| Aarvi Encon Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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; formerly, Aarvi Encon Pvt Ltd [AEPL])
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.
Performance in fiscal 2021 was moderately impacted by pandemic related disruptions, Revenue declined by 7.47% in fiscal 2021 with moderate operating margin of 4.8%. Revenue is expected to be better than pre-pandemic levels in fiscal 2022 onwards on the back improved economic conditions and sustained demand from clients; sustaining overall business risk profile. |
Analytical Approach: For arriving at the ratings CRISIL 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.
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:
AEL commenced operations from 1987, and is currently being managed by the promoter, Mr Virendra Sanghavi, and his son, Mr Jaydev Sanghavi, both chemical engineers. The nearly four-decade-long experience of the promoter has led to a healthy relationship with customers. The group has established itself as a reliable player in the manpower supply industry, leading to sustained business risk profile aided by a diversified end-user profile and repeated contracts from existing customers. Customers include Vedanta Ltd ('CRISIL AA-/Stable/CRISIL A1+') Reliance Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'), and Gujarat Gas Ltd ('CRISIL AA+/Stable). An extensive network of over 60,000 qualified and experienced candidates and data base of over 7 lakh resumes, ensures timely supply of quality manpower and should help sustain growth over the medium term.
The capital structure is comfortable with an adjusted networth and total outside liabilities to adjusted networth ratio of Rs 84.7 crore and 0.4 time, respectively, as on March 31, 2021. Debt protection metrics were healthy, as reflected in the interest coverage and net cash accrual to adjusted debt ratios of 15.9 times and 2.8 time, respectively, for fiscal 2021. The financial risk profile is expected to remain at a similar level over the medium term, backed by steady accretion to reserves and absence of any large debt funded capex/acquisition.
Weaknesses:
Around 60% of revenue comes from the oil & gas and refineries. Contribution from this sector is expected to reduce and the share of renewable energy and information technology is expected to increase over the medium term. Nevertheless, with the oil and gas sector likely to contribute 50-60% of revenue, growth in revenue and improvement in profitability will remain susceptible to cyclicality in this sector.
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. The operating margin was thus moderate at 4.8% in fiscal 2021 and is expected to remain at 4.5-5% over the medium term. |
Liquidity: Adequate Net cash accrual is expected at Rs 8-10 crore, against marginal debt obligations over the medium term. The fund-based limit of Rs 29.50 crore was utilised at an average of 7.4% during the 6 months through July 2021. No major capital expenditure is expected over the medium term. Unencumbered liquid deposits of Rs 12 crore currently, along with regular debtor realisation should support liquidity over medium term. The current ratio is estimated at around 2.6 times as on March 31, 2021. |
Outlook: Stable CRISIL believes the group will continue to benefit from an established market position and improved financial flexibility |
Rating sensitivity factors Upward 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
*Consolidated numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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 | ||
| Facility | Amount (Rs.Crore) | Rating |
| Bank Guarantee | 10 | CRISIL A3+ |
| Cash Credit | 12.5 | CRISIL BBB/Stable |
| Cash Credit | 15 | CRISIL BBB/Stable |
| Cash Credit | 2 | CRISIL BBB/Stable |
Criteria Details
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