Rating Rationale
July 29, 2019 | Mumbai
Goldstone Technologies Limited
Rating upgraded to 'CRISIL B+/Stable' 
 
Rating Action
Total Bank Loan Facilities Rated Rs.5 Crore (Reduced from Rs 10 crore)
Long Term Rating CRISIL B+/Stable (Upgraded from 'CRISIL B/Stable')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long-term bank facilities of Goldstone Technologies Limited (GTL; part of the GTL group) to 'CRISIL B+/Stable' from 'CRISIL B/Stable'. CRISIL has also withdrawn its rating on the proposed long-term bank loan facility of Rs 5 crore at the company's request. The withdrawal is in line with CRISIL's policy of withdrawal of ratings.
 
The upgrade reflects improvement in the group's business risk profile supported by higher-than-expected revenue growth and sustained improvement in the operating margin. Operating income grew 17% fiscal-on-fiscal to Rs 41.8 crore in fiscal 2019 mainly because of significant growth in revenue from sale of tableau licences. The margin improved to 2.0-2.5% over the two fiscals through 2019 as against loss reported earlier, driven by significant reduction in employee costs in the software services segment.
 
The ratings also reflect a modest scale of operations, customer concentration in revenue, and exposure to intense competition in the software development and management services industry. These weaknesses are partially offset by the extensive industry experience of the promoter and an above-average financial risk profile.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of GTL and its wholly-owned subsidiaries, Staytop Systems Inc (SSI) and Staytop Systems and Software Pvt Ltd (SSSPL). That's because all these entities, collectively referred to as the GTL group, are in the same business and have significant operational and financial linkages.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. 

Key Rating Drivers & Detailed Description
Weaknesses
* Modest scale of operations amid intense competition: With revenue of Rs 42 crore in fiscal 2019, the scale of operations remained small in the intensely competitive information technology services segment.

* High customer concentration
Key clients, CISCO and Capgemini, accounted for over 60% of the topline in fiscal 2019, which exposes the group to any change in the business policies of these companies.

Strengths
* Extensive industry experience of the promoter: Benefits from the promoter's decade-long experience in the industry and healthy relationship with customers and suppliers should continue.

* Above-average financial risk profile
The networth was moderate at Rs 34.25 crore and the gearing low at 0.06 time, as on March 31, 2019. Debt protection metrics were adequate, with interest coverage and net cash accrual to total debt ratios at 2.65 times and 0.34 time, respectively, in fiscal 2019.
Liquidity

Liquidity is moderate despite modest net cash accrual, supported by limited reliance on external debt and healthy financial flexibility of the parent, Trinity Infraventures Ltd. Bank limit utilisation was high at about 93% over the 12 months through June 2019. However, the parent has sizeable unencumbered cash balance/fixed deposits of around Rs 100 crore as on date and is expected to extend need-based fund support if required.

Outlook: Stable

CRISIL believes the GTL group will continue to benefit from the extensive industry experience of its promoter. The outlook may be revised to 'Positive' if there is significant and sustained improvement in revenue and operating margin, thus strengthening key credit metrics. The outlook may be revised to 'Negative' if the financial risk profile weakens, most likely because of a significant decline in the operating margin or any large, debt-funded capital expenditure.

About the Group

Incorporated in 1994 and based in Hyderabad, GTL is promoted by Mr L P Sashikumar. It provides software development and management services. The company is listed on the Bombay Stock Exchange and the National Stock Exchange of India Ltd.
 
SSI is engaged in the Information Technology and related services business and is a wholly owned subsidiary of GTL.
 
SSSPL is a wholly owned subsidiary of GTL. However there are no operations in this entity.

Key Financial Indicators
Particulars - Consolidated Unit 2019 2018
Revenue Rs crore 41.8 35.89
Profit after tax (PAT) Rs crore 0.35 1.73
PAT margin % 0.8 4.83
Adjusted debt/adjusted networth Times 0.06 0.06
Interest coverage Times 2.65 2.73

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 Proposed Long Term Bank Loan Facility NA NA NA 5 Withdrawn
NA Overdraft NA NA NA 2 CRISIL B+/Stable
NA Proposed Overdraft NA NA NA 3 CRISIL B+/Stable

Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Goldstone Technologies Ltd Full Same line of business with operational and financial linkages
Staytop Systems Inc Full Same line of business with operational and financial linkages. Wholly owned subsidiary of GTL
Staytop Systems and Software Pvt Ltd Full Same line of business with operational and financial linkages. Wholly owned subsidiary of GTL
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  5.00  CRISIL B+/Stable      25-04-18  CRISIL B/Stable  06-12-17  CRISIL B/Watch Developing  25-01-16  CRISIL BB-/Stable  CRISIL BB/Stable/ CRISIL A4+ 
            16-03-18  CRISIL B/Watch Developing  19-09-17  CRISIL B/Watch Developing       
                06-06-17  CRISIL BB-/Watch Developing       
Non Fund-based Bank Facilities  LT/ST          25-04-18  CRISIL A4  06-12-17  CRISIL A4/Watch Developing  25-01-16  CRISIL A4+  CRISIL A4+ 
            16-03-18  CRISIL A4/Watch Developing  19-09-17  CRISIL A4/Watch Developing       
                06-06-17  CRISIL A4+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Overdraft 2 CRISIL B+/Stable Bank Guarantee 2.5 CRISIL A4
Proposed Long Term Bank Loan Facility 5 Withdrawn Overdraft 2 CRISIL B/Stable
Proposed Overdraft Facility 3 CRISIL B+/Stable Proposed Long Term Bank Loan Facility 5.5 CRISIL B/Stable
Total 10 -- Total 10 --
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 Bank Loan Ratings
CRISILs Criteria for Consolidation
The Rating Process

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