| DTDC Express Limited | ||||||
| Ratings reaffirmed at 'CRISIL A- / CRISIL A2+ '; outlook revised to 'Stable' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has revised its rating outlook on the long-term bank facilities of DTDC Express Limited (DTDC; part of the DTDC group) to 'Stable' from 'Positive' while reaffirming the rating at 'CRISIL A-'. The rating on the short-term bank facility has been reaffirmed at 'CRISIL A2+'.
The outlook revision factors the impact of operating performance during the fiscal 2021, as the overall revenue and profitability will remain under pressure on account of pandemic led disruptions. Although the revenues are likely to witness a marginal decline for the current fiscal, but the profitability is likely to be impacted on account of increased costs and lower fixed cost absorptions. The company has reported revenues of Rs 610.5 crore during the period between Apr-Oct 2020, while reporting operating losses in this period. With lower profitability for the fiscal, the group is likely to significant impact on its cash accruals. As a result, the financial risk profile, marked by total outside liability to tangible net worth and debt protection metrics will witness moderation, albeit continuing at comfortable levels.
The ratings continue to reflect an established market position in the domestic express courier services business, strong brand equity, and a well-entrenched franchisee network. The ratings also factor in a strong financial risk profile. These rating strengths are partially offset by low operating profitability, and exposure to risks relating to intense competition in the courier services industry and to the level of economic activity in India. |
Analytical Approach For arriving at the ratings, CRISIL has combined the business and financial risk profiles of DTDC and its subsidiaries, as all the entities, collectively referred to as the DTDC group, have a common management team and business synergies.
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Key Rating Drivers & Detailed Description Strengths: * Established market position and strong brand equity: The group has been in the courier services industry for over 20 years, and has an established presence in the organized express courier services industry. The business risk profile is strengthened by an asset-light business model that enables the group to efficiently scale up operations and expand its reach. Sound track record should help the group maintain healthy growth over the medium term.
* Well-entrenched franchisee network: The group has a strong franchise network, with close to 11,500 franchisees across India. The group operates through a network of 6 hubs across the major metropolitan cities of India and over 400 branch offices. It has a detailed selection procedure before appointing a franchisee. It obtains security deposits based on the value of the shipment handled by the franchisee. The group is likely to continue to leverage its extensive and well-entrenched franchise network across the country over the medium term.
* Strong financial risk profile: Capital structure is comfortable, as reflected in gearing of 0.37 time and adjusted networth of Rs 87.32 crores as on March 31, 2020. The gearing is supported by limited reliance on working capital debt and long-term debt. Debt protection metrics were comfortable, as indicated by interest coverage of 10 times and net cash accrual to adjusted debt (NCAAD) ratio of 1.21 time for fiscal 2020. The group plans capital expenditure (capex) of Rs 25 - 30 crore per fiscal over the medium term to modernize the supply chain and information technology infrastructure, and increase fleet. However, the financial risk profile should remain comfortable due to controlled reliance on external bank debt.
Weakness: * Exposure to intense competition, leading to pressure on operating margin: The courier services industry is intensely competitive as there are many unorganized players in the domestic market. Large players have wide networks, with presence in national and international locations. The DTDC group faces competition from unorganized players which largely compete on pricing. The margin fluctuates also on account of varying cargo mix.
* Susceptibility to the level of economic activity in India: Growth in the express courier industry, as in the logistics industry, is closely linked to the level of economic activity in the country. The industry is affected by factors such as macroeconomic growth, inflation, and state of infrastructure. These factors impact both the demand and the cost structure of the industry. Revenue, therefore, will remain susceptible to the level of economic activity in India. |
Liquidity: Strong The group's available liquid balance in the form of cash, cash equivalents and undrawn bank facilities should be sufficient to cover the fixed costs and debt obligations for around one quarter in case operating cash flows deteriorate significantly. DTDC has access to fund based limits of Rs 95 crores, which was utilized on an average at 12% over the 12 months ended November 2020. The group's ability to raise equity and contract debt on attractive terms supports its financial flexibility. Its bank lines are expected to meet its incremental working capital requirements |
Outlook Stable CRISIL believes the DTDC group will continue to benefit from its established market position, extensive franchisee network, and healthy capital structure. |
Rating Sensitivity factors Upward factors: * Revenue growth of over 15% and sustenance of operating margin at 5% * Sustenance of strong financial risk profile
Downward factors: * Stretch in receivables to over 120 days resulting in increase in gross current assets and in higher working capital debt * Decline in revenue or operating margin |
About the Company Incorporated in 1990 and based in Bengaluru, DTDC provides express courier services in the domestic and international markets. The group is promoted and managed by Mr Subhasish Chakraborty.
DTDC, through its subsidiaries, also operates in New York, London, Dubai, Toronto, Singapore, Hong Kong, China, and Australia. It operates in Nepal, Bhutan, Sri Lanka, Kenya, and Turkey through its partners |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit | Axis Bank Limited | 55 | CRISIL A-/Stable |
| Cash Credit | HDFC Bank Limited | 10 | CRISIL A-/Stable |
| Cash Credit | ICICI Bank Limited | 30 | CRISIL A-/Stable |
| Letter of credit & Bank Guarantee | Axis Bank Limited | 6 | CRISIL A2+ |
| Proposed Working Capital Facility | Not Applicable | 33 | CRISIL A-/Stable |
| Term Loan | Axis Bank Limited | 35 | CRISIL A-/Stable |
This Annexure has been updated on 25-Sep-2021 in line with the lender-wise facility details as on 02-Aug-2021 received from the rated entity.
Criteria Details
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