| Revathi Equipment Limited | ||||||
| Ratings removed from ‘Watch Developing’; 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 removed its ratings on bank facilities and debt instrument of Revathi Equipment Limited (REL) from 'Rating Watch with Developing Implications’ and has reaffirmed the ratings at ‘CRISIL BBB+/CRISIL A2’ while assigning a ‘Stable’ outlook to the long term rating.
The reaffirmation and outlook revision factors the steady growth of REL on a standalone basis , which has been growing at a steady rate of over 10% in previous 3 fiscals supported by a healthy order book. Despite demerger of SCPL, which had contributed to around 45% of revenue in FY 2022, resulting in material reduction in scale of operations over the medium term, CRISIL Ratings believes that demerger of SCPL will not have any material impact on overall credit risk profile of REL as its as its operating efficiency will strengthen, while financial risk profile continues to remain healthy with a comfortable debt metrics i.e gearing as on 31st March 2023 is less than 0.2 times. Recently concluded scheme is expected to aid in overall streamlining of the business operations within the group and consolidate the group's market position, along with synergy benefits expected from streamlining of assets and will allow a focused strategy for each of business segments.
NCLT vide its order dated 14.06.2023 has approved the Scheme of Arrangement (SoA) between REL and associate companies, Renaissance Advanced Consultancy Limited (RACL), Renaissance Consultancy Services Limited (RCSL) and Renaissance Stocks Limited (RSL), Semac Consultants Private Limited (SCPL) and Renaissance Corporate Consultants Limited (RCCL), and their respective shareholders and creditors through the final NCLT hearing held on April 19th 2023.The above scheme of arrangement will be applicable effectively from April 1, 2022 on a retrospective manner.
REL’s standalone revenue has grown by 13% on YoY basis in fiscal 2023 and 160% in Q4 fiscal 2023 and operating margins have improved by 300 bps to 21% for FY 2023 mainly due to healthy order execution and booking of spare sales during Q4 of fiscal 2023.Revenue growth is expected to remain healthy, in double digits, at 8-10% over the medium term, supported by a strong order backlog and steady inflow of fresh orders. Rising government and private sector spend on infrastructure stemming from sustained government thrust and steady improvement in private capital expenditure to augur well for capital goods companies supplying to cement, energy, and steel product manufacturers.
The ratings continue to reflect REL’s healthy market position and steady growth prospects for the mining equipment sector, adequate financial risk profile and liquidity. These rating strengths are partially offset by working capital-intensive operations. |
Analytical Approach Earlier, CRISIL Ratings had combined the business and financial risk profiles of REL and SCPL, with SCPL being majorly held by REL. Besides, both entities had common board members, and significant managerial and financial linkages.
However, based on the SoA approved by NCLT, while the drilling and spares business of REL will be merged with RCCL, the subsidiary Semac Consultants Pvt Ltd will be merged with REL’s residual business and hence, SCPL will no longer be a subsidiary of REL. Accordingly, standalone business and financial risk profiles of REL’s drilling and spares business, which will be merged with RCCL as per SoA, has been considered for arriving at ratings of REL. |
Key Rating Drivers & Detailed Description Strengths: Healthy market position and steady growth prospects in the Mining equipment division: The Revathi group has an established presence in the domestic open cast coal mining equipment industry with a track record of over 35 years in supplying machinery and spares to CIL. The other player in this market is Atlas Copco (India) Ltd (Atlas Copco, ‘CRISIL AAA/Stable/CRISIL A1+’). Industry has high entry barriers in the form of engineering design skills and need for an efficient after sales service. However company has a strong after-market presence in terms of spares and servicing which will also provide stability to the revenue stream.
Expected increase in coal production over the medium term with Coal India Ltd approving new projects for various CIL subsidiaries in line with government’s move towards import substitution. This will further lead to opening of new mines, expansion of existing mines and operationalization of commercially auctioned mines and expected to translate into higher demand for mining equipment.
Adequate financial risk profile: REL's financial risk profile will continue to remain adequate, as indicated by healthy networth of Rs 206 crore and low gearing of 0.16 times as on Mar 31, 2023.. The company’s debt protection ratios have witnessed steady improvement in fiscal 2023, supported by better liquidity and prudent funding of capex and working capital.
Weaknesses: Working capital-intensive operations: The mining equipment industry is working capital intensive due to large inventory with volatility in order intake and delayed payments by public sector undertaking clients. In the absence of fixed or standardised order placement schedules, the group is required to maintain large inventory for its manufacturing operations in addition to maintaining substantial spares inventory to promptly meet after-sales obligations. Working capital borrowings of the company had marginally increased from Rs.28 crore to Rs.33 crore in fiscal 2023 with higher execution of export orders during the Q4 of fiscal 2023.Further with company increasing the exposure to private companies and through efficient follow-up of receivables though dealers, receivable level is expected to improve gradually over the medium term.
Modest scale of operations with higher client concentration: Scale of operations of REL has been modest over time with revenue of less than Rs.200 crore. Further company’s dependence on Coal India Limited(CIL) and its subsidiaries has been higher with share of revenue from CIL & subsidiaries around 80% of revenue in fiscal 2023. However company has been gradually reducing its reliance on CIL by supplying drilling equipments to cement and other non-coal Industries and some of the key clients in non-coal sector which company caters to are Ultratech, Zuari, Bharti Cements etc. This is expected to aid the company in reducing the client concentration over the medium term. |
Liquidity: Adequate The company has adequate liquidity driven by expected cash accruals of ~Rs.17-20 crores over the medium term and cash and bank balance of Rs 9 crore as on March 31, 2023 as against nominal term loan repayments of Rs.1.5-2 crore per annum. Maintenance capex requirement will be moderate at around Rs 2-3 crore per annum. CRISIL Ratings expects internal accruals, cash equivalents and unutilized bank lines (60-70%) to be sufficient to meet its minimal capex and incremental working capital requirements. |
Outlook: Stable CRISIL Ratings believes the REL’s established business position in the mining equipment sector, healthy demand prospects, and good operating efficiency, will lead to steady cash accrual over the medium term. Financial profile is also expected to sustain at healthy levels, due to prudent capex spend. |
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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 Malumichampatti 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. |
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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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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