| Techno Electric And Engineering Company Limited | ||||||
| Rating outlook revised to 'Stable'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has revised the outlook on the long term bank loan facilities of Techno Electric and Engineering Company Ltd (TEECL) to 'Stable' from 'Positive' and has reaffirmed the rating at 'CRISIL AA-'. Rating on the short term rating and commercial paper programme has also been reaffirmed at 'CRISIL A1+'. |
| Analytical Approach |
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CRISIL has considered a standalone approach to arrive at the ratings of TEECL. The associate companies - namely Jhajjar KT Transco Ltd (Jhajjar; 49% stake), Patran Transmission Co Ltd (Patran [now sold; earlier 49% stake]), and Kohima Marini Transmission Ltd (Kohima) [signed definitive agreement to sell 26% stake]'which hold transmission projects, have still not been consolidated. This is because TEECL holds less than 50% stake in the entities, and has not guaranteed their debt, which TEECL is likely to stick to over the medium term. Moreover, equity contribution towards Jhajjar is unlikely as the project is operational. CRISIL has factored in investments TEECL is to make towards 1-2 power transmission projects till fiscal 2022. Investment of Rs 85 crore is to be undertaken in Kohima between fiscals 2019 and 2021. Any change in the management's policy regarding support to the associates will be a key rating sensitivity factor. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position in the EPC business in the power sector: TEECL has been in the business for around three decades, and has set up around 50% of high voltage substations in India. 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+'), NTPC Ltd ('CRISIL AAA/FAAA/Stable/CRISIL A1+'), and state transmission companies, which account for the bulk of capital expenditure in the power transmission sector in the country. With strong technical capabilities, the company 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. As on December 31, 2019, TEECL had unexecuted orders of Rs 2,412 crore. * High operating efficiency: Operating efficiency is driven by strong technical capabilities, with value-added nature of projects, selective bidding strategy of high-margin orders, and demonstrated track record of timely execution. Return on capital employed (RoCE) has remained high at 18-22% in the past couple of years, driven by the asset-light EPC business. RoCE in the EPC business has remained over 50%. Operating margin in the EPC segment was around 19% in the nine months through December 2019, and is better than most peers. The performance is expected to sustain over the medium term. * Robust financial risk profile: Financial risk profile is strong, supported by a solid capital structure and debt protection metrics, and should remain so over the medium term, with TEECL being debt-free as of December 2019. Networth was large and leverage low at Rs 1,467 crore and 0.45 time, respectively, as on December 31, 2019. Debt protection metrics were robust, with interest coverage ratios of over 50 times in the nine month ended December 2019. Weaknesses * Exposure to intense competitive pressure: Competition is intense in the power transmission and distribution (T&D) business due to low entry barriers. The power sector faces structural issues, too. Susceptibility to the risk of slower project execution, on account of several macroeconomic factors, also persists. Competitive pressure and lower 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 the strong technical capabilities and market position of the company, in the EHV substation-based projects. * Stretched working capital cycle: Operations are working capital intensive and should remain so 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 increased to 332 days as on December 31, 2019, from 277 days as on March 31, 2019. Advances received from customers relieves some of the pressure on working capital. |
| Liquidity Strong |
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Liquidity is strong, driven by sizeable cash and cash equivalent of Rs 555 crore (including investments in bonds, non-convertible debentures, and mutual funds) as on December 31, 2019, expected accruals of around Rs 250 crore in fiscal 2021 and the debt free status as of December 2019. Although, the company intends to distribute a portion of yearly profit to its shareholders by way of dividend/buyback, liquidity should remain adequate, supported by the management's intent to sell the remaining wind assets and transmission assets over the medium to long term. Surplus liquidity may be used for synergistic opportunities in the transmission sector, rather than in asset-intensive generation projects. Liquidity is also supported by low fund based utilisation, averaging around 5% for the 12 months ended November 30, 2019. |
| Outlook: Stable |
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CRISIL believes TEECL's operating performance will benefit over the medium term on backed by its unexecuted order book, superior execution track record and investments in the T&D industry, supporting growth in the size of orders. |
| About the Company |
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TEECL, headquartered in Kolkata, is promoted by Mr P P Gupta, who is assisted by a team of professionals. It undertakes turnkey EPC projects, predominantly in the power sector, across generation, transmission, and distribution segments. In fiscal 2015, the company received the 'Best Safety Award' from Power Grid. TEECL entered the renewable power generation space in 2009 with 45 megawatt (MW) of wind energy assets by acquiring Super Wind. It acquired Simran Wind Project Ltd (Simran) in 2009, which had installed capacity of 50.45 MW that was subsequently scaled up to 162.35 MW. The company divested 44.45 MW and 33 MW of capacity of Simran in May 2015 and January 2017, respectively. TEECL got its current name post its merger with Simran. |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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