| Techno Electric And Engineering Company Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'; CP Withdrawn | ||||||
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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 AA-/Stable/CRISIL A1+' ratings on the bank facilities of Techno Electric and Engineering Company Ltd (TEECL). The company has requested for withdrawal of the rating on bank limit of Rs 1,407 crore, out of the previously rated limit of Rs 1,480 crore. We have received withdrawal request and No Objection Certificate from lenders. The rating on the commercial paper of Rs 50 crore has been withdrawn on request from the company and given zero outstanding against the instrument.
Order book remains healthy, with the size improving to Rs 3,828 crore as on December 31, 2022, from Rs 1,466 crore as on March 31, 2022, thus providing healthy revenue visibility over the medium term. TEECL has also divested its wind assets (111.90 MW) during December 2022. Revenue from operations (excluding wind assets) declined by 26% year-on-year to Rs 509 crore in the nine months of fiscal 2023, as delay in handover of few project sites and issue over supply of modules and semi-conductors impaired timely project execution. However, revenue is likely to post a healthy recovery from the fourth quarter of fiscal 2023 given the healthy order book in hand and resolution of site issues. Receipt of a large flue gas desulphurisation (FGD) order worth Rs 1,466 crore from Rajasthan Rajya Vidyut Prasaran Nigam Ltd reduces overall dependence on the T&D segment, which resultantly contributed to only 60% of revenue as on December 31, 2022 (93% as on March 31, 2022).
Operating margin in the engineering, procurement and construction (EPC) segment contracted to 14.5% for the first nine months of fiscal 2023, from 16.5% in the corresponding period of the previous fiscal, amid headwinds in the commodity and freight segments visible across the industry. However, with softening of commodity prices and new orders factoring in the revised pricing, the margin should remain steady at 14-15% in the near term. Further diversification in the data centre segment, which fetches a healthy margin, would support the overall profitability. TEECL still has a better margin than most peers, which also faced similar pressure on profitability during the nine months of fiscal 2023. Performance is expected to sustain over the medium term.
The company is also building data centre projects and is currently executing 6MW capacity out of the planned 24MW in the first phase. Further, it has also received an order to execute the smart meters projects in Jammu and Kashmir under the DBFOT (Design, Built, Finance, Operate and Transfer) model. Timely execution of both the projects within the expected cost remains a key monitorable.
The financial profile remains robust aided by nil debt and healthy liquidity, with strong cash balances. The rating continues to reflect the established market position of TEECL in executing substation-based EPC projects, its strong operational efficiency and robust financial risk profile. These strengths are partially offset by exposure to intense competition and the stretched working capital cycle. |
Analytical Approach CRISIL Ratings has considered a standalone approach to arrive at the ratings of TEECL.
In line with its publicly stated intent, TEECL has sold down sizeable wind assets of 111.9 MW of wind assets in Tamil Nadu. The wind asset was a non-core business for the entity. |
Key Rating Drivers & Detailed Description Strengths Established market position in the EPC business in the power sector and highest ever order book position at Rs 3,828 crore: TEECL has a vintage of around four decades and has set up around 50% of India’s national power grid. The company is present across the entire life cycle of EPC projects, from designing, commissioning, handover, and operation management. TEECL is leveraging recent policy developments in generation reforms (FGD) and distribution reforms (Revamped Distribution Sector Scheme or RDSS) to bid for large projects, thereby capitalising on its experience in EPC projects. Order book is robust, valued at Rs 3,828 crore as on December 31, 2022. It has developed competency in executing around eight packages of the addressable 17 packages usually contracted in the balance of plant (BoP) segment. Clients include Power Grid Corporation of India Ltd (Power Grid; 'CRISIL AAA/Stable/CRISIL A1+'), which accounts for bulk of capital expenditure in the power transmission sector in India. With strong technical capabilities, TEECL has a leading market position in executing 765 kilovolt (KV) extra high voltage (EHV) substation projects and a track record of efficient execution, as reflected in its higher-than-industry operating margin.
High operating efficiency: Operating efficiency is driven by strong technical capabilities, with value-added nature of projects, fetching a high margin, selective bidding for projects with strong sponsors, and demonstrated track record of timely execution. Return on capital employed (RoCE) stood at 17% as on March 31, 2022, given the asset-light EPC business. RoCE could be adversely impacted in the future if the data centre business remains with TEECL on a standalone basis.
