Key Rating Drivers & Detailed Description

Strengths:

* Extensive industry experience of the management: The operations are managed by a professional team with inputs from parent. The management team has an experience of over four decades in electrical distribution equipment industry with successful track record in domestic as well as export markets. The long standing track record, understanding of the dynamics of the markets, and established relationships with suppliers and customers should continue to support business risk profile over medium term.

* Operational support from parent: The Company benefits operationally, and in form of managerial support from the parent LTL. AESPL derives 5-10% of its revenue directly from parent while it also benefits from parent’s presence in executing projects in export markets.

Weaknesses:

* Susceptibility to tender-based operations: Revenue and profitability depend on the ability to win tenders and orders both in domestic and export markets. AESPL faces intense competition, thus requiring to bid aggressively to get contracts from various domestic and international power utilities, which restricts the operating margin to a moderate level.

Also, company’s operating performance, especially its operating profitability has been fluctuating in past (in the range of 0.9% to 8.4% over last three fiscals through fiscal 2020). Further the company recorded losses in fiscal 2018 (due to shifting of its plant) and in fiscal 2020 (due to less remunerative orders). Though performance is likely to improve in current fiscal, sustained performance at elevated level remains critical.

* Large working capital requirements:AESPL’s business model is inherently working capital intensive marked by Gross Current Assets (GCA) of 241 days as on March 31, 2020. GCA is high due to stretched debtors of 126 days. Working capital requirement will remain large over the medium term and its management of the same is a key monitorable. 

* Average financial risk profile: AESPL has average financial profile marked by gearing of 2.61 times for year ending on 31st March 2020. AESPL’s debt protection measures have also been at weak level in past due to high debt and low accruals from the operations. The interest coverage is at 0.98 times and negative net cash accrual to total debt (NCATD) for fiscal 2020. AESPL debt protection measures are expected to improve over the medium term. Sustained improvement in debt protection metrics will remain critical.

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