| R Systems International Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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 reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of R Systems International Limited (R Systems).
The ratings continue to reflect healthy operating performance of the company, supported by higher volumes of digital contracts and comfortable operating margin. Financial risk profile has been healthy, with negligible debt and cash surplus of around Rs 322 crore as on March 31, 2023.
Revenue grew 31% in 2022, driven by the shift towards digital contracts and benefited by rupee depreciation. However, the operating margin moderated to 13.2% from 14.8% in calendar year 2021 due to increased average salaries and higher spend on sales and marketing activities. Revenue growth moderated to 17% year-on-year in the quarter ended March 2023 owing to macroeconomic pressures in North America and Europe (which contribute around 85% to the revenue of R Systems).
Revenue growth was at similar levels in fiscal 2023, with the operating margin estimated at 13-14%, as end users in key verticals such as technology, telecommunication (telecom) and banking, financial services, and insurance (BFSI) accelerated their digital transformation initiatives.
The recent acquisition of Velotio Technologies Pvt Ltd (Velotio) is expected to accrue various synergy benefits, further strengthening the business risk profile of R Systems. As Velotio is in the similar line of business (product engineering and digital solutions provider), R Systems can build its presence in Pune through the development centre of Velotio. In addition, it would generate cross-selling opportunities for the company as it onboards over 50 clients from Velotio.
Upfront cash consideration of Rs 279 crore would be funded through the available cash balance of Rs 322 crore as of March 2023. While the deal is yet to be finalised, no major debt is expected in the books of Velotio. Velotio will continue as a subsidiary of R Systems, managed by its existing team. Post this acquisition, given the cash payout, liquidity of R Systems could moderate. However, the overall balance sheet position of the company should remain comfortable, given the comfortable financial risk profile (wherein current debt position is minimal), unutilised bank limit, and healthy cash accrual of Rs 150-200 crore per annum.
These strengths are however partially offset by exposure to geographical concentration risk and modest scale of operations. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of R Systems and its subsidiaries, which are an integral part of its business and are, therefore, critical to the overall credit risk profile. For arriving at the adjusted financials, CRISIL Ratings has amortised goodwill created upon the acquisition of Innovizant LLC (Rs 10.07 crore) in January 2019 over a period of five years and would also be amortising the goodwill created upon the acquisition of Velotio in June 2023 for a similar tenure.
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 Strengths:Healthy financial risk profile Financial risk profile should remain supported by steady cash accrual (Rs 150-200 crore per annum) and efficient working capital management. Adjusted networth stood at Rs 531 crore as on December 31, 2022, compared to Rs 447 crore a year earlier; with adequate liquid surplus of Rs 322 crore as of March 2023 and moderate annual maintenance capital expenditure (capex) of Rs 18-20 crore. Debt protection metrics have been strong with interest coverage ratio at 41.25 times and net cash accruals to total debt ratio of 47.83 times, with negligible debt of around Rs 2 crore as of December 2022.
Comfortable business risk profile, supported by industry and customer diversities The company has over 250 customers and is diversified across verticals such as telecom, technology, healthcare and life science, finance and insurance, and retail and e-commerce. Also, the top 10 clients contributed to 25% of revenue in March 2023, compared with 28% in 2020.
Revenue grew 31% in 2022, driven by the shift towards digital contracts and rupee depreciation. However, the operating margin moderated to 13.2% from 14.8% in 2021. Revenue growth was at similar levels in fiscal 2023, with the operating margin estimated at 13-14%, as end users in key verticals such as telecom and BFSI accelerated their digital transformation initiatives. Diversified industry and customer portfolios should support steady business growth over the medium term.
Weakness:High geographical concentration in revenue Nearly 75% of the total turnover accrued from North America and 10% from Europe in 2022. These markets (combined) have accounted for more than 70% of the revenue profile since 2006. This exposes the company to economic downturns or any unfavourable government policy in these regions. |
Liquidity: Strong Cash surplus was adequate at Rs 322 crore as on March 31, 2023, which is expected to moderate on account of the cash-funded acquisition. Fund-based limit of Rs 20 crore remained unutilised during the six months through May 2023. Cash accrual is projected at more than Rs 150-200 crore per annum will comfortably cover negligible debt obligation in calendar year 2023. The company is expected to increase its working capital limit to boost financial flexibility. |
Outlook: Stable R Systems will continue to benefit from healthy business and financial risk profiles, supported by diversity in customers and product offerings, healthy cash accrual and moderate debt levels. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company R Systems was incorporated as a private-limited company in 1993 by Mr Satinder Singh Rekhi. It got reconstituted into a public-limited company in April 2000 and came out with its initial public offering in 2006. As on May 31, 2023, Blackstone Capital Partners held 51.93% common equity of the company.
R Systems is a leading provider of technology, artificial intelligence, analytics and knowledge services. It partners with customers to enable or elevate their digital transformation with diversified digital offerings including product engineering, cloud enablement, quality assurance testing and digital platforms and solutions.
The company offers services and solutions across telecom, technology, healthcare and life science, finance and insurance, and retail and e-commerce. It has 18 development and service centres to serve customers in North America, Europe and the Far East. Around 80% of revenue accrues from North America and Europe.
For the three months through March 2023, R Systems reported net profit of Rs 35.8 crore on net sales of Rs 404 crore, against Rs 29 crore and Rs 343 crore, respectively, for the corresponding period of the previous year. |
Key Financial Indicators
*Company follows calendar year |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with letter of credit, export packing credit, pre-shipment credit in foreign currency and pre-shipment credit |
Annexure - List of Entities Consolidated
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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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