Rating Rationale
February 07, 2018 | Mumbai
FCS Software Solutions Limited
Rating removed from 'Watch Negative' ; Rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.9 Crore
Short Term Rating CRISIL A4 (Removed from 'Rating Watch with Negative Implications'; Rating reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has removed its rating on the short-term bank facilities of FCS Software Solutions Limited (FCS; part of the FCS group) from 'Rating Watch with Negative Implications' and reaffirmed the rating at 'CRISIL A4'.

The rating was placed on negative watch on August 14, 2017, following a circular issued by the Securities and Exchange Board of India (SEBI), which suspended trading in FCS's stocks, on suspicion that it was a shell company. SEBI had placed FCS under Stage VI of the Graded Surveillance Measure (GSM) with immediate effect. SEBI's action followed communication from the Ministry of Corporate Affairs (MCA), listing several companies as suspected 'shell companies'.

In an announcement dated January 31, 2018, SEBI revoked the action envisaged in its letter dated August 7, 2017, and the consequential actions taken by stock exchanges against FCS, its promoters, and directors. Trading in securities of the company have reverted to their status before the SEBI letter dated August 7, 2017, with effect from February 1, 2018.

The rating reflects decline in operating margins, working capital intensive operations and average financial risk profile. These rating weaknesses are partially offset by extensive experience of the promoters.

Analytical Approach

For arriving at its rating, CRISIL has combined the business and financial risk profiles of FCS and its subsidiaries, including FCS Software Solutions America Ltd, FCS Software Middle East FZE, Insync Business Solutions Ltd. The entities, collectively referred to as the FCS group, are in the same business and have financial linkages.

Key Rating Drivers & Detailed Description
Weaknesses
* Continuous decline in operating income: Operating income declined sharply to Rs 36.6 crore in fiscal 2017 from Rs 134 crore in fiscal 2014, due to muted overseas demand. High employee cost and fall in operating income have resulted in operating loss since fiscal 2013.

* Working capital-intensive operations: Gross current assets were at 159 days as on March 31, 2017, because of large loans and advances to affiliates.

* Average financial risk profile: Debt protection metrics may remain weak due to operating loss and expected slow revival in profitability. However, financial risk profile should be supported by low total outside liabilities to tangible networth ratio, expected below 1 time over the medium term.

Strength:
* Extensive experience of the promoters: The group will continue to benefits from the promoters' experience of two decades, and established relationships with customers in the US and India (contributed 60% and 40%, respectively, to revenue in fiscal 2017). Revenue streams are diversified across information technology (IT) consulting and software development, infrastructure management, and E-learning and digital content services.
About the Group

FCS, incorporated in 1993 as a private limited company, was reconstituted as a public limited company in 1999. It is an integrated IT services and solutions provider. The Noida-based company has subsidiaries in the US, Germany, the UAE, and China. 

Key Financial Indicators
As on /For the period ended March 31 Unit 2017 2016
Revenue Rs crore 36.60 42.49
Profit after tax (PAT) Rs crore -45.50 -98.56
PAT margin % -124.31 -231.97
Adjusted debt/Adjusted networth Times 0.05 0.01
Interest coverage Times -10.63 -2.19

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Export packing credit & export bills negotiation/foreign bill discounting NA NA NA 8 CRISIL A4
NA Bank guarantee NA NA NA 1 CRISIL A4
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  CRISIL A4    No Rating Change  14-08-17  CRISIL A4/Watch Negative    No Rating Change    No Rating Change  CRISIL B/Stable 
            01-03-17  CRISIL A4           
Non Fund-based Bank Facilities  LT/ST  CRISIL A4    No Rating Change  14-08-17  CRISIL A4/Watch Negative    --    --  -- 
            01-03-17  CRISIL A4           
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 1 CRISIL A4 Bank Guarantee 1 CRISIL A4/Watch Negative
Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting 8 CRISIL A4 Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting 8 CRISIL A4/Watch Negative
Total 9 -- Total 9 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Software Industry
CRISILs Criteria for Consolidation

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