| Revathi Equipment Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+ / Stable / CRISIL A2 ' | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities and short term debt programme of Revathi Equipment Limited (REL; a part of the Revathi group) at ‘CRISIL BBB+/Stable/CRISIL A2’.
In fiscal 2021, the drilling equipment division (DED) posted a healthy 13% growth driven by stable domestic orders from Coal India Ltd (CIL; rated CRISIL AAA/Stable/CRISIL A1+) and its subsidiaries and increase in export orders. This was offset by decline by sharp 43% decline in revenues of Semac Consultants (SC) due to the continued slowdown in orders from the construction sector. Overall revenues thus declined by 17% in fiscal 2021.
While the operating margin for equipment division remained healthy at 21% in fiscal 2021, The SC division posted operating loss of Rs 12.4 crore due to the revenue impact and one-time provisions and write-offs aggregating Rs 8 crore. Overall operating margins hence declined to 4.4% in fiscal 2021 compared with 11.7% in fiscal 2020.
In fiscal 2022, REL’s performance expected to improve driven by steady increase in revenues in equipment division supported by increasing private mining of coal and focus on exports. The engineering design services of SC will benefit by restoration of construction activity especially in the second half of fiscal 2022. Absence of any further write-offs and provisions will support profitability.
Financial risk profile continues to remain healthy with low gearing and healthy debt protection metrics. Despite high bank limit utilisation, liquidity supported by cash surplus of Rs 20 crore. Further, low gearing provides flexibility to take additional loans if required.
The ratings continue to reflect REL’s healthy market position and steady growth prospects for the drilling equipment division (DED), and adequate financial risk profile and liquidity. These rating strengths are partially offset by working capital-intensive operations, and intense competition for SC in design services for construction sector. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of REL and SC. This is because these entities, collectively referred to as the Revathi group, have common promoters and have significant managerial and financial linkages.
CRISIL Ratings has entirely amortised goodwill on acquisition of SC and US-based Satellier Holdings Inc over 10 years by fiscal 2017.
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:
Weaknesses:
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Liquidity: Adequate The company has adequate liquidity driven by expected cash accruals of Rs 19-21 crore over the medium term and cash and bank balance of Rs 20 crore as on March 31, 2021. In the medium term, maintenance capex requirement will be moderate at around Rs 2-3 Cr per annum. The company currently does not have any long-term repayment obligations. CRISIL expects internal accruals, cash & cash equivalents and 80% used bank limits as of March 2021 to be sufficient to meet its minimal capex and incremental working capital requirements. |
Outlook: Stable CRISIL Ratings believes the Revathi group’s strong business risk profile driven by sustained orders from CIL will offset some of the headwinds in the construction sector. Steady operating performance of DED and improvement of operations at SC will enhance the business risk profile, while healthy cash accrual and negligible capex should improve credit metrics, despite working capital-intensive operations. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company REL, incorporated in 1977 manufactures blast-hole drills (rotary and down-the-hole, diesel/electric driven) for mining applications, jack less-drills, water well drills, hydro-fracturing units, and exploratory drills. These are used extensively in coal, copper, gold, iron, zinc, phosphate, bauxite, lignite, and limestone mines. Plant is in Malumachampatti in Coimbatore, Tamil Nadu.
REL predominantly supplies to CIL and its subsidiaries, including Northern Coalfields Singrauli, South Eastern Coalfields Bilaspur, Central Coalfields Ranchi, Western Coalfields Nagpur, and Eastern Coalfields Ltd. Other prominent customers in DED include Department of Supplies, Chennai; Tata Steel Ltd; and Hindustan Zinc Ltd.
REL had a construction equipment division which discontinued operations in fiscal 2015 due to poor business prospects.
REL’s subsidiary, Semac Consultants Private Limited, is an Architectural and Engineering Design firm set up in 1969 in Bangalore. It offers services across Architecture, Structural, Electrical, Public Health Engineering, Fire protection, Heating Ventilation and Air Conditioning, and Energy Audit domains. It has also started design build vertical for complete execution of construction projects. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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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 various bank facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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