Rating Rationale
November 11, 2020 | Mumbai
Cadsys (India) Limited
Rating outlook revised to 'Negative'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.7.5 Crore
Long Term Rating CRISIL BBB-/Negative (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank facilities Cadsys (India) Limited (CIL) to 'Negative' from 'Stable' and reaffirmed the rating at 'CRISIL BBB-'. The short-term rating has been reaffirmed at 'CRISIL A3'.
 
The outlook revision reflects CIL's weaker business performance in fiscal 2020 due to decrease in operating margin to 9.9% from 35.6% last fiscal on account of increase in employee costs due to Visa and immigration related issues in USA. Also Covid 19 pandemic related lockdown imposed towards the end of March impacted the performance in Q4FY20. The pandemic led lockdowns and international travel restrictions are expected to impact the business in fiscal 2021 as well. However, financial risk profile remained strong marked by a comfortable capital structure because of low reliance on debt while liquidity is adequate. Commencement of operations, any further liabilities arising in any of the ongoing projects and timely realisation of receivables from the counterparties in the backdrop of Covid-19 will remain key monitorables.
 
The ratings reflect the extensive experience of the promoters in the information technology-enabled services (ITES) industry and the company's healthy financial risk profile. These strengths are partially offset by the modest scale of operations and exposure to intense competition.

Analytical Approach

CRISIL has combined the business and financial risk profiles of CIL and its subsidiaries Apex Advanced Technology LLC (AAT), Apex Engineers India Pvt Ltd (AEIPL), and Cadsys Technologies LLC, USA (CTLLC), as all the entities are in similar businesses.

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:
* Extensive experience of the promoters
Founder director Mr Rangacharya is a post-graduate from the Indian Institute of Technology, Chennai, and has extensive experience in software development, computer-aided design (CAD), and marketing. He has expertise in workflow design and process re-engineering, an essential requirement for the ITES industry. Mrs Nallani Padmaja, the executive director and co-founder, handles the administrative and financial affairs.
 
* Healthy financial risk profile
Financial risk profile is healthy as reflected in the moderate networth of Rs 26.02 crore and low gearing of 0.48 time as on March 31, 2020. The debt protection metrics are adequate with net cash accrual to adjusted debt and interest coverage ratios of 0.29 time and 3.98 times, respectively, for fiscal 2020.
 
Weaknesses:
* Modest scale of operations and exposure to intense competition
Despite revenue growth in the past two fiscals, scale of operations remained small with operating income of Rs 42.05 crore in fiscal 2020. Intense competition in the ITES business will continue to constrain revenue growth and pricing flexibility over the medium term.

Liquidity: Adequate
Despite the slowdown caused by Covid 19 pandemic, liquidity should remain comfortable aided by adequate net cash accrual against which term debt obligations are minimal. Further, unencumbered cash balances and fixed deposits were Rs 4.0 crore as of August 2020. Overdraft facility was utilised at a mere 11.26% in the 12 months through July, 2020.
Outlook: Negative

CRISIL believes CIL's business risk profile will remain under pressure over the medium term because of the slowdown in the execution of projects due to the impact of Covid-19.

Rating Sensitivity factors
Upward factors
* Improvement in operating performance with margins of over 20% leading to healthy net cash accrual, and stable profitability
* Sizeable equity infusion resulting in significant and sustained improvement in financial risk profile and liquidity
 
Downward factors
* Decline in revenue and profitability resulting in a sharp fall in net cash accrual
* Stretch in receivables or any large debt-funded capital expenditure or acquisition weakening the financial risk profile with gearing deteriorating to above 0.8 time, adversely impacting credit metrics.
About the Company

Incorporated in 1989, Hyderabad-based CIL provides engineering design, CAD services, geographic information system, and project management support in the fields of telecommunications, gas, and electric and software development.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs crore 42.05 52.8
Profit after tax Rs crore 0.29 12.4
PAT margin % 9.9 23.4
Adjusted debt/Adjusted networth Times 0.48 0.17
Interest coverage Times 3.98 31.9

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 Export finance limit NA NA NA 4.00 NA CRISIL A3
NA Overdraft NA NA NA 3.00 NA CRISIL BBB-/Negative
NA Proposed long-term bank loan facility NA NA NA 0.5 NA CRISIL BBB-/Negative
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
Cadsys India Ltd Full Same line of business
Apex Advanced Technology LLC Full Subsidiary of CIL engaged in the same line of business
Apex Engineers India Pvt Ltd Full Subsidiary of CIL engaged in the same line of business
Cadsys Technologies LLC, USA Full Subsidiary of CIL engaged in the same line of business
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  7.50  CRISIL BBB-/Negative/ CRISIL A3      14-11-19  CRISIL BBB-/Stable/ CRISIL A3  30-11-18  CRISIL BBB-/Stable/ CRISIL A3  20-11-17  CRISIL BB+/Stable  CRISIL BB+/Stable 
Non Fund-based Bank Facilities  LT/ST    --    --    --  30-11-18  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
Export Finance Limit 4 CRISIL A3 Export Finance Limit 4 CRISIL A3
Overdraft 3 CRISIL BBB-/Negative Overdraft 3 CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility .5 CRISIL BBB-/Negative Proposed Long Term Bank Loan Facility .5 CRISIL BBB-/Stable
Total 7.5 -- Total 7.5 --
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
Rating Criteria for Software Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation

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