Key Rating Drivers & Detailed Description

Strengths

• Extensive experience of the promoters: Presence of more than 31 years in the transformer manufacturing segment has enabled the promoters to deliver quality products and hence establish strong relationship with customers. The groups operations are also partly backward integrated with manufacturing of cold-rolled grain-oriented (CRGO) lamination at Amod – a leading manufacturer of CRGO laminations in region. Experience of the promoters and integrated operations are likely to support business risk profile over the medium term

• Moderate financial risk profile of the group: Networth increased to Rs.147.2 crore as on March 31, 2020 from Rs.122.6 crore a year ago on account of moderate accretion to reserve. Capital structure has continues to remain moderate with total outside liability to adjusted networth ratio (TOLANW) at 2.5 times, largely on account of increase in creditors in March. Gearing, at 0.9 time as on March 31, 2020, is broadly in-line with expectations. Capital structure is expected to further improve over the medium term backed by moderate accretion and absence of any large debt funded capex.

Debt protection metrics were average with interest cover of 1.9  times and net cash accrual to total debt of 0.2 time for fiscal 2020, likely to be sustained in fiscal 2021 despite pandemic related disruption. Over the medium term, debt protection metrics are expected to improve to around over 2 times

Weaknesses

• Large working capital requirement: Group’s gross current assets (GCAs) were 233 days as on March 31, 2020 driven by debtors and inventory of 161 & 89 days respectively (GCA of 238 days as on March 31 2019, driven by debtor days of 150). Receivables cycle has elongated in fiscal 2021 with significant increase in debtors above six months, largely from Government agencies; the same is expected to moderate over the coming quarters and remain a key monitorable. Overall working capital cycle is expected to improve over medium term

• Susceptibility to risks related to tender-based business and intense competition: Majority of business is derived from state electricity boards, which exposes the turnover to any variation in the number or size of orders. Also, since entire sales is tender-based, income depends on the ability to bid successfully, as reflected in volatile scale of operations and operating margins.

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