Rating Rationale
April 09, 2020 | Mumbai
Centum Electronics Limited
Ratings removed from 'Watch Developing' ; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.349.7 Crore
Long Term Rating CRISIL BBB-/Stable (Removed from 'Rating Watch with Developing Implications'; Rating Reaffirmed)
Short Term Rating CRISIL A3 (Removed from 'Rating Watch with Developing Implications'; Rating Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has removed its ratings on the bank facilities of Centum Electronics Limited (CEL; part of the Centum group) from 'Rating Watch with Developing Implications' and has reaffirmed the ratings at CRISIL BBB-/CRISIL A3 while assigning a 'Stable' outlook.
 
CRISIL had placed its rating on the long term bank facilities of CEL on watch on March 17 2020, following the inability of the company to meet its debt obligations due to the imposition of moratorium on deposits with Yes Bank. This impacted company's ability to service debt in a timely manner despite having the cushion in liquidity and willingness to repay the debt. The company had working capital and term loan facilities with Yes Bank.
 
Subsequently, the debt obligations have been paid post the lifting of moratorium of Yes Bank.   CRISIL has taken cognizance of the restrictions on economic activity, including Bclosure of all non-essential manufacturing plants, due to the spread of Novel Coronavirus (Covid-19). This will impact the company's performance in fiscal 2021 as against CRISIL's earlier expectations. Impact of Covid-19 related restrictions applicable post April 14th, 2020 will remain a key monitorable.

Analytical Approach

CRISIL has, combined the business and financial risk profiles of CEL, its wholly owned subsidiary, Centum Electronics UK Ltd (CEUK), and 54.15% subsidiary, Centum Adetel Group SA (CAG). This is because the entities, collectively referred to as the Centum group, have operational and financial linkages, and are controlled and managed by the same promoter.

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:
* Established market position, aided by the extensive experience of the promoter: The promoter's experience of over two decades has helped establish healthy relationships with customers. Products being used in critical areas, such as space and defence, bear testimony to the technical capability of the group.
 
* Moderate financial risk profile: Financial risk profile is driven by moderate debt protection metrics. Interest coverage and net cash accruals to total debt ratio were at around 3.35 times and 21 percent for fiscal 2019. However, gearing remains high on account of sizeable debt, owing to large working capital cycle.
 
Weaknesses:
* Susceptibility to risks related to technology changes: Any change in technology will require realignment of products in line with the end-user technology. Delays in such adjustments could weaken the group's competitive position.
 
* Working capital-intensive operations: Working capital intensity remains high: gross current assets were sizeable at 266 days as on March 31, 2019-driven by inventory and debtors of 131 days and 121 days, respectively-and expected to improve moderately by March 31, 2019.
Liquidity Adequate

CEL's liquidity is adequate marked by adequate cash accrual for meeting repayment obligations; however partially constrained by high utilisation of the bank limits. Cash accrual in excess of Rs.60 crore is expected to be generated over the medium term that shall be adequate to meet repayment obligations. However liquidity is partially constrained by high utilisation of the bank limits at around 92 percent for the twelve month ended October 2019. Nevertheless, liquidity is expected to remain adequate over the medium term.

Outlook: Stable

CRISIL believes that CEL shall continue to benefit from its established market position over the medium term.

Rating Sensitivity factors
Upward Factors
* Improvement in gearing to less than 1.5 times
* Improvement in working capital management
 
Downward Factors
* Deterioration of GCA to more than 350 days
* Any large debt funded capital expenditure adversely impacting financial risk profile
About the Group

Set up by Mr Apparao Mallavarapu, a first-generation entrepreneur, in 1993, CEL manufactures modules and sub-systems used in the aerospace, defence, and industrial electronic sectors.

CAG manufactures products for the rail transportation market, focusing on improving energy efficiency, security, and real-time information access.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 933.55 843.48
Reported profit after tax Rs crore 47.84 -14.53
PAT margins % 5.12 -1.72
Adjusted Debt/Adjusted Net worth Times 2.45 4.45
Interest coverage Times 3.06 1.11

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity
date
Issue size (Rs.Cr) Rating assigned
with outlook
NA Cash Credit NA NA NA 41 CRISIL BBB-/Stable
NA Cash Term Loan NA NA Jun-23 38 CRISIL BBB-/Stable
NA Export Packing Credit NA NA NA 35 CRISIL BBB-/Stable
NA Letter of Credit and Bank Guarantee NA NA NA 132.7 CRISIL A3
NA Working Capital Loan NA NA NA 103 CRISIL BBB-/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Centum Electronics UK Ltd 100% Wholly owned subsidiary
Centum Adetel Group SA 100% Majority control and operational & financial linkages
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  217.00  CRISIL BBB-/Stable  17-03-20  CRISIL BBB-/Watch Developing  27-02-19  CRISIL BBB-/Stable  17-08-18  CRISIL BBB-/Stable/ CRISIL A3  13-11-17  CRISIL BBB+/Stable/ CRISIL A2  CRISIL BBB+/Watch Developing/ CRISIL A2/Watch Developing 
                26-04-18  CRISIL BBB+/Negative/ CRISIL A2  02-11-17  CRISIL BBB+/Stable/ CRISIL A2   
                08-03-18  CRISIL BBB+/Negative/ CRISIL A2  21-02-17  CRISIL BBB+/Stable   
                    13-01-17  CRISIL BBB+/Watch Developing   
Non Fund-based Bank Facilities  LT/ST  132.70  CRISIL A3  17-03-20  CRISIL A3/Watch Developing  27-02-19  CRISIL A3  17-08-18  CRISIL A3  13-11-17  CRISIL A2  CRISIL A2/Watch Developing 
                26-04-18  CRISIL A2  02-11-17  CRISIL A2   
                08-03-18  CRISIL A2  21-02-17  CRISIL A2   
                    13-01-17  CRISIL A2/Watch Developing   
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
Cash Credit 41 CRISIL BBB-/Stable Cash Credit 41 CRISIL BBB-/Watch Developing
Cash Term Loan 38 CRISIL BBB-/Stable Cash Term Loan 38 CRISIL BBB-/Watch Developing
Export Packing Credit 35 CRISIL BBB-/Stable Export Packing Credit 35 CRISIL BBB-Watch Developing
Letter of credit & Bank Guarantee 132.7 CRISIL A3 Letter of credit & Bank Guarantee 132.7 CRISIL A3/Watch Developing
Working Capital Loan 103 CRISIL BBB-/Stable Working Capital Loan 103 CRISIL BBB-/Watch Developing
Total 349.7 -- Total 349.7 --
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 Criteria for Consolidation
CRISILs Criteria for rating short term debt

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