| Eimco Elecon India Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A1’ ratings on the bank facilities of Eimco Elecon India Limited (Eimco Elecon). CRISIL Ratings has also withdrawn its rating on the Rs.4 crore Letter of Credit at the company’s request and after a receipt of a fresh Sanction letter from the Banker. The withdrawal is in-line with CRISIL Rating’s policy on withdrawal of bank loan ratings.
The reaffirmation of the ratings reflects the leadership position of the company in the underground mining equipment segment, backed by technological support from foreign collaborators and healthy financial risk profile. These strengths are partially offset by vulnerability to the prolonged sluggishness in the underground mining segment, dependence on Coal India Ltd (CIL) (CRISIL AAA/Stable/CRISIL A1+) and its subsidiaries, and large working capital requirement.
After subdued order flow and execution amidst the Covid-19 pandemic over the last couple of fiscals, the operating performance of the company has witnessed some revival in the current fiscal with growth in the order book position (Rs 64.7 crore outstanding as on September 30, 2022, as opposed to Rs 13 crore in the corresponding period of the previous fiscal). This has also resulted in higher execution and improvement in operating profitability for the company. Traction in new order flow and sustained recovery in operating performance will continue to be key monitorables.
Financial risk profile remains comfortable supported by the absence of debt obligation and strong liquid surplus of more than Rs 165 crore built up over the years. Prudent working capital management results in nil bank limit utilisation despite large gross current assets (GCAs). |
Analytical Approach CRISIL Ratings has not combined the financial and business risk profiles of Eimco Elecon with Elecon Engineering Co Ltd and Eimco Elecon Electricals Ltd (47.62% stake) as the two companies have no operational, managerial, or financial linkages with Eimco Elecon. |
Key Rating Drivers & Detailed Description Strengths:
Eimco Elecon has a near monopoly in the underground coal mining equipment industry in India, with healthy market share backed by an extensive after-sales service network. Long standing relations with CIL and The Singareni Collieries Company Ltd. (SCCL) also help its leadership position in the segment.
Foreign collaborations boost technical capability, enabling continuous improvement in the effectiveness of equipment and catering to diverse applications. Development of new products will diversify revenue profile and support growth, albeit gradually.
Financial risk profile is likely to remain supported by the absence of any yearly debt obligation. Debt protection metrics were strong, with robust interest coverage and liquid surplus of over Rs 165 crore as of September 2022, mainly comprising investments in short-term mutual funds and is likely to be maintained over the medium term.
Weaknesses:
The underground coal mining segment, which contributes to over 90% of revenue, has been sluggish over the past decade. This is one of the key impediments for revenue growth. However, opening of commercial coal mining sector, transformation plan of CIL to operationalise the closed/ abandoned mines through engagement of Mine Developer cum Operator (MDO) and CIL’s plan of Mechanisation of underground mines augurs well for the sector in the medium term. Efforts with respect to revenue diversification into construction equipment and metal mining equipment will be critical to drive growth over the medium term.
High dependence on CIL and its subsidiaries, which contribute around 90% to revenue, exposes the company to significant customer concentration risk. Any slowdown in demand from CIL and its subsidiaries can adversely impact revenue growth.
Operations are working capital intensive, due to sizeable inventory on account of spares, higher lead time on imported components and introduction of new products. Inventory remained elevated around Rs 70 crore as of September 2022, compared to Rs 71 crore as of March 2021, while debtors reduced from Rs 39 crore to Rs 29 crore for the same period. |
Liquidity: Strong Liquidity should remain healthy. The absence of any maturing debt enables the entire cash accrual – projected at Rs 15 – 20 crore per annum – to aid financial flexibility. Cash and marketable securities stood at over Rs 165 crore as on September 30, 2022. Fund-based limit of Rs 3 crore was unutilised for the 12 months through September 2022. Also, moderate annual capital expenditure (capex) of Rs 2-4 crore is expected to be funded through internal accrual. |
Outlook: Stable Eimco Elecon will continue to benefit from its established market position, technical collaboration with foreign partners and healthy financial risk profile. However, operating performance will remain vulnerable to order flow for underground coal-mining equipment and pick-up in order execution, given the limited revenue diversity. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Eimco Elecon was incorporated in 1974 as a joint venture between the Elecon group and Sandvik AB (rated 'A-/Stable/A-2' by S&P Global Ratings), the world’s leading manufacturer of rock-drilling tools and mining equipment. Eimco Elecon produces a wide range of mining machinery, such as air-powered rocker shovels, electro-hydraulic side-dump loaders, and electro-hydraulic and air-powered load-haul dumpers, used as loading machines in coal mines. Its facilities are in Vallabh Vidyanagar, Gujarat. |
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)
*Interchangeable with Bank Guarantee |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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Criteria Details
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