Centum Electronics Limited

Rating outlook revised to 'Positive'; ratings reaffirmed

Total Bank Loan Facilities Rated Rs.830 Million Long Term Rating CRISIL BBB+/Positive (Outlook revised from 'Stable' and rating reaffirmed) Short Term Rating CRISIL A2 (Reaffirmed)

(Refer to Annexure 1 for Facility-wise details)

CRISIL has revised its rating outlook on the long-term bank facilities of Centum Electronics Ltd (Centum; part of the Centum group) to 'Positive' from 'Stable', while reaffirming the ratings at 'CRISIL BBB+/CRISIL A2'.
 
The outlook revision reflects CRISIL's belief that Centum group will sustain its improved scale of operations while maintaining its profitability over the medium term, supported by its healthy order book and continued improvement in operating efficiencies. Consequently, the group is also expected to generate increased cash accruals over the medium term resulting in a strengthened financial risk profile. Centum group, on a provisional basis, reported revenues of Rs.2.07 billion for the six months through September 2013, and has a healthy order book to be executed over the next 15 months. The order book is backed by an increase in orders from new customers and continued offtake from existing clients.
 
CRISIL's ratings on the bank facilities of the Centum group continue to reflect the benefits that the group derives from the promoter's extensive experience and technical expertise in the electronic components industry. The ratings also factor in the group's healthy financial risk profile marked by strong debt protection metrics. These rating strengths are partially offset by customer concentration in the Centum group's revenue profile, and susceptibility of the group's business risk profile to changes in technology.
 
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Centum and its 51 per cent subsidiary, Centum Rakon India Pvt Ltd (CRIPL; rated 'CRISIL BBB/Positive/CRISIL A3+'). This is because the companies, together referred to as the Centum group, are controlled and managed by the same promoters.

CRISIL believes that Centum group's revenues will grow steadily resulting in improved cash accruals over the medium term, thereby strengthening its business risk profile. Further, its healthy financial risk profile will continue to be supported by limited debt-funded capital expenditure (capex) programmes. The ratings may be upgraded if the group sustains its healthy revenue growth, while maintaining healthy profitability and prudent working capital management. Conversely, the outlook may be revised to 'Stable' if Centum group's capital structure and liquidity moderate due to any large, debt-funded capex programme or deterioration in its working capital management, or if the group's volumes or profitability decline significantly.

Centum was set up by Mr. Apparao Mallavarapu, a first-generation entrepreneur, as a public limited company in 1993. The company manufactures modules and sub-systems, which are used in the aerospace, defence, telecommunication, and industrial electronics sectors. Centum's electronic manufacturing services division manufactures printed circuit board assemblies and operates in the repair-and-return segment. The company's 51 per cent subsidiary, CRIPL, manufactures frequency control products.
 
The Centum group reported a net profit after tax (PAT) of Rs.96.6 million on net sales of Rs.2.88 billion for 2012-13 (refers to financial year, April 1 to March 31), vis-a-vis a PAT of Rs.89.6 million on net sales of Rs.2.65 billion for 2011-12.

Annexure 1 - Details of various bank facilities

Current facilities Previous facilities Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating Bank Guarantee$ 260 CRISIL A2 Bank Guarantee** 250 CRISIL A2 Cash Credit* 310 CRISIL BBB+/Positive Bank Guarantee^ 70 CRISIL BBB+/Stable Letter of Credit@ 60 CRISIL A2 Cash Credit 130 CRISIL BBB+/Stable Packing Credit 200 CRISIL A2 Packing Credit 380 CRISIL A2 Total 830 -- Total 830 -- **with 100% inter- flexibility between Letter of Credit and Bank Guarantee. ^ Interchangeable with fund based facilities to the extent of Rs.70.00 Million * Sublimit with export packing credit / Foreign bill discounting to the extent of Rs.180.00 Million / Rs 100.00 Million. @ 50% Interchangeable between LC & BG $ 50% Interchangeable between LC & BG