| H M Electro Mech Limited | ||||||
| Ratings upgraded to 'CRISIL BBB-/Stable/CRISIL A3' | ||||||
| Rating Action | ||||||
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| 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 upgraded its ratings on the bank loan facilities of H M Electro Mech Limited (HMEML) to 'CRISIL BBB-/Stable/CRISIL A3' from ‘CRISIL BB+/Stable/CRISIL A4+’.
The upgrade reflects sustained improvement in the business risk profile of the company supported by increase in revenue and operating margin to Rs 117 crore and 10.98%, respectively, in fiscal 2024 from Rs 101.5 crore and 8.78%, respectively, in fiscal 2023. Sizeable order book and its timely execution with increase in trading of pumps and pipes resulted in over 15% growth in the topline in fiscal 2024 (over fiscal 2023) and in-hand orders of Rs 202.6 crore as on March 31, 2024, provide healthy medium-term revenue visibility. Revenue will likely remain at a similar level while the operating margin is expected to remain steady at 7-8% over the medium term. Timely execution of orders with stable operating profitability while managing the working capital cycle will remain a key rating sensitivity factor.
The financial risk profile was moderate, as indicated by estimated networth, total outside liabilities to tangible networth (TOLTNW) ratio and gearing of Rs 32.5 crore, 1.60 times and 0.40 time, respectively, as on March 31, 2024. Debt protection metrics will remain comfortable owing to healthy operating margin, with interest coverage ratio expected above 6.5 times and net cash accrual to total debt (NCATD) ratio of more than 0.7 time over the medium term. In the absence of any large capital expenditure (capex) plans and additional term loans, the financial risk profile will likely improve over the medium term.
The ratings continue to reflect the extensive experience of the promoters in the electromechanical infrastructure services and civil construction industry, and the comfortable financial risk profile of the company. These strengths are partially offset by susceptibility to risks inherent in tender-based business and large working capital requirement. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
Expenditure by government agencies and public sector undertakings is directly linked to the economy. Any delay or deferment of capex in end-user industries may constrain the scalability of HMEML. The company also faces geographic concentration risk as regulatory changes, pressure on budgets of government departments or slowdown in infrastructure expenditure can significantly impact revenue and realisation.
While operating margin is expected at 8-9% over the medium term, sustenance of moderate order book and timely order execution while sustaining profitability will remain monitorable.
Inventory includes work-in-progress and raw material stock. Nevertheless, the company has a price escalation clause in all its contracts, which mitigates the risk of any sharp fluctuation in raw material prices. The working capital cycle is supported by payables of 50 days as on March 31, 2024, bank limit and internal accrual. Improvement in the working capital cycle will remain a key monitorable. |
Liquidity: Adequate Bank limit was utilised 40% on average over the 13 months through May 2024. Expected cash accrual over Rs 7.5 crore per annum will sufficiently cover yearly term debt obligation of Rs 3.56 crore over the medium term. Current ratio was healthy at 1.86 times as on March 31, 2024. Strong gearing and networth support financial flexibility and will cushion liquidity against adverse conditions or downturns in the business. |
Outlook: Stable The company will continue to benefit from the extensive experience of its promoters and strong technical knowledge. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the Company Set up in 2003 as HM Engineers and reconstituted as a public limited company with the current name in 2018, Ahmedabad, Gujarat, based HMEML undertakes civil construction and electromechanical works, construction of pumping machineries for water and wastewater, diesel generator set projects and PLC/SCADA (Programmable Logic Controller/Supervisory Control and Data Acquisition) and instrumentation work. |
Key Financial Indicators
*Provisional numbers |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| 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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Criteria Details
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