Unitech Power Transmission Ltd

Brickwork Ratings downgrades the ratings for the Bank Loan Facilities of Rs. 250.00 Crs. of Unitech Power Transmission Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (23 Mar 2021)	Present
Fund Based	30.00	30.00	Long Term	BWR BBB(Stable) Reaffirmation	BWR BBB - /Stable Downgrade
Non Fund Based	220.00	220.00	Short Term	BWR A3+ Reaffirmation	BWR A3 Downgrade
Grand Total	250.00	250.00	(Rupees Two Hundred Fifty 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

BWR has downgraded the long term and short term rating to BWR BBB-/Stable/BWR A3 of Unitech Power transmission Limited (UPTL ). The rating downgrade is due to declining trend in Operating profit and net profit in last two fiscal years ending FY 22 . The declining trend in FY 22 is driven by twin impact of Delta variant of Covid-19 pandemic and Russia – Ukraine war leading to increase in commodity/raw material prices in FY 22 leading to deterioration in overall credit /financial risk profile. Further there is no clarity on potential change in shareholding pattern of Unitech Power Transmission Limited against earlier expectation of transfer of UPTL’s entire share capital to Sterling & Wilson Pvt Ltd ( a Shapoorji Pallonji group company) by Q1 FY22. The developments will be monitored by BWR to assess the impact on UPTL’s credit profile. The company might explore options with other investors also as this deal does not materialize.

The ratings factors inter alia the extensive experience of promoters of the company, established operational track record of the company, relationship with customers and suppliers, comfortable order book position of the company and consistent operating income over the years The rating is however, constrained by declining trend in profitability indicators and overall debt protection metrics, customer and supplier concentration risk and tender-based nature of business. BWR also notes that due to supply chain bottlenecks arising from Delta Variant of Covid-19 Pandemic and elevated commodity prices in FY 22, there were delays /time over run of major projects in range of 7-19 months . However UPTL has also filed for claims towards prolongation cost in range of Rs 32.13 Crs from few customers as UPTL had to incur these expenses because of Right of way obstruction issues which are in customer scope .This will be potential business income in the year of receipt as all the expenses incurred are already charged to expense account in respective years.

The outlook is stable due to a comfortable order book position of ~ Rs 417 Crs which provides revenue visibility in near term.

KEY RATING DRIVERS

Credit Strengths:

Extensive experience of Management and established track record of company :
The Directors have extensive experience of more than decade in the industry due to which they are able to build relationships with customers and suppliers and the company has an established operational track record for more than two decades
Comfortable order book position :
FY 23 outlook is supported by confirmed unexecuted order book position of around Rs 417 Crs as on 01 April 2022 which provides revenue visibility in medium term. There is constant flow of orders in the company which can be seen that company has got orders of more than Rs 335 Crs during FY 21-22 from various Government organizations like Powergrid Corporation Private Limited, Uttar Pradesh Power Transmission Company Private Limited, Madhya Pradesh Power Transmission Company Private Limited and from Sterlite Power Grid Ventures Limited. The impact of Covid-19 in terms of delays in receiving orders has reversed to a large extent with normalization of business activities and ongoing vaccination drive.
Consistent Operating income over the years and gearing position :
The company’s operating income decreased to Rs 328.66 Crs in FY 21 compared to Rs 342.99 Crs in FY 20 due to COVID-19 Pandemic, however Operating income increased to Rs 334.27 Crs in FY 22. Tangible Net Worth stood at Rs 107.86 Crs in FY 21 compared to Rs 103.98 Crs in FY 20 due to plough back of profits over the years due to which company’s gearing position is comfortable as Total Debt / TNW stood at 0.16 x in FY 21 compared to 0.25 x in FY 20 and Total Debt / TNW further stood at 0.27 x in FY 22.

Credit Risks:

Declining trend in profitability indicators and debt Protection metrics :

Due to the twin problems of Covid -19 pandemic , Russia and Ukraine war leading to increase in commodity prices , there is a declining trend in profitability indicators in the last two fiscal years. Operating Profit of the company declined to Rs 17.77 Crs in FY 21 as compared to Rs 22.37 Crs in FY 20 . Operating profit further declined to Rs 8.50 Crs in FY 22. The company’s PAT declined to Rs 3.54 Crs in FY 21 compared to Rs 7.43 Crs in FY 20 . PAT Further declined to Rs (4.23 Crs ) in FY 22 provisional as compared to Rs 3.54 Crs in FY 21. UPTL’s operating and net profit margins are thin due to the nature of industry. The company’s operating profit margin deteriorated to 5.40 % in FY21 from 6.52 % in FY 20. Operating profit further declined to 2.54 % in FY 22 . Net profit margin declined to 1.07 % in FY 21 as compared to 2.17 % in FY 20. Net profit margin further declined to (-1.26 % ) in FY 22 . The main reason for declining trend in Operating profit margin in last two fiscal years ending FY22 is that raw material cost in value terms as % of Total Operating income increased to 59 % in FY 21 as compared to 52 % in FY 20 . It further increased to ~63 % in FY 22. Due to declining trend in Operating profit in last two fiscal years , there is decline in overall debt protection metrics of company as ISCR declined to 1.44 x in FY 21 as compared to 1.74 x in FY 20 and ISCR declined to 0.73 x in FY 22.
Customer and supplier concentration risk :

