in two segments: Material Handling Equipment and Transmission Equipment. It offers helical and bevel helical, planetary, worm, high speed, wind turbine, marine, and custom-built gearboxes; customised gearboxes; vertical roller mill drives; and align geared, elflex flexible couplings, fluid, scoop controlled variable speed controlled fluid, and torsion shaft couplings.
The company also provides material handling equipment, such as raw material handling systems, stackers, reclaimers, bagging and weighing machines, wagon and truck loaders, crushers, wagon tipplers, feeders, idlers and pulleys, magnates/weighers/detectors, port equipment, and cable reeling drums; and alternate energy products. In addition, it engages in the steel and non-ferrous foundry business. Furthermore, the company offers gearbox repair and refurbish services; and material handling equipment support services. It serves cement, sugar, steel, power, plastic, material handling, chemical, palm oil, crane, elevator, paper, rubber, marine, mining, and fertilizser industries, as well as ports.
The company was founded in 1951 and is based in Vallabh Vidyanagar, India.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 21-22 (Audited) |
FY 20-21 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 884.42 | 796.36 |
EBITDA | Rs.Crs. | 190.41 | 144.87 |
PAT | Rs.Crs. | 95.52 | 36.26 |
Tangible Net Worth | Rs.Crs. | 905.67 | 816.37 |
Total Debt/Tangible Net Worth | Times | 0.12 | 0.30 |
Current Ratio | Times | 1.47 | 1.29 |
Key Parameters | Units |
FY 21-22 (Audited) |
FY 20-21 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 1203.55 | 1044.71 |
EBITDA | Rs.Crs. | 252.96 | 189.12 |
PAT | Rs.Crs. | 140.49 | 57.63 |
Tangible Net Worth | Rs.Crs. | 929.26 | 794.15 |
Total Debt/Tangible Net Worth | Times | 0.14 | 0.40 |
Current Ratio | Times | 1.64 | 1.35 |
Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 207.50 |
BWR A/Stable
(Upgrade) |
21Sep2021 |
BWR A- Stable
(Reaffirmation) |
18Dec2020 |
BWR A- Negative
(Reaffirmation) |
19Dec2019 |
BWR A-Negative
(Reaffirmation) |
Non Fund Based | LT | 499.00 |
BWR A/Stable
(Upgrade) |
21Sep2021 |
BWR A-/Stable
(Reaffirmation) |
18Dec2020 |
BWR A-
(Reaffirmation) |
19Dec2019 |
BWR A-
(Reaffirmation) |
Grand Total | 706.50 | (Rupees Seven Hundred Six Crores and Fifty 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 | |
---|---|
Sagar Harendra Desai Ratings Analyst sagar.d@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 | Axis Bank Ltd. | Cash CreditSanctioned | 24.00 | _ | 24.00 | |
2 | Axis Bank Ltd. | BG/LC/ILCSanctioned | 46.00 | _ | 46.00 | |
3 | Bank of Baroda | BG/LC/ILCSanctioned | 172.00 | _ | 172.00 | |
4 | Bank of Baroda | Cash CreditSanctioned | 26.50 | _ | 26.50 | |
5 | HDFC Bank | Cash CreditSanctioned | 38.00 | _ | 38.00 | |
6 | IDBI Bank | Cash CreditSanctioned | 27.00 | _ | 27.00 | |
7 | IDBI Bank | BG/LC/ILCSanctioned | 43.00 | _ | 43.00 | |
8 | State Bank Of India (SBI) | BG/LC/ILCSanctioned | 238.00 | _ | 238.00 | |
9 | State Bank Of India (SBI) | Cash CreditSanctioned | 92.00 | _ | 92.00 | |
Total | 706.50 | 0.00 | 706.50 | |||
TOTAL (Rupees Seven Hundred Six Crores and Fifty lakhs Only) |
Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate (%) | Maturity Date | ISIN Particulars |
---|---|---|---|---|---|
NA | 0 | NA | NA |
Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
---|---|---|---|
Radicon Transmission UK Limited | 100 | 100% | Wholly Owned Subsidiary |
Elecon Singapore Pte. Limited | 100 | 100% | Wholly Owned Subsidiary |
Elecon Middle East FZE | 100 | 100% | Wholly Owned Subsidiary |
Benzlers Systems AB | 100 | 100% | Wholly-Owned step-down subsidiaries |
AB Benzlers | 100 | 100% | Wholly-Owned step-down subsidiaries |
Radicon Drive Systems, Inc. | 100 | 100% | Wholly-Owned step-down subsidiaries |
Benzler Transmission A.S. | 100 | 100% | Wholly-Owned step-down subsidiaries |
Benzler Antriebstechnik G.m.b.h | 100 | 100% | Wholly-Owned step-down subsidiaries |
Benzler TBA B.V. | 100 | 100% | Wholly-Owned step-down subsidiaries |
OY Benzler AB | 100 | 100% | Wholly-Owned step-down subsidiaries |
Benzlers Italia s.r.l. | 100 | 100% | Wholly-Owned step-down subsidiaries |
Eimco (Eiecon) India Limited | 16.62 | 16.62% | Associate |
Elecon Eng. (Suzhou) Co. Limited | 50 | 50% | Associate: The Holding Company is in process of seeking RBI approval for liquidating the entity. |
Elecon Australia Pty. Limited | 50 | 50% | Associate: The Holding Company is in process of seeking RBI approval for liquidating the entity. |
Elecon Africa Pty. Limited | 50 | 50% | Associate: The Holding Company is in process of seeking RBI approval for liquidating the entity. |
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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 11,541 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.
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