| Eimco Elecon India Limited | ||||||
| Long-term rating downgraded to 'CRISIL A-/Stable', short-term rating reaffirmed; Debt instruments Withdrawn | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its rating on the non-convertible debentures and the long-term bank facilities of Eimco Elecon India Ltd (Eimco Elecon) to ‘CRISIL A-/Stable’ from ‘CRISIL A/Negative’; the short-term rating has been reaffirmed at ‘CRISIL A1’.
CRISIL Ratings has also withdrawn its rating on the non-convertible debentures and commercial paper programme, while partially withdrawing its rating on Rs 30.5 crores of the bank loan facilities of Eimco Elecon, following a request from the entity and on receipt of confirmation from the banker. The rating is withdrawn in line with the rating withdrawal policy of CRISIL Ratings.
The downgrade reflects continued deterioration in the operating performance of Eimco Elecon over the last two fiscals due to subdued order flow and execution amidst the Covid-19 pandemic. Revenue more than halved to Rs 26 crore in the first half of fiscal 2022, while earnings before interest, taxes, depreciation and amortization margin dropped to 6% from 11% as compared with the corresponding period of last fiscal, driven by lower sales volume and sales return of continuous miner machines sold last fiscal.
Operating performance may recover moderately in the second half of fiscal 2022, with expected improvement in order flow from Coal India Ltd (CIL; ‘CRISIL AAA/CCR AAA/Stable/CRISIL A1+’) and its subsidiaries for new machines as well as the high-margin spares, and sale of new products - piling rigs catering to the construction industry. Orders worth Rs 13 crore were outstanding as on September 30, 2021; traction in new order flow and sustained recovery in operating performance would continue to be key monitorables.
Financial risk profile should remain supported by the absence of any yearly debt obligation and strong liquid surplus of over Rs 150 crore built up over the years. Networth was moderate at Rs 309 crore as on March 31, 2021. Prudent working capital management leads to nil bank limit utilisation despite large high gross current assets.
The ratings also consider leadership position 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 CIL and its subsidiaries, and large working capital requirement. |
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: Established market position in the underground coal mining equipment segment 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.
Technical collaboration with foreign partners 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.
Healthy financial risk profile Financial risk profile is likely to remain supported by the absence of any yearly debt obligation. Debt protection metrics were strong, with interest coverage ratio projected at 19 times for fiscal 2022. Liquid surplus of Rs 154 crore as of September 2021, mainly comprising investments in short-term mutual funds, is likely to be maintained over the medium term.
Weaknesses Vulnerability to the sluggish performance of the underground coal mining segment The underground coal mining segment, which contributes to over 90% of revenue, has been sluggish over the past decade. Coal output in the country has been declining over the last two fiscals. This is one of the key impediments for revenue growth. Efforts with respect to revenue diversification into construction equipment and other products will be critical to drive growth over the medium term.
High customer concentration in revenue High dependence on CIL and its subsidiaries, which contribute around 60% to revenue, exposes the company to significant customer concentration risk. Any slowdown in demand from CIL and its subsidiaries can adversely impact revenue growth.
Large working capital requirement Operations are working capital intensive, due to large inventory of spares and imported components, and substantial credit offered to customers in the public sector. Inventory had risen to about Rs 55 crores as of September 2021, compared to Rs 37 crores as of March 2021, while debtors reduced from Rs 61 crores to Rs 36 crores over the same period. |
Liquidity: Strong Liquidity should remain healthy. The absence of any maturing debt enables the entire cash accrual – projected at Rs 12-16 crore per annum – to aid financial flexibility. Cash and marketable securities stood at Rs 154 crore as on September 30, 2021. Fund-based limit of Rs 2 crore was unutilised for the 12 months through September 2021. Also, moderate annual capital expenditure (capex) of Rs 3-5 crore is expected to be funded through internal accrual. Dividend payout is likely to be low at 15-20% of net profit. |
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: 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)
*Interchangeable with bank guarantee #Yet to be issued |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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*Interchangeable with bank guarantee
This Annexure has been updated on 25-Nov-2021 in line with the lender-wise facility details as on 9-Aug-2021 received from the rated entity.
Criteria Details
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