Rating Rationale
June 25, 2018 | Mumbai
Techno Industries Limited
Rating outlook revised to 'Negative'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.21 Crore
Long Term Rating CRISIL BBB/Negative (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank facility of Techno Industries Limited (TIL) to 'Negative' from 'Stable', while reaffirming the ratings at 'CRISIL BBB/CRISIL A3+'.

The outlook revision reflects CRISIL's belief that TIL's business and financial risk profile are likely to be impacted on account of lower-than-expected operating profitability thereby impacting the debt protection metrics over the medium term. The operating margins deteriorated from 18 per cent in fiscal 2016 to around 13 per cent in fiscal 2017. The company is estimated to report further decline in its operating margins to around 5 per cent for the fiscal 2018 leading to moderate accruals in the range of Rs.7-8 Cr. vs. Rs.9.2 Cr. in fiscal 2016. The reducing accruals vs. stretch in book debts are expected to put pressure on its overall cash flow adequacy. The operating margins are expected to revive in current fiscal 2019 due to better gross margins aided by prices revision vs. lower inventory holdings, improving product mix through increasing sales of product (solar pumpset) and improving operating leverage. However, the extent of the recovery in the operating margins would be the key monitorable.

The ratings reflect the extensive experience of the company's promoters in the elevator and escalator industry, established relationship with customers, well established brand name -Techno, and benefits expected from its recent association with the Gujarat Apollo group. The ratings also factor in a healthy financial risk profile because of low gearing and above-average debt protection metrics. These rating strengths are partially offset by a modest scale of operations in a highly competitive industry and working capital-intensive operations.

Key Rating Drivers & Detailed Description
Strengths
* Extensive industry experience of the promoters: TIL's promoters are in elevators and pump industry since last 31 years. It is promoted by Mr. Bharat Patel and Rita B. Patel. In 2015-16 and 2016-17 promoters of Gujarat Apollo group-Mr. Asit Patel and Mr. Rajiv Patel through Apollo Earthmovers Pvt Ltd and Mr.Abhay Dalal through Abhyay Dalal and Associates purchased 15 per cent and 45 per cent of TIL from existing promoters. TIL is expected to benefit from extensive experience of new promoters. Mr. Bharat Patel has more than 3 decades of experience in this line of business with expertise in designing, erection and installation of elevators and escalators. Also, the company has innovated various new products in pumps and elevator category which will aid the revenue profile of company. CRISIL expects TIL to report 30 per cent growth in topline going forward.

* Above average financial risk profile: Its financial risk profile supported by average networth and gearing (Rs.46 Cr. and 0.2 times, respectively, as on March 31, 2017). Its debt protection metrics are above average with interest coverage of 7.7 times and net cash accrual to total debt of 0.80 times in 2016-17. The financial risk profile is expected to continue to be average over the medium term. 

Weakness
* Moderate scale of operations in intensely competitive industry: Though the company's scale of operations has been in the increasing trend post 2014-15. CRISIL believes that TIL's operations would continue to be moderate in the intensely competitive and fragmented industry, over the medium term

* Working capital intensive operations
The company's working capital cycle has been around 180-230 days since past 3 years ended as on March 2017. The working capital cycle is dominated by inventory holdings and book debts. Over the medium term, the operations are expected to remain working capital intensive.
Outlook: Negative

CRISIL believes that the TIL's credit risk profile is likely to deteriorate over the medium term backed by lower-than-expected profitability leading to moderate accruals. The ratings may be downgraded if the company reports further decline in operating profitability and/or large debt-funded capital expenditure, or a stretched working capital cycle, leading to weakening of the financial risk profile. Conversely, the outlook may be revised to 'Stable' if the company improves its revenue growth and profitability significantly, resulting in improving accruals and overall improvement in its debt protection metrics.

About the Company

TIL was set up in 2000 by Mr. Bharat Patel and Ms. Rita Patel. It manufactures elevators, escalators, and submersible pumps under the brand name Techno, at its facility in Gujarat. Post 2014-15, Apollo Earthmovers Ltd (wholly owned subsidiary of Gujarat Apollo Industries Ltd) and Abhay Dalal and Associates have a 15 per cent and 40 per cent stake respectively.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs. Cr. 94.6 78.7
Profit After Tax (PAT) Rs. Cr. 5.9 6.9
PAT Margin % 6.2 8.8
Adjusted Debt/Adjusted Net worth Times 0.2 0.2
Interest coverage Times 7.7 5.1

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)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)
Maturity Date Issue
Size
(Rs. Cr)
Rating Assigned  with Outlook
NA Cash Credit NA NA NA 12 CRISIL BBB/Negative
NA Bank Guarantee NA NA NA 5 CRISIL A3+
NA Letter of Credit NA NA NA 4 CRISIL A3+
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  12.00  CRISIL BBB/Negative      05-04-17  CRISIL BBB/Stable    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  9.00  CRISIL A3+      05-04-17  CRISIL A3+    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 5 CRISIL A3+ Bank Guarantee 5 CRISIL A3+
Cash Credit 12 CRISIL BBB/Negative Cash Credit 12 CRISIL BBB/Stable
Letter of Credit 4 CRISIL A3+ Letter of Credit 4 CRISIL A3+
Total 21 -- Total 21 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Recognising Default
Mapping global scale ratings onto CRISIL scale

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