TVS Electronics Ltd.

Brickwork Ratings reaffirms the ratings with a revision in the outlook for the Bank Loan Facilities of Rs. 46.00 Cr of TVS Electronics Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (23 Jun 2021)	Present
Fund Based	25.00	25.00	Long Term	BWR A- /Stable Reaffirmation	BWR A - /Stable to Positive Reaffirmation and change in Outlook
Non Fund Based	21.00	21.00	Short Term	BWR A2+ Reaffirmation	BWR A2 + Reaffirmation
Non Fund Based	(10.00)	(10.00)	Short Term	BWR A2+ Reaffirmation	BWR A2 + Reaffirmation
Grand Total	46.00	46.00	(Rupees Forty Six 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

The revision in outlook for TVS Electronics Limited (TVSE or the company) factors the sustained improvement and better than envisaged year-to-date business and financial profile after a stable performance in FY21, despite the Covid-induced disruptions mostly during Q1FY21. Brickwork Ratings (BWR) believes that the business and financial profile shall continue to be maintained over the medium term. Improvement in business performance is reflected in significant growth in revenue and EBIDTA margin to Rs.219.50 Cr and ~8.50% respectively in the 9MFY22 as against Rs.152.24 Crs and ~0.6% respectively for the corresponding period of the previous fiscal. The margins are better than the pre-covid levels and are largely supported by better demand and diversified folio aided by new product lines offering improved margins. Also, the profitability metrics are expected to be sustained at the present levels. The rating action also factors in the stable capital structure which has been maintained at comfortable levels with an almost zero-debt position and the improved liquidity position.

The ratings continue to draw strength from the strong parentage and brand equity of TVS, experienced and professional management and robust financial and risk management practices and growing market demand for newly introduced products coupled with the company’s plans to further diversify its revenue streams. The rating strengths remain constrained by the exposure to intense industry competition, technological obsolescence, and forex risks.

The outlook may be revised downwards with lower-than-expected revenue/cash accruals or deterioration in profitability/debt indicators and/or significant increase in the operating cycle, and/or a deterioration in the capital structure due to debt-financed capital expenditure, thus weakening the company’s financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established market position :
TVSE has an operational track record of over three decades and has been a part of the TVS family, an established and reputed business group. The company has an experienced and professional management team and the robust internal control and risk management systems of the company are expected to mitigate possible risks on price movements and technological obsolescence. TVSE has demonstrated the management's agility and awareness through the addition of new products that are in demand. The company is expected to continue to explore fresh opportunities.
Long-term agreements with reputed brands :
The company has entered long-term agreements with various leading mobile phone and laptop brands for its service and distribution networks. This gives revenue visibility for their services and distribution businesses. The company has recently onboarded a marquee brand in the audio and lifestyle segment to its clientele.
Consistent performance of products and services segments :
The products and technical services business lines have been delivering consistent revenue growth and margin improvement. During 9MFY22, the product and solution division of the company contributed ~68% of the total revenue followed by customer and support services contributing ~32%. During FY21, TVSE extended its product lines with the launch of products including surveillance cameras & recorders, web cameras, mobile printers, and cash counters. Reportedly, the fresh products have good demand in the market. Currently, the Customer Support Services business vertical looks after installations and technical service calls for over 25 brand partners, covering more than 15,000+ pin codes across India, with a very wide array of electronic product categories. TVSE has its service footprint across more than 427 districts in India for onsite services and a retail network for customer walk-in services to 200 centres. TVSE has also forayed into e-waste management by setting up the new repair facility in Tumkur (Karnataka) and leveraging it to carry out L3-L4 repairs and e-refurbishment. TVSE forayed into audio and lifestyle products for providing repair and maintenance services. TVSE aims to enhance its focus on B2C services by launching value-added services directly to the end consumer under the name TVS-E Assure.
Business plans and new initiatives :
As a part of various government initiatives such as Make in India and National Policy on Electronics 2019 (NPE 2019), the company plans to increase the tie-up with OEMs for the expansion of both products and services. TVSE plans to bring in new products and solutions to cater to the evolving needs of the retail and e-commerce segments. TVS-E also plans to strengthen the POS system and scanner products portfolio, handheld devices, gaming keyboard, weighing scale, and their related solutions for manufacturing, shipping logistics, and warehousing. In addition, projects are being signed up with leading brands for IT Infrastructure Management Services. TVSE has started to explore new opportunities in the electric vehicles market segment for providing installation, repair, and maintenance services. Additionally, TVSE plans to explore opportunities for providing break-fix and maintenance services for power products eyeing the UPS market. Additionally, the company aims to bring in more regional repair centres, aiming to reduce the company's logistics and transportation costs alongside ensuring faster customer service.
Stable financial risk profile :
The company has achieved a total operating income of Rs.224.60 Cr in FY21 as against Rs.258.72 Cr in FY20. The company's top line of ~Rs.220 Cr for 9MFY22 registered a growth of ~45% on a YoY basis. The EBITDA and PAT were Rs.8.55 Cr and Rs.0.77 Cr respectively for FY21. Margins have significantly improved during 9MFY22, as marked by the EBITDA and PAT of Rs.18.59 Crs and Rs.10.61 Crs respectively. The company’s financial risk profile continues to be comfortable, marked by comfortable debt protection metrics and low gearing levels. The ISCR was comfortable at 4.50 times for FY21 and the company does not have term loan borrowings. The tangible networth (TNW) was Rs.63.79 Cr as on 31 March 2021. Considering the intangible assets in the form of business rights related to the servicetec business, having an indefinite useful life, with a carrying value of Rs.15.18 Cr as on 31 March 2021 as part of the networth, the adjusted TNW was Rs.78.97 Cr as on 31 March 2021. The total debt/TNW and TOL/TNW continue to remain healthy, at 0.06 times and 1.38 times, respectively as on 31 March 2021 and 0.04 times and 1.48 times as on 30 Sep 2021.

