Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank loan facilities and short-term debt of Electronics Corporation of India Ltd (ECIL).

 

The ratings continue to reflect the company's strategic importance to, and operational and financial support received from, the Government of India (GOI). The ratings also factor in the company’s sound business prospect, superior technological capabilities and healthy financial risk profile. These strengths are partially offset by the long execution timeframe of supply contracts, susceptibility to volatility in raw material prices and foreign exchange rates, sizeable working capital requirement, and the absence of a prime production agency (PPA) status being enjoyable under public sector undertakings (PSUs) from the Ministry of Defence (MoD).

 

Revenue of ECIL grew 28% on year in fiscal 2024 to Rs 3071 crore on a higher base on account of increased delivery of electronic voting machines (EMVs) to the Election Commission of India (ECI) for the general elections held in April-May 2024. Operating profit margins also improved to 19.9% in fiscal 2024 compared to 13.0 % in fiscal 2023 due to favourable product mix and increased production. Sizeable orderbook of over Rs 5,200 crore as on June 30, 2024, provides healthy revenue visibility for medium term. However it is expected that the revenue will declined by 10%-12% in fiscal 2025 on the account of absence of any major EVMs order. The revenue is expected to grow by 5-6% thereafter. Operating profit margins to moderate in fiscal 2025 on the account of lower volumes but will continue to be in double digit in the near to medium term. Further, for the first three months of the year ending June 2024, operating margin stood at 7.5% with revenue of ~Rs. 480 crores. Financial risk profile of the company remained strong with nil debt in the company as on March 31,2024 and June 30, 2024. Liquidity continued to be robust with cash and equivalent of Rs 1090 crore as on June 30, 2024.

Analytical Approach

CRISIL Ratings has applied its criteria for notching-up standalone ratings of entities based on government support. CRISIL Ratings believes ECIL will, in case of exigencies, receive distress support from GOI for timely servicing of debt obligations considering GOI’s 100% ownership and the strategic importance of the company's operations to it.

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to, and operational and financial support from, GOI: ECIL is a 100% owned by GOI and supplies some of the most crucial electronic equipment to India's nuclear and defence institutions. It also deals in certain instruments used in the security and space sectors in India. Furthermore, ECIL and Bharat Electronics Ltd (BEL) are the only two suppliers of electronic voting machines (EVMs) to GOI. These factors underscore the strategic importance of ECIL to GOI.

GOI offers support in both financial and operational terms. In operational terms, the company receives technological assistance from the defence force’s research laboratories. GOI’s stance on support to ECIL and the latter's strategic importance to the former will remain a key monitorable.

 

• Sound business prospects, superior technological capabilities and comfortable order book: ECIL manufactures and distributes state-of-the-art electronic instruments, systems and components, antennae, communication and surveillance gear and special equipment for the defence, civil aviation and nuclear sectors. The company is a part of Government’s initiative for building new nuclear power plants, their upgrades and the associated requirements. ECIL’s primary objective is to develop niche indigenous technologies for manufacturing of its products and to support the Aatmanirbhar Bharat campaign of the Government.Benefits from close administrative and technological linkages with the Department of Atomic Energy (DAE) and Nuclear Power Corporation of India Ltd (NPCIL; rated ‘CRISIL AAA/Stable) and strategic alliances with MoD, Defense Research and Development Organization (DRDO). Unexecuted orders of ~Rs 5,200 crore as on June 20, 2024, include orders from the defense, nuclear instrumentation, control system, security and aerospace sectors and provide sufficient revenue visibility for the medium term.

 

• Strong financial risk profile: The company had nil debt as on March 31, 2024. Net worth is expected to increase to around ~Rs 1,900 crore as on March 31, 2025, showing a healthy capital structure. The company is expected to have nil debt on its balance sheet for the medium term as the incremental working capital requirement and the capital expenditure is expected to be met through internal accruals.  The total outside liabilities to adjusted networth (TOL/ANW) ratio declined to 1.0 time as on March 31, 2024, from 1.41 times a year earlier. It is expected to be in the range of 1-1.2 times in the medium term. Financial flexibility is enhanced by GOI's support in funding the capital expenditure (capex) undertaken to fulfil defence orders in case of requirement.

 

Weaknesses:

• Sizeable working capital requirement: Gross current assets net of cash (GCA) have remained above 300 days for most of the previous fiscals due to high inventory and debtor collection period. However, with improvement in payment cycle from the ECI for supply of EVMs, inventory and debtors moderated to 108 days (138 days in fiscal 2023) and 151 days (214 days) respectively. This led to improvement in GCAs to ~250 days in fiscal 2024. However, the working capital intensity is expected to remain elevated and GCAs are likely to increase to above 300 days for the near-to-medium term due to normalisation in inventory and debtors’ period. Also, revenue generation in the quarter four of fiscal 2025 is expected to remain sizeable due to higher order delivery for defense segment during the period. This will also lead to higher inventory and debtors’ days in the near-to-medium term.

 

• Long execution timeframe of supply contracts and susceptibility to volatility in raw material prices and foreign exchange rates: GOI and its agencies are exclusive customers for the nuclear, defence, aerospace and e-governance segments. The timeframe for some of these contracts are 18-24 months. Most of the orders are constrained by pricing flexibility and are received on fixed-cost basis; hence, exposure to the risk of adverse movements in raw material prices and forex rates between receipt of orders and their execution persists. Furthermore, around 40% of the raw material requirement is met through imports.

Liquidity: Strong

Liquidity consisting of cash and equivalent remained robust at ~Rs 1090 crore as on June 30, 2024. Internal accrual expected around ~Rs.120-130 crore in fiscal 2025 will be more than sufficient to cover modest capex requirement of Rs 35-40 crore. Liquidity is further supported by unutilised fund-based limits of Rs 220 crore.

Outlook: Stable

CRISIL Ratings believes ECIL will continue to maintain its healthy financial risk profile and remain strategically important to GOI.

Rating sensitivity factors

Upward factors:

• Significant and sustained improvement in the operating performance leading to higher cash accrual.
• GCAs sustaining under 300 days

 

Downward factors:

• Any change in the stance of GOI support to ECIL and the latter's strategic importance to the former
• Weakening of operating performance leading to a significant decline in margin and constrained liquidity
• Large, debt-funded capex or sizeable working capital requirement weakening the capital structure; for instance, TOL/TNW ratio of 3-3.5 times.

About the Company

ECIL was incorporated in April 1967 as a wholly owned government enterprise under the Department of Atomic Energy (DEA) to cater to the control and instrumentation requirements of nuclear projects and to manufacture electronic instruments and systems. The company has diversified into manufacturing communication and electronic warfare equipment, EVMs and security systems; it also offers support services. Customers are from the security, defence, and nuclear sectors.

Key Financial Indicators

Particulars	Unit	2024	2023
Revenue	Rs crore	3071	2,407
Profit after tax (PAT)	Rs crore	501	244
PAT margin	%	16.3	10.1
Adjusted debt/adjusted net worth	Times	NM	NM
Interest coverage	Times	209.23	84.9

NM- not meaningful

Any other information: Not Applicable