| Aarvi Encon Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings on the bank loan facilities of Aarvi Encon Limited (AEL; Part of Aarvi group)
The ratings continue to reflect group’s established market position in supply of technical manpower, the extensive experience of the promoters, and a healthy financial risk profile. These strengths are partially offset by susceptibility to cyclicality in key end-user industries and a modest operating margin due to intense competition. |
Analytical Approach For arriving at the ratings CRISIL Ratings has combined the business and financial risk profiles of AEL, and its wholly owned subsidiaries, Aarvi Engineering and Consultants Pvt Ltd and Aarvi Encon FZE. That’s because all three companies, together referred to as the Aarvi group, are in the same line of business and have business and financial linkages. Also, AEL has floated 1 new subsidiary namely Aarvi Encon LLC under Aarvi Enzon FZE to cater to Oman and also a direct subsidiary in UK by the name of Aarvi Encon Services which are yet to commence operations.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position and extensive experience of the promoters: Promoter’s i.e, Sanghavi family have an experience of over 5 decades in the technical and engineering manpower supply industry and have established relationships with customers. The promoters have developed a strong understanding of the industry dynamics, which has helped them successfully navigate several business cycles as well as build long standing relationships with customers. Its customers include Hindustan Petroleum Corp. Ltd. (CRISIL AAA/ Stable/CRISIL A1+), Reliance Industries Limited (CRISIL AAA/Stable), Vedanta Limited (CRISIL AA/Negative) and many others. Addition of new clients and repeat orders from existing clients are expected to support the company over medium term.
Healthy financial risk profile: Financial risk profile is healthy as reflected in networth of Rs 108 crores and total outside liabilities to tangible networth ratio sub 0.5 times, respectively, as on March 31, 2023. Debt protection metrics were comfortable, as indicated by interest coverage and net cash accrual to adjusted debt ratios of above 10 times and 3.7 times, respectively, in fiscal 2023. With no major debt funded capital expenditure (capex) to be done over medium term, the capital structure is expected to remain comfortable over the medium term. Although the financial risk profile is expected to be comfortable, any large debt or cost overruns in the planned capex would remain closely monitorable.
Weaknesses: Susceptibility to cyclicality in key end-user industries: The group’s revenue is majorly contributed from oil & gas, engineering & refineries from which around 75% of revenue is generated. However, contribution from Renewables and Information Technology sector is expected to increase over the near term. The scale of operations and profitability are susceptible to cyclicality in these industries, leading to changes in demand from these key end-user industries.
Exposure to intense competition, leading to a modest operating margin: The skilled human resource supply industry is highly fragmented due to a low entry barrier, leading to intense competition. Further, the tender-based nature of operations triggers intense price competition among players. Operating margins have been range bounded between 4-5% over past 4 years ending fiscal 2023. Which due to intense competition operating margins have been around 4.2% for fiscal 2023 and is expected to be in the same range over medium term. Company is focusing towards adding new clients which would help to improve profitability but remain key monitorable over medium term. |
Liquidity: Adequate Net cash Accruals are expected to be over Rs 14 crore with no repayment obligations over medium term. Bank limit utilisation is low as reflected in low average utilisation of 33% during the past 12 months ended in May 2023. Company has cash and cash equivalent of Rs 4.38 crore as on March 31,2023. Company has no material capex plans over the medium term |
Outlook: Stable CRISIL Ratings believes the group will continue to benefit from an established market position and improved financial flexibility. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Established in 1987 by the Sanghavi family, AEL supplies technical manpower to the oil and gas, engineering, infrastructure, and renewable energy industries. Operations are managed by Mr Virendra Sanghavi and his son, Mr. Jaydev Sanghavi |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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Criteria Details
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