Credit Risks:

Intense competition :
The company operates in an intensely competitive and fragmented electronics industry. The company's revenue stream is vulnerable to a certain extent to periodic, regular renewal of its agreements with various clients. However, TVSE benefits on account of its strong brand presence and long-term relation with reputed clients.
Exposure to technological obsolescence and forex risks :
The company deals in technology-related products and services, which requires frequent upgradation and calls for additional investment. A significant portion of purchases is through imports, resulting in margin susceptibility to forex fluctuations. However, such risks are mitigated to an extent by the hedging policy of the company.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale). The company does not have subsidiaries.

RATING SENSITIVITIES

The company's ability to successfully stabilise its fresh business initiatives, improve its revenue and profitability through the newly added products and strengthen its business profile would be key rating sensitivities.

Upward

Substantial growth in revenue and profitability, strengthening the financial risk profile
Stabilisation of new product lines with an increased scale of operations resulting in higher contribution to revenue and profitability on a sustained basis

Downward

Deterioration in key credit metrics owing to pressure on operating profits due to competition, sharp rise in receivables levels, or fresh capex.
Specific credit metrics which may result in a downward rating action include Total Debt/TNW exceeding 2 times, DSCR declining to below unity, and ISCR below 2 times on a sustained basis.

LIQUIDITY INDICATORS - Adequate

The company’s liquidity position is adequate, as seen in the average working capital utilisation of below 50% during the last 12 months. Cash and cash equivalents were around Rs.15 Crs as on 30 September 2021 (including the fixed deposits and mutual fund). The cash balance has further improved as on 31 December 2021, on a provisional basis, backed by the improved margins and the company's effective working capital management with various initiatives like advance collections, extending credits for imports through buyer’s credit, etc. The Current Ratio was 1.32 times, and Net Cash Accruals/Total Debt was 5.86 times as on 30 Sep 2021. The EBITDA is sufficient to cover interest and finance charges. The company does not have long-term borrowings as on date.

ABOUT THE ENTITY

TVS Electronics Limited (TVSE), Chennai, founded in 1986 as an IT peripheral manufacturer is now a leading transaction automation IT product manufacturer and service provider. TVSE has its production/repair facilities at Dehradun (Uttarakhand), Chennai (TN), and Tumkur (Karnataka). The company is listed on the BSE and NSE. TVSE’s business consists of two revenue segments, viz., (a) Products & Solutions and (b) Customer Support Services. The products cater to seven broad sectors, viz., Retail – SME, Government, BFSI, Hospitality, Healthcare, E-commerce and Transport, Large Format Retail (LFR) Stores and Quick Service Restaurants (QSR).

Mr. Gopal Srinivasan is the Chairman and Mrs.Srilalitha Gopal is the Managing Director of the company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	224.60	258.72
EBITDA	Rs.Crs.	8.55	10.91
PAT	Rs.Crs.	0.77	0.39
Tangible Net Worth	Rs.Crs.	63.79	63.90
Total Debt/Tangible Net Worth	Times	0.06	0.32
Current Ratio	Times	1.28	1.21

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

N.A.

ANY OTHER INFORMATION

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	25.00	BWR A-/Stable to Positive (Reaffirmation and change in Outlook)	23Jun2021	BWR A- Stable (Reaffirmation)	19Jun2020	BWR A- Stable (Reaffirmation)	02May2019	BWR A- Stable (Upgrade)
Non Fund Based	ST	21.00	BWR A2+ (Reaffirmation)	23Jun2021	BWR A2+ (Reaffirmation)	19Jun2020	BWR A2+ (Reaffirmation)	02May2019	BWR A2+ (Upgrade)
NFB SubLimit	ST	(10.00)	BWR A2+ (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		46.00	(Rupees Forty Six 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
Naveen S Manager - Ratings Board : +91 80 4040 9940 naveen.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

TVS Electronics 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	IDFC First Bank Limited	Cash Credit - Sanctioned	15.00	_	15.00
2	IDFC First Bank Limited	ILC/FLC/BG - Sanctioned	_	20.00	20.00
3	RBL Bank	Cash Credit - Sanctioned	10.00	_	10.00
	Sub-Limit (BG/LC) - Sanctioned		(10.00)
4	RBL Bank	Credit Exposure Limit (CEL) - Sanctioned	_	1.00	1.00
Total			25.00	21.00	46.00
TOTAL (Rupees Forty Six Crores Only)

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