Robust financial risk profile: Financial risk profile is supported by a solid capital structure and debt protection metrics. It is likely to remain strong, marked by nil debt as of March 2022 and marginal utilisation of the fund-based limit of Rs 20 crore as of September 2022. Debt protection metrics were robust, with interest coverage ratio over 40 times in the nine months ended December 31, 2022.
Weaknesses Exposure to intense competition in the power sector EPC segment: The power transmission and distribution (T&D) business is marked by low entry barriers and is thus, intensely competitive. The power sector is also exposed to structural issues such as weak financials of generation companies, revenue under recovery gap for discoms, coal supply issues for which the government has brought in various policy changes such as RDSS.
Susceptibility to slower project execution, on account of several macroeconomic factors, also persists. Competitive pressure and fewer high margin orders had constrained profitability of the EPC segment in fiscals 2013 and 2014, and again in fiscals 2017 and 2018. However, this risk is partly offset by strong technical capabilities and market position of TEECL, especially in the less competitive 765 Kv substation-based projects.
Stretched working capital cycle: Operations may remain working capital intensive over the medium term, owing to the inherent nature of the EPC business and long project execution cycle (of 2-3 years). Receivables have been sizeable in both EPC and wind segments. In the wind business, payments were delayed by TANGEDCO. Overall, gross current assets decreased to 333 days as on March 31, 2022, from 342 days as on March 31, 2021. Post the sale of wind assets of 111.9 MW in Tamil Nadu, receivables from TANGEDCO should be realised over time. Realisations from the data centre project, which is expected to operationalise in fiscal 2023, should further alleviate the stretch in the working capital cycle. Advances from customers in the EPC segment also eases part of the pressure, as these advances are interest-free in nature. |
Liquidity: Strong Liquidity remains strong, driven by sizeable cash and cash equivalent of around Rs 1,079 crore as on September 30, 2022, healthy cash accrual of around Rs 132 crore in the first nine months of fiscal 2023, and absence of any term debt. Although the company intends to distribute a portion of yearly profit to its shareholders via dividend and share buyback, liquidity should remain adequate in the medium term, supported by the sell-off of remaining wind assets at competitive rates. Cash outlay towards the data centre projects could impact liquidity in the medium term. |
Outlook: Stable Operating performance of TEECL will sustain over the medium term, given its healthy order book, superior execution track record and improving industry prospects. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company The Kolkata-based TEECL has been set up by the promoter, Mr PP Gupta, who oversees operations along with a team of professionals. The company undertakes turnkey EPC projects, predominantly in the power sector, across generation, transmission, and distribution segments. In fiscal 2015, it received the 'Best Safety Award' from PGCIL.
TEECL entered the renewable power generation space in 2009, by acquiring Super Wind, and with 45 megawatt (MW) of wind energy assets. It acquired Simran Wind Project Ltd (Simran) in 2009, which had an installed capacity of 50.45 MW, which was subsequently scaled up to 162.35 MW. The company divested 44.45 MW and 33 MW of capacity in Simran in May 2015 and January 2017, respectively.
TEECL got its current name post its merger with Simran. On February 08, 2023, the company sold off 37.50 MW out of existing 111.90 MW wind capacity for consideration of Rs 158.93 crore. The company also entered into memorandum of understanding agreements for sale of another 71.40 MW of the remaining capacity. As per communication from the company, sale of remaining capacity will be concluded by end of fiscal 2023. Realisations from the sale are projected around Rs 4 crore/MW. There was no debt on the wind assets.
For the nine months through December 2022 profit after tax (PAT) was Rs 126 crore over total income of Rs 516 crore compared with Rs 226 crore and Rs 766 crore, respectively, in the corresponding period the previous year. The same was on account of contraction in overall size of the company post sale of wind assets. |
Key Financial Indicators
*includes profit on sale of investment in Kohima Marini Transmission Ltd asset in fiscal 2022 **Nil debt as of March 2022 and March 2020 |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Fully interchangeable with non-fund-based limit # Includes sub-limit of Rs 5 crore for fund-based facilities $ Includes sub-limit of Rs 85 crore for fund-based facilities ^ Fully interchangeable with fund-based facilities % Includes sub-limit of Rs 10 crore for fund-based facilities |
| 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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This Annexure has been updated on 29-Mar-2023 in line with the lender-wise facility details as on 23-Feb-2023 received from the rated entity.
* Fully interchangeable with non-fund-based limit
# Includes sub-limit of Rs 5 crore for fund-based facilities
$ Includes sub-limit of Rs 85 crore for fund-based facilities
^ Fully interchangeable with fund-based facilities
% Includes sub-limit of Rs 10 crore for fund-based facilities
Criteria Details
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