Rating Rationale
August 07, 2020 | Mumbai
Techno Springs India Private Limited
Ratings downgraded to 'CRISIL BB+/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.17.25 Crore
Long Term Rating CRISIL BB+/Stable (Downgraded from 'CRISIL BBB-/Stable')
Short Term Rating CRISIL A4+ (Downgraded from 'CRISIL A3')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its ratings on the bank facilities of Techno Springs India Pvt Ltd (TSI) to 'CRISIL BB+/Stable/CRISIL A4+' from 'CRISIL BBB-/Stable/CRISIL A3'.
 
The downgrade reflects weakening of the company's business risk profile, because of continuous decline in operating profitability since fiscal 2017. From around 24% in fiscal 2017, operating profitability plummeted to 17.3% in fiscal 2020. This, along with around 30% decline in revenue year-on-year, led to lower accrual in fiscal 2020, which was estimated at Rs 2.8 crore (Rs 4.05 crore in fiscal 2019). Although, the financial risk profile was healthy on account of low reliance on external debt, lower accrual led to weakening of the liquidity profile as net cash accrual to debt repayment ratio weakened to 1.2 times in fiscal 2020, from 2.4 times in fiscal 2019.
 
Additionally, the Covid-19 pandemic and measures taken to control it will further constrain business growth over the medium term. This is also evident by small revenue booking of Rs 2.5 crore in the first quarter of fiscal 2021, against Rs 6.5 crore booked in the same quarter of the previous fiscal. The business performance is expected to revive, over the medium term, on account of expected improvement in demand from the end-user industry but it will be closely monitored and remain a key rating sensitivity factor.
 
The ratings continue to reflect the extensive experience of the company's promoters in the industrial spring's business, longstanding relationships with customers and robust capital structure. These strengths are partially offset by modest scale amid segmental concentration in revenue profile, and weak liquidity on account of low accrual.

Analytical Approach

Unsecured loans of Rs 1.75 crore as on March 31, 2020, have been treated as neither debt nor equity as these belong to the promoters and are expected to remain in the business, over the medium term.

Key Rating Drivers & Detailed Description
Strengths: 
* Promoters' extensive industry experience and healthy customer relationships: Industry presence of over three decades has helped TSI's promoters to venture into exports and launch new products, supporting revenue growth over the past few fiscals.

Currently, TSI is a tier-II supplier to many industries such as automotive, electrical, railways and defence, and has a wide range of products, including compression springs, extension springs, torsion springs and conical springs. This will continue to aid the business risk profile and keep it steady, over the medium term, amidst demand challenges posed by the pandemic.
 
* Robust capital structure: The capital structure has remained healthy on account of low reliance on external debt, over the past few fiscals, despite low networth, estimated at around Rs 27 crore as on March 31, 2020. Total outside liabilities to tangible networth (TOLTNW) ratio stood below 1 time in the past and is estimated at 0.6 time as on March 31, 2020. Absence of debt-funded capital expenditure (capex) and expected accretion to reserves shall further strengthen the capital structure over the medium term.
 
Weaknesses:
* Modest scale amid segmental concentration in revenue profile: While the company caters to various industries, including electrical, railways, and automotive, the revenue profile is highly concentrated towards the automotive segment with 80-85% contribution to overall revenue. As a result of the slowdown in the automotive segment, TSI's revenue was modest at Rs 23.7 crore in fiscal 2020, down from Rs 32.3 crore in fiscal 2019. Improved contribution from other segments leading to strengthening of the revenue profile, will remain a key monitorable, going forward.
 
* Weak liquidity: On account of the steep decline in revenue during fiscal 2020, compounded with decline in operating profitability, both accrual and liquidity weakened. As a result, net cash accrual to current portion of long-term debt (NCA/CPLTD) ratio weakened to 1.2 times in fiscal 2020, from 2.4 times in fiscal 2019. Although, the company's liquidity continues to remain supported by a liquidity cushion in the bank lines and financial support from the promoters, improvement in accrual leading to an improved NCA/CPLTD ratio will remain a key rating sensitivity factor.
Liquidity Stretched

Liquidity remains constrained on account of low accrual and, hence, a weak NCA/CPLTD ratio. However, it is aided by financial support from the promoters and liquidity cushion in bank lines (average utilisation was 65% for the 12 months through April 2020). On account of weakening of the business risk profile in fiscal 2020, NCA/CPLTD ratio declined to 1.2 times, from 2.4 times in fiscal 2019. Ongoing market challenges posed by the pandemic shall continue to constrain revenue growth over the medium term, and hence, the NCA/CPLTD ratio is expected to remain below 1.5 times during fiscal 2021. Improvement in the same will remain a key rating sensitivity factor.

Outlook: Stable

CRISIL believes TSI will continue to benefit, over the medium term, from its promoters' extensive industrial experience and healthy financial risk profile.

Rating Sensitivity factors
Upward factors
* Improvement in revenue and profitability, leading to annual accrual of over Rs 6 crore
* Increased order flow from other segments, leading to lower dependence on any particular segment
* Sustenance of the financial risk profile at healthier levels
 
Downward factors
* Decline in accrual to below Rs 3 crore per year
* Weakening of the financial risk profile with total outside liabilities to tangible networth ratio at 1 time
About the Company

TSI was originally formed as a partnership firm in 1978 by Mr O P Tantia, his brother, Mr H G Tantia, and Mr S K Jain. The firm was reconstituted as a private limited company in 2013, with the partners becoming directors. TSI manufactures compression springs, extension springs, torsion springs, conical springs, and wire forms, which are used in the auto, electrical, consumer electronics, railway, and defence sectors. It is based out of Faridabad, Haryana.

Key Financial Indicators
As on / for the period ended March 31   2020* 2019
Operating income Rs crore 23.7 32.32
Reported profit after tax (PAT) Rs crore 1.03 2.58
PAT margin % 4.35 7.97
Adjusted debt/adjusted networth Times 0.45 0.47
Interest coverage Times 4.1 5.60
*provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity date Issue size
(Rs crore)		 Complexity level Rating assigned with outlook
NA Cash Credit NA NA NA 1.00 NA CRISIL BB+/Stable
NA Long Term Loan NA NA Mar-2023 9.60 NA CRISIL BB+/Stable
NA Proposed Term Loan NA NA NA 2.90 NA CRISIL BB+/Stable
NA Packing Credit in Foreign Currency NA NA NA 3.75 NA CRISIL A4+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  17.25  CRISIL BB+/Stable/ CRISIL A4+      26-09-19  CRISIL BBB-/Stable/ CRISIL A3  27-11-18  CRISIL BBB-/Stable/ CRISIL A3  29-09-17  CRISIL BBB-/Stable/ CRISIL A3  CRISIL BBB-/Stable/ 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
Cash Credit 1 CRISIL BB+/Stable Cash Credit 1 CRISIL BBB-/Stable
Long Term Loan 9.6 CRISIL BB+/Stable Long Term Loan 9.6 CRISIL BBB-/Stable
Packing Credit in Foreign Currency 3.75 CRISIL A4+ Packing Credit in Foreign Currency 3.75 CRISIL A3
Proposed Term Loan 2.9 CRISIL BB+/Stable Proposed Term Loan 2.9 CRISIL BBB-/Stable
Total 17.25 -- Total 17.25 --
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
Rating Criteria for Auto Component Suppliers
CRISILs Approach to Recognising Default
CRISILs Criteria for rating short term debt

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