Rating Rationale
November 27, 2020 | Mumbai
Avantel Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.38 Crore
Long Term Rating CRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term Rating CRISIL A3+ (Upgraded from 'CRISIL A3')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on the bank loan facilities of Avantel Limited (Avantel) to 'CRISIL BBB/Stable/CRISIL A3+' from 'CRISIL BBB-/Stable/CRISIL A3'.
 
The upgrade reflects steady improvement in the business risk profile while sustaining comfortable financial metrics. The company has an established market position in the satellite communication systems and radio frequency (RF) products market. Operating performance was significantly better than expected, supported by sustenance of a healthy operating margin. The impact of the Covid-19 pandemic was minimal and the operating performance is expected to be maintained due to unexecuted orders of Rs 173 crore as of October 2020, which provide revenue visibility over the medium term.
 
Revenue was Rs 23.6 crore in the first half of fiscal 2021 while the operating profitability margin was steady at about 32%. Revenue is likely to cross Rs 65 crore in the fiscal with fiscal-on-fiscal growth of 30%. Net cash accrual is expected to grow to Rs 14-15 crore in fiscal 2021 from Rs11.5 crore in fiscal 2020. Further, the financial risk profile continues to improve as reflected in the increasing networth base, debt-free operations and robust debt protection metrics
 
The ratings continue to reflect an established position in the satellite communication systems and RF products market, supported by the extensive experience of the promoters and established client relationships. The ratings also factor in a strong research and development (R&D) base, and a robust financial risk profile. These strengths are partially offset by a modest scale of operations, large working capital requirement, and exposure to risks inherent in a tender-based business.

Key Rating Drivers & Detailed Description
Strengths 
* Established market position, backed by the extensive experience of the promoters and healthy client relationships
The company provides customised solutions through process-oriented design and development, and manufactures wireless and satellite communication products. An established track record of over two decades in the electronics and telecom equipment business has enabled it to offer a unique combination of embedded systems and related software used in the defence sector, as well as RF systems used in the civilian telecom segment.
 
* Experienced and qualified management and strong R&D facility
The founder and managing director, Dr. A Vidyasagar, has experience of around two decades in the industry. The company derives core business strength from its in-house R&D capabilities.
 
* Healthy financial risk profile
The networth was moderate at Rs 51.6 crore, while the gearing was nil and total outside liabilities to tangible networth ratio low at 0.3 time, as on March 31, 2020. The interest coverage ratio was healthy at 19.4 times in fiscal 2020.
 
Weaknesses
* Large working capital requirement
Gross current assets were at high at 340 days as on March 31, 2020, because of moderate inventory (mainly work-in-progress) and sizeable receivables of 51 days and 187 days, respectively.
 
* Small scale of operations
Operating income was modest at Rs 51.9 crore in fiscal 2020. While the company faces limited competition as it operates in the niche defence supplies segment, the modest scale limits the ability to bid for projects beyond a certain size.
 
* Exposure to risks inherent in a tender-based business
The defence segment accounts for over 80% of revenue, exposing the company to revenue concentration risk. Also, as most of the business is tender-driven, revenue and profitability depend on the ability to bid successfully.
Liquidity Adequate

Net cash accrual is moderate, expected at Rs 11-15 crore per fiscal, against no term debt obligation over the medium term. The fund-based bank limit of Rs 6 crore was not utilised over the 12 months through September 2020. Unencumbered cash and equivalents stood at about Rs 14 crore as of September 30, 2020. Internal cash accrual, cash and cash equivalents, and unutilised bank lines should be sufficient to meet capital expenditure as well as incremental working capital requirement over the medium term.

Outlook: Stable

CRISIL believes Avantel will continue to benefit from its established presence in the satellite communication systems business and the extensive industry experience of the promoters.

Rating Sensitivity factors
Upward factors
* Revenue growth of 30-40% per fiscal while sustaining the operating margin
* Significant improvement in the flow of orders and their efficient execution, strengthening the business risk profile
 
Downward factors
* A drop in the operating margin to below 15% and a sharp decline in revenue
* Weakening of the capital structure and debt protection metrics on account of a stretch in the working capital cycle or large, unanticipated capital expenditure
About the Company

Avantel was set up in 1990 in Hyderabad as a private limited company by Dr A Vidyasagar and his family members, and was reconstituted as a public limited company in 1994. The company specialises in RF/microwave subsystems, digital radios, and satellite communication systems, and offers related software solutions and services. It supplies mainly to defence establishments and allied departments in the public and private sectors. It is listed on the Bombay Stock Exchange.

Key Financial Indicators
As on / for the period ended March 31   2020 2019
Operating income Rs crore 51.96 50.76
Profit after tax (PAT) Rs crore 10.76 9.51
PAT margin % 20.7 18.7
Adjusted Debt/Adjusted Networth Times 0 0
Interest coverage Times 19.4 25.81

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity Level Rating assigned with outlook
NA Bank Guarantee NA NA NA 32 NA CRISIL A3+
NA Cash Credit NA NA NA 6 NA CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  6.00  CRISIL BBB/Stable      28-08-19  CRISIL BBB-/Stable  11-06-18  CRISIL BBB-/Stable  22-09-17  CRISIL BBB-/Stable  CRISIL BBB-/Stable 
                05-06-18  CRISIL BBB-/Stable       
Non Fund-based Bank Facilities  LT/ST  32.00  CRISIL A3+      28-08-19  CRISIL A3  11-06-18  CRISIL A3  22-09-17  CRISIL A3  CRISIL A3 
                05-06-18  CRISIL A3       
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 32 CRISIL A3+ Bank Guarantee 20 CRISIL A3
Cash Credit 6 CRISIL BBB/Stable Cash Credit 12 CRISIL BBB-/Stable
-- 0 -- Inland/Import Letter of Credit 6 CRISIL A3
Total 38 -- Total 38 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Mohit Makhija
Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
mohit.makhija@crisil.com


Abdul Tabrez
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 4032 8222
Abdul.Tabrez@crisil.com


Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL