Rating Rationale
October 07, 2020 | Mumbai
Centum Electronics Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.399.7 Crore (Enhanced from Rs.349.7 Crore)
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Centum Electronics Limited (CEL; part of the centum group) at 'CRISIL BBB-/Stable/CRISIL A3'.
 
The ratings continue to reflect established market position, aided by the extensive experience of the promoter and its moderate financial risk profile. These strengths are partially offset by susceptibility to risks related to technology changes and working capital intensive operations.

Analytical Approach

CRISIL has, combined the business and financial risk profiles of CEL and its subsidiaries. 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 - Details of Consolidation, 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 2.62 times and 14 percent for fiscal 2020. However, total outside liabilities to adjusted networth (TOLANW) remains high at around 6.33 times on account of sizeable debt, owing to large working capital cycle. In the absence of major debt funded capital expenditure (Capex), the financial risk profile is expected to gradually improve over the medium term.
 
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 295 days as on March 31, 2020 - driven by inventory and debtors of 120 days and 103 days, respectively - and expected to improve gradually over the medium term.
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.50 crore is expected to be generated over the medium term that shall be adequate to meet repayment obligations. Liquidity is also supported by proceeds of the divestment of its energy division in its French subsidiary, Centum Adetel Limited for around Rs.56 crore (6.37 million Euros), the sale concluded in August 2020. Nevertheless, liquidity is partially constrained by high utilisation of the bank limits at around 90 percent for the twelve month ended July 2020

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 TOLANW to less than 3 times
* Improvement in working capital management
 
Downward Factors
* Deterioration of interest coverage to less than 2 times
* 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
Particular Units  2020 2019
Operating income Rs crore 883 933.55
Profit after tax Rs crore 20 47.84
PAT Margin Rs crore 2.27 5.12
Interest Coverage Times 2.62 2.45
Adjusted debt/adjusted net worth % 2.78 3.06

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.Cr) Complexity Rating assigned
with outlook
NA Cash Credit NA NA NA 41 NA CRISIL BBB-/Stable
NA Cash Term Loan NA NA Jun-23 38 NA CRISIL BBB-/Stable
NA Packing Credit in foreign currency NA NA NA 20 NA CRISIL A3
NA Export Packing Credit NA NA NA 125 NA CRISIL BBB-/Stable
NA Letter of Credit and Bank Guarantee NA NA NA 132.7 NA CRISIL A3
NA Working capital demand loan NA NA NA 43.0 NA 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  267.00  CRISIL BBB-/Stable/ CRISIL A3  04-09-20  CRISIL BBB-/Stable/ CRISIL A3  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 
        09-04-20  CRISIL BBB-/Stable      26-04-18  CRISIL BBB+/Negative/ CRISIL A2  02-11-17  CRISIL BBB+/Stable/ CRISIL A2   
        17-03-20  CRISIL BBB-/Watch Developing      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  04-09-20  CRISIL A3  27-02-19  CRISIL A3  17-08-18  CRISIL A3  13-11-17  CRISIL A2  CRISIL A2/Watch Developing 
        09-04-20  CRISIL A3      26-04-18  CRISIL A2  02-11-17  CRISIL A2   
        17-03-20  CRISIL A3/Watch Developing      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-/Stable
Cash Term Loan 38 CRISIL BBB-/Stable Cash Term Loan 38 CRISIL BBB-/Stable
Export Packing Credit 125 CRISIL BBB-/Stable Export Packing Credit 75 CRISIL BBB-/Stable
Letter of credit & Bank Guarantee 132.7 CRISIL A3 Letter of credit & Bank Guarantee 132.7 CRISIL A3
Packing Credit in Foreign Currency 20 CRISIL A3 Packing Credit in Foreign Currency 20 CRISIL A3
Working Capital Demand Loan 43 CRISIL BBB-/Stable Working Capital Demand Loan 43 CRISIL BBB-/Stable
Total 399.7 -- 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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