Rating Rationale
November 29, 2023 | Mumbai
Electronics Corporation of India Limited
Ratings reaffirmed at 'CRISIL AA+/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.1527.65 Crore
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.100 Crore Short Term DebtCRISIL A1+ (Reaffirmed)
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 AA+/Stable/CRISIL A1+' ratings on the bank 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 PSUs from the Ministry of Defence (MoD).

 

ECIL's operating income witnessed a healthy growth of ~52.0% y-o-y to Rs 2,407 crore in fiscal 2023 on account of execution of higher orders book from Election Commission of India (ECI) pertaining to Electronic Voting Machines in view of the upcoming general election of 2024. Operating margin slightly declined to 13% in fiscal 2023 owing to variation in the product mix and lower proportion of some of the better-margined Defense order in comparison to that in fiscal 2022. Further, for the half year ended September 2023, operating margin stood at ~18% with revenue of ~Rs. 1700 crore on account of high order execution of the order from ECI.

 

Revenues is expected to grow by ~17.0% y-o-y in fiscal 2024 driven by execution of Electronic Voting Machine and Voter Verifiable Paper Audit Trail orders for Election Commission of India. Operating margins are expected at ~16.0% during the same period.

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 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. 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, Defence Research and Development Organisation and Department of Space continue. Unexecuted orders of Rs 3,926 crore as on October 1, 2023, include orders from the defence, nuclear instrumentation, control system, security and aerospace sectors and provide revenue visibility.

 

  • Healthy financial risk profile: Net worth is expected to increase to around ~Rs 1,600 crore as on March 31, 2024, from Rs 1,420 crore as on March 31, 2023. In addition, since fiscal 2020 onwards the Company’s capital structure is debt-free, and the same is expected to continue over the medium term. The total outside liabilities to adjusted networth (TOL/ANW) ratio is expected at 1.36 times as on March 31, 2024, from 1.41 times as on March 31, 2023. Financial flexibility is enhanced by GOI's support in funding the capital expenditure (capex) undertaken to fulfil defence orders.

 

Weaknesses:

  • Sizeable working capital requirement: Operations are expected to remain working capital intensive. Gross current assets (GCAs) net of cash improved to 361 days as on March 31, 2023, from 441 days a year earlier. Working capital cycle improved to 263 days in fiscal 2023 (vs. 284 days in fiscal 2022), driven by faster sales realization and collections. Going forward, GCAs net of cash are expected to remain sizeable owing to the nature of the industry, large receivables, and inventory due to delays in receipts from customers, which are primarily GOI entities, and milestone-based payments for some orders. Consequently, reliance on customer advances is expected to continue.

 

  • Long execution timeframe of supply contracts and susceptibility to volatility in raw material prices and forex 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 0.5-2.5 years. Most of the orders are constrained by pricing flexibility and are received on a 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 cash equivalents are robust at ~Rs. 550 crores as on September 30, 2023. Internal accruals are expected around ~Rs.250 crores in fiscal 2024 and thereafter remain over Rs. 110 crores in fiscal 2025 & fiscal 2026, which are more than sufficient to cover modest capex requirements. In addition, liquidity is further supported by unutilised fund-based limits of Rs. 220 crores.

Outlook: Stable

CRISIL Ratings believes ECIL will 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 exceeding 3-3.5 times.

About the Company

ECIL was incorporated in April 1967 as a wholly owned government enterprise under DAE 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

 

2023

2022

Revenue

Rs crore

2,407

1,581

Profit after tax (PAT)

Rs crore

244

193

PAT margin

%

10.1

12.2

Adjusted debt/adjusted net worth

Times

0.00

0.00

Interest coverage

Times

84.9

73.81

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit and working capital demand loan NA NA NA 102 NA CRISIL AA+/Stable
NA Letter of credit and bank guarantee NA NA NA 1075.65 NA CRISIL A1+
NA Proposed Letter of credit & bank guarantee NA NA NA 350 NA CRISIL A1+
NA Short-term debt NA NA 7-365 days 100 Simple CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 102.0 CRISIL AA+/Stable   -- 22-12-22 CRISIL AA+/Stable 29-12-21 CRISIL AA+/Stable 29-12-20 CRISIL AA+/Stable / CRISIL A1+ CRISIL AA+/Stable / CRISIL A1+
Non-Fund Based Facilities ST 1425.65 CRISIL A1+   -- 22-12-22 CRISIL A1+ 29-12-21 CRISIL A1+ 29-12-20 CRISIL A1+ CRISIL A1+
Short Term Debt ST 100.0 CRISIL A1+   -- 22-12-22 CRISIL A1+ 29-12-21 CRISIL A1+ 29-12-20 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit & Working Capital Demand Loan 100 State Bank of India CRISIL AA+/Stable
Cash Credit & Working Capital Demand Loan 2 ICICI Bank Limited CRISIL AA+/Stable
Letter of credit & Bank Guarantee 350 State Bank of India CRISIL A1+
Letter of credit & Bank Guarantee 50 IndusInd Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 318 YES Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 100 Indian Bank CRISIL A1+
Letter of credit & Bank Guarantee 107.65 ICICI Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 150 IDBI Bank Limited CRISIL A1+
Proposed Letter of Credit & Bank Guarantee 350 Not Applicable CRISIL A1+
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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