| Tessolve Semiconductor Private Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2' | ||||||
| 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 upgraded its rating on the bank facilities of Tessolve Semiconductor Private Limited (TSPL) to 'CRISIL BBB+/Stable/CRISIL A2' from 'CRISIL BBB/Stable/CRISIL A3+'.
The upgrade factors in an improved business performance as evidenced by a CAGR growth of 18.9% in the three fiscals ended FY2021. The current year revenue growth is expected to be over 25% from Rs.524.54 crores in FY2021; the company booked revenues of Rs.519 crore from April 2021 to January 2022. The operating margins also saw a sharp improvement to 10.7% in FY2021 vs 5.52% in FY2020 due to lower costs related to employee travelling which is attributable to the pandemic. The company reported operating margin of 16.33 percent from April 2021 to January 2022. Though such high margins may not be sustainable, the margins would remain robust at over 12% over the medium term. The improvement in operating performance stems from healthy order flow from existing customers and faster ramp-up in acquired entities. Sustenance of growth and profitability would remain key rating monitorables.
Enhanced operating performance would result in larger accretions and hence improved financial risk profile. Interest coverage and net cash accrual to adjusted debt ratios are expected to improve to over 10 times and over 1 time, respectively, in fiscal 2022 (6.30 times and 0.60 time, respectively, in fiscal 2021), while gearing is expected to improve to less than 0.5 time (0.75 times a year earlier) as on March 31, 2022.
The ratings continue to reflect TSPL’s healthy financial risk profile and benefits derived from being subsidiary of Hero Electronix Pvt Ltd (HEPL). These strengths are partially offset by the geographic concentration in revenue and moderate performance of few acquired entities. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of TSPL and its wholly owned subsidiaries, Tessolve Services Inc (USA), Tessolve Engineering Services Pte Ltd (Singapore), and Tessolve Semiconductor Manufacturing Industries Pvt Ltd. That is because the four entities, collectively referred to as the Tessolve group, have significant business and financial interlinkages
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Benefits derived from being subsidiary of HEPL: The Tessolve group is an 70%-holding subsidiary of HEPL, which is an investment vehicle for the Hero group’s ventures in the electronics industry. The inherent management support is demonstrated with the presence of Mr.Suman Kant Munjal on the boards on HEPL and TSPL. It has also provided financial support in the form of equity infusions over the past 4 years and this aid is expected to continue.
Healthy financial risk profile: The company has healthy financial risk profile, supported by healthy capital structure and robust debt protection metrics. Gearing was at 0.76 times as on 31 March 2021, largely led by the company’s moderate working capital cycle. Although the company had funded most of its previous acquisitions via equity, the company’s reliance on bank debt remains moderate due to its working capital requirements. The debt protection metrics remain robust, indicated by interest coverage and net cash accruals to total debt ratio at 6.31 times and 0.60 times, respectively, for fiscal 2021.
Weakness: Geographical and customer concentration in revenue: The Tessolve group is a focused testing services provider, catering to the requirement of semiconductor companies based in the US, Singapore, and Europe. These regions account for over 60% of the revenue, whereas the top five clients from across the world account for around 52%, which reflects the high geographic and customer concentration in topline.
Moderate performance of acquired entities: The Company had grown inorganically in the past few years, via acquisition of entities, expanding its offerings. Although the company has been successful in integrating those entities, but few entities are yet to reach their full potential. In fiscal 2020, the company had sold off one its acquired entity, due to continued losses. Therefore, the ramp up and ability of these entities to contribute to the overall growth of Tessolve group remains a key monitorable for the rating. |
Liquidity: Adequate Bank limit utilisation is low at around 54.90 percent for the past twelve months ended 31st January 2021. Cash accruals are expected to be in the range of Rs.75 to 100 crore against term debt obligation of Rs.9 crore over the medium term. Liquidity profile is enhanced by cash and liquid investments of Rs.38 crore and Rs.60 crore respectively as of February 2022. |
Outlook: Stable CRISIL Ratings believes the Tessolve group will continue to benefit from business and financial support provided by HEPL. |
Rating Sensitivity Factors Upward factor
Downward factor
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About the Company TSPL was established in 2004 by Mr P Raja Manickam. This Bengaluru-based company provides test engineering solutions for integrated circuits and other semi-conductor devices, and printed-circuit-board designing services for various chip manufacturers.
About HEPL HEPL was incorporated in June 2015 and is a part of the Hero group, promoted by the Mr Suman Kant Munjal. The company is an electronics and technology arm of the Hero group. |
Key Financial Indicators - Consolidated
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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 - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 1 | Kotak Mahindra Bank Limited | CRISIL A2 |
| Bank Guarantee | 1.5 | State Bank of India | CRISIL A2 |
| Cash Credit | 0.5 | State Bank of India | CRISIL BBB+/Stable |
| Export Packing Credit | 9 | Citibank N. A. | CRISIL BBB+/Stable |
| Export Packing Credit | 30 | Kotak Mahindra Bank Limited | CRISIL BBB+/Stable |
| Export Packing Credit | 15 | State Bank of India | CRISIL BBB+/Stable |
| Proposed Long Term Bank Loan Facility | 25 | Not Applicable | CRISIL BBB+/Stable |
| Standby Letter of Credit | 9 | Citibank N. A. | CRISIL A2 |
| Term Loan | 19 | Kotak Mahindra Bank Limited | CRISIL BBB+/Stable |
This Annexure has been updated on 21-Feb-23 in line with the lender-wise facility details as on 07-Feb-23 received from the rated entity.
Criteria Details
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