| Eagle Hunter Solutions Limited | ||||||
| Ratings migrated to 'CRISIL BBB/Stable/CRISIL A3+'; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| & *Issuer did not cooperate; based on best-available information^ *Issuer did not cooperate; based on best-available information | ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale Due to inadequate information and in line with the guidelines of the Securities and Exchange Board of India, CRISIL Ratings had migrated the ratings of Eagle Hunter Solutions Limited (EHSL, part of the Eagle Hunter Group) to ‘CRISIL B/Stable/CRISIL A4; Issuer not cooperating'. However, the management has subsequently started sharing the requisite information necessary for carrying out a comprehensive review of the ratings. Consequently, CRISIL Ratings is migrating the ratings to ‘CRISIL BBB/Stable/CRISIL A3+’.
The ratings migration reflects improved business risk profile, supported by established relationships with customers leading to repetitive orders from existing clients and addition of new customers. The revenue of the group improved at compound annual growth rate (CAGR) of 10% in the three fiscals through 2022. The group reported revenue of Rs 276.90 crore in fiscal 2022. The group has already booked revenue of Rs 139.55 crore in the first half of fiscal 2023. It is expected to register revenue of over Rs 300 crore in fiscal 2023, supported by healthy unexecuted order book of around Rs 300 crore as on October 31, 2022. Operating margin was stable at 7-8% in the three fiscals through 2022 and is expected to remain at a similar level, supported by in-hand orders with better margin.
The ratings are also supported by the healthy financial risk profile of the company, as indicated by healthy networth of Rs 91.73 crore as on March 31, 2022. Networth is expected to be over Rs 110 crore in fiscal 2023 with comfortable gearing of 0.24 time as on March 31, 2022. Liquidity of the company remains adequate to meet the debt obligation and its bank limits are moderately utilised.
The ratings also reflect EHSL’s strong business risk profile, as reflected in the group’s well-established presence in the manpower solutions industry, diversified clientele and healthy financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to intense competition. |
Analytical approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of EHSL and its wholly owned subsidiary, Alert Commandos Pvt Ltd (ACPL). This is because both these entities, collectively referred to as the Eagle Hunter group, have common promoters and management and operational and financial linkages. ACPL caters to South India, while EHSL caters to other regions.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key rating drivers and detailed description Strengths: Strong business risk profile: The group has a track record of three decades in security services. It has contracts with many clients spread across industries and states. It also has a wide service network, with more than 60 branch offices covering most of India (more than 45 in EHSL and 15 in ACPL) and consolidated employee strength of more than 25,000 trained personnel. The scale of operations is reflective of this growth, with operating income increasing to Rs 277 crore in fiscal 2022 from Rs 208 crore in fiscal 2019.
Healthy financial risk profile: Consolidated networth was moderate at Rs 91.73 crore and gearing comfortable at 0.24 time as on March 31, 2022. Going forward, the networth is expected to be over Rs 110 crore and gearing at 0.20-0.30 time in fiscal 2023 on the back of limited reliance on external debt to meet the working capital requirement and healthy profit accretion to reserves, leading to further improvement in networth. The debt protection metrics were healthy, with interest coverage and net cash accrual to total debt ratios at 7.44 times and 0.82 time, respectively, in fiscal 2022. The interest coverage ratio is expected to be over 12 times in fiscal 2023. Service-oriented business entails low investments in fixed assets, leading to small capital requirement. The financial risk profile should remain moderate over the medium term.
Weaknesses: Large working capital requirement: Gross current assets (GCAs) were 160-170 days over the three fiscals through 2022 (165 days as on March 31, 2022), driven by stretched receivables of 110-120 days and security and earnest money deposits with clients. However, owing to setting up of a dedicated collection/legal division internally, the group has been able to reduce the proportion of receivables of more than six months. GCAs are expected to be below 160 days for fiscal 2023 with debtors of around 85 days. With a higher proportion of government and public sector unit (PSU) clientele, further increase in the working capital requirement would remain crucial from a credit risk perspective.
Exposure to intense competition: The manpower services segment is highly fragmented because of many unorganised and a few organised [Group 4 Securicor, ISS SDB Security Services Pvt Ltd and Security and Intelligence Services (India) Ltd] players. Besides, large customers have region-specific contracts, with bulk of the business being served by unorganised players. This results in pricing pressure on organised players, such as EHSL, which have to incur high overhead to maintain quality.
Despite the diversified clientele of the Eagle Hunter group, intense competition leads to pricing pressure, as reflected in average consolidated profitability of over 7% over the three fiscals through 2022. This is because of the increasing proportion of government/PSU customers, wherein profitability is better as compared to private clients. |
Liquidity: Adequate Cash accrual was Rs 18.22 crore against debt obligation of Rs 0.85 crore in fiscal 2022. Going forward, the cash accrual is expected to be Rs 20-22 crore against minimal debt obligation of Rs 0.30-0.85 crore over the medium term. The liquidity is further supported by moderately utilised bank limits of 84.69% in the 19 months through October 2022 and unencumbered cash and bank balance of Rs 3.04 crore as on September 30, 2022. The promoters have provided support in the form of unsecured loan of Rs 9.65 crore as on March 31, 2022. |
Outlook: Stable CRISIL Ratings believes EHSL will continue to benefit from its strong market position. |
Rating sensitivity factors Upward factors
Downward factors
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About the group Incorporated in 1982, EHSL provides manned security guard and facility management services through its 17 branch offices spread across India, with the head office in New Delhi. Mr BR Lohia is the promoter of the company. |
Key financial indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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This Annexure has been updated on 02-Dec-2022 in line with the lender-wise facility details as on 02-Dec-2022 received from the rated entity.
Criteria Details
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