The company has a strong order book but there is customer and supplier concentration risk as 50% of sales and purchases are derived from the top five customers and suppliers. This is partially offset as the company has a long term relationship with customers and suppliers.
Tender Based nature of Business :

The company procures business by participating in tenders floated by PSUs such as Power Grid, Uttar Pradesh Power Corporation Limited etc . Since the business is tender based it leads to stiff competition vis-a-vis. lower margins. However this risk is mitigated by fact that company over the years have diversified into manufacturing division located at Nagpur with a manufacturing capacity of 40000 MT and contributes ~46 % of overall turnover in FY 21 .Also Company is trying to diversifying its customer base to private players such as Adani Green Energy Limited ,Sterlite Power Grid Ventures Limited etc over the years.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the rating criteria below (hyperlinks provided at the end of this rationale)

RATING SENSITIVITIES

Positive: BWR may revise the ratings upward if there is a sustained improvement in UPTL’s credit profile, with the ability to achieve optimal capacity utilizations in the manufacturing segment and margins over the medium term.

Negative: BWR may revise the ratings downwards if there is a sustained deterioration in the company’s EBITDA , debt protection metrics and/or a stretch in its working capital/liquidity.

LIQUIDITY INDICATORS - Adequate

Current ratio is comfortable at 1.42x in FY 21. Working capital utilization for the last six months ending May 2022 is 90% for Cash Credit Limits . Working capital utilization for LC Limits is 100 % and for Bank Guarantee Limits is 66 %. Company registered cash accruals of Rs 6.58 Crs in FY 21 against Nil long term debt. Company registered Cash accruals of Rs (1.17 Crs ) against Nil Long term debt in FY 22 . Payment of Interest expenses in FY22 is done from improvement in receivables position by Rs 23 Crs in FY 22. Cash accruals are expected around Rs 6.7 Crs in FY 23 against no long-term debt repayment. Due to elongated trade payable days company does not have a stretched cash conversion cycle . Further the company reported free Cash and cash equivalents of Rs 0.39 Crs in FY 21 and Rs 6.64 Crs in FY 22 .

ABOUT THE ENTITY

Unitech Power Transmission Ltd (UPTL) was incorporated in September 1995 as Hyundai Unitech Electrical Transmission Ltd, a Joint Venture between Unitech Ltd and Hyundai Korea. Hyundai Korea exited the JV in 2004 and Unitech Ltd acquired 100% shares of the company. The company is an EPC contractor involved in power lines and telecommunication infrastructure The company has its manufacturing facility located at Nagpur with a manufacturing capacity of 45000 MT. The company has executed various projects in the turnkey area, tower supplied projects, telecommunication, green power, power transmission lines. It is an an ISO 14001:2004 and 9001:2008 certified company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	328.86	342.99
EBITDA	Rs.Crs.	17.77	22.37
PAT	Rs.Crs.	3.54	7.43
Tangible Net Worth	Rs.Crs.	107.86	103.98
Total Debt/Tangible Net Worth	Times	0.16	0.25
Current Ratio	Times	1.39	1.43

KEY COVENANTS OF THE FACILITY RATED

Not applicable

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not applicable

ANY OTHER INFORMATION

Not applicable

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	30.00	BWR BBB-/Stable (Downgrade)	23Mar2021	BWR BBB(Stable) (Reaffirmation)	14Jan2020	BWR BBB (Stable) (Upgrade)	NA	NA
Non Fund Based	ST	220.00	BWR A3 (Downgrade)	23Mar2021	BWR A3+ (Reaffirmation)	14Jan2020	BWR A3+ (Upgrade)	NA	NA
Grand Total		250.00	(Rupees Two Hundred Fifty 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.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Karan Ahluwalia Senior Rating Analyst Board : +91 11 2341 2232 karan.a@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Unitech Power Transmission 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	Canara Bank	Cash Credit - Sanctioned	15.00	_	15.00
2	Canara Bank	Bank Guarantee - Sanctioned	_	115.00	115.00
3	Canara Bank	Letter of Credit - Sanctioned	_	18.00	18.00
4	Punjab National Bank	Letter of Credit - Sanctioned	_	17.00	17.00
5	Punjab National Bank	Bank Guarantee - Sanctioned	_	70.00	70.00
6	Punjab National Bank	Cash Credit - Sanctioned	15.00	_	15.00
Total			30.00	220.00	250.00
TOTAL (Rupees Two Hundred Fifty Crores Only)

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