Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters

A longstanding presence in the industry has enabled the promoters and co-founders, Mr Pankaj Dhanuka and Mr Kishore Saraogi, to ramp up scale through inorganic growth and expand geographical presence by setting up multiple delivery centres in various countries. The promoters have also turned around the acquisitions by achieving operational synergies at a consolidated level.

Strong operational efficiency, backed by multi-location delivery centres

The group is present across multiple sites and countries such as India, Canada, the Philippines, the USA, El Salvador, UK, Morocco, Albania and Jamaica, which helps to offer customers the comfort of a native English-speaking workforce and local language support, along with a better cultural alignment compared with offshore centres.

 
Healthy financial risk profile

The networth increased to Rs 201.70 crore as on December 31, 2020 (without adjusting for intangible assets), from Rs 173.05 crore a year earlier, because of steady accretion to reserves. The, gearing has been comfortable and peaked at 0.61 time during the four years ended December 31, 2020, despite the significant debt-funded acquisition. Debt protection metrics were strong, with interest coverage and net cash accrual to adjusted debt ratios at 9.7 times and 0.47 time, respectively, in 2020. The metrics are expected to remain healthy over the medium term. The overall financial risk profile is also likely to remain healthy over this period.

Diversified revenue profile

The diversified revenue profile helps to mitigate risks related to customer concentration, regional regulatory changes and end-user industry cyclicality. The customer base too is well diversified, as indicated by the top five customers contributing around 22% to the overall revenue. Industry diversification is indicated by revenue of 22% from healthcare followed by 18% from travel and transport.

Weakness:

Exposure to risks related to stabilisation and integration of operations of new acquisitions

The group has followed a policy of inorganic growth through acquisitions made over the years, which provide a loyal customer base and entry into new markets. However, acquisitions have their incubatory phase pertaining to business and operational synergies, which has a bearing on profitability. Also, the acquisition size has been increasing. Therefore, future size of acquisitions along with its impact on the capital structure due to any debt addition will remain a key rating sensitivity factor.

 
Susceptibility to intense competition and regulatory policies of customer countries

Around 95% of revenue comes from the BPO segment, which is intensely competitive not only in India but also in the international markets where the group has delivery centres. International competition has also increased due to emergence of alternative BPO destinations such as the Philippines, Mexico, Guatemala, Russia, Hungary, Poland, the Caribbean countries, and the Czech Republic. Additionally, the group remains exposed to the policies of customer countries regarding offshoring of work and BPO companies with parents located abroad. Further, as the group continues to expand by way of acquisitions, it will also remain exposed to risk related to retention of clients along with organic growth in existing companies. Therefore, organic growth along with sustenance of newly acquired customers amidst intense competition will remain a key rating sensitivity factor.

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