Rating Rationale

Strengths
* Support from the MP Birla group
The MP Birla group manufactures cement, power cable, and optical fibre cable, and undertakes engineering, procurement, and construction contracts in the transmission/telecom industry. It holds 62% stake in UCL. From 2012 to 2015, when power industry was facing headwinds, and UCL suffered losses, the group funded the company's losses and incremental working capital requirement. The group had extended inter corporate deposits (ICDs) of Rs 175 crore as on March 31, 2015. With improvement in industry scenario and in UCL's performance, ICDs declined to Rs 78 crore as on March 31, 2017. However, they increased in fiscal 2018 to Rs 93 crore to fund incremental working capital requirement. The rating centrally factors in timely support from the MP Birla group and CRISIL expects funding support to USL to continue over the medium term. More than expected delay or shortfall in support will remain a key sensitivity factor.

* Established track record in cable manufacturing
UCL is engaged in manufacturing of power cable and capacitors since five decades. It manufactures power cables for all major segments such as EHV, low-voltage (LV) cable, medium voltage (MV) cables, and rubber cables and capacitors. UCL is approved cable vendor for major state electricity boards and also has presence in Bangladesh and Mauritius. It is a dominant player in the EHV segment and has entered turnkey contracts from pure-play supply of EHV, which strengthens its market position.

* Strong revenue visibility backed by healthy orders
Revenue rose 9.7% over the five fiscals through 2017, and increase from Rs 695 crore in fiscal 2015 to Rs 816 crore in fiscal 2017, supported by change in government policy regarding power distribution, smart city projects, and underground cable lines in metro cities. Revenue rose 35% in the first half of fiscal of 2018 to Rs 541 crore from Rs 401 crore in the corresponding period of the previous fiscal. Revenue is expected to grow further over the medium term with healthy orders of Rs 700 crore to be executed in 12 months.

* Comfortable financial risk profile
Financial risk profile is supported by healthy networth of Rs 214.00 crore and comfortable gearing of 1 time as on March 31, 2017. UCL brought in equity of Rs 57.00 crore in fiscal 2016 to support working capital requirement. Further, though interest coverage was moderate at 1.9 times as on March 31, 2017, CRISIL expects it to improve to 2.2 times in near term due to revenue growth and sustenance of profitability.

Weaknesses
* Working capital intensity in operations
Operations are working capital intensive, with gross current assets of 225 days as on March 31, 2017, driven by higher receivables. Most of the clients, largely state or central government entities, receive credit of 90 days, and payments could be stretched further. Receivables were at 140 days as on March 31, 2017. The company also keeps inventory of 2 months, of which 1 month is for raw material and the rest in form of finished goods, and some work-in-progress for EPC projects. Though UCL continuously gets support from suppliers of 85 days because of long-term relationships, the same is not sufficient to meet incremental working capital requirement. Cash flow was negative in four of past five fiscals, and thus, dependence on outside debt to fund working capital requirement.

* Moderate debt protection metrics
Debt protection metrics are constrained by modest interest coverage ratio of 2 times in fiscal 2017. Given working capital debt, interest-bearing corporate borrowings, bank charges related to non-fund-based facilities, and moderate profitability, interest coverage ratio was 2 times in fiscal 2017. It is expected to improve with better revenue and profitability. Net cash accrual to total debt ratio was comfortable at 0.22 time in fiscal 2017.