| Zen Technologies Limited | ||||||
| Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A1 '; rated amount enhanced for Bank Debt | ||||||
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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 reaffirmed its ratings on the bank facilities of Zen Technologies Ltd (ZTL; a part of Zen group) at ‘CRISIL A-/Stable/CRISIL A1’.
The rating continues to reflect the strong business performance in fiscal 2023 and the first half of the ongoing fiscal with reported revenue of Rs. 219 crore and Rs 207 crore, respectively, along with significant improvement in the orderbook position, which provides revenue visibility in the medium term. In line with the enhancement in scale, operating margin also improved to above 30% and is likely to sustain at 30-35% in the medium term. With outstanding orders of Rs 1403 crore, the company is expected to improve the business performance in the ongoing fiscal as well.
The ratings continue to factor in the established market position of the company in the design, development, and supply of training simulators for the defence segment and the strong financial risk profile. These strengths are partially offset by exposure to the tender-based nature and working capital intensive operations.
CRISIL Ratings had upgraded its ratings on the bank facilities of ZTL to ‘CRISIL A-/Stable/CRISIL A1’ from ‘CRISIL BBB/Positive/CRISIL A3+’ on October 27, 2023. |
Analytical Approach: Consolidated CRISIL Ratings has combined the business and financial risk profiles of ZTL, Zen Technologies USA and Unistring Tech Solutions Pvt Ltd. This is because they are managed by the same promoter group and have strong business and financial linkages.
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: Established market position of the company in the design, development and supply of training simulators for the defence segment: The group is the largest supplier of simulation training equipment and anti-drone systems in India. The market position is further strengthened by the continuous research and development (R&D) the company undertakes to bring out new products. The company benefitted significantly after the roll out of the Defence Production and Export Promotion Policy (DPEPP) and the framework rolled out by the Ministry of Defence in September 2021 regarding increased utilisation of simulators for the training of armed forces. This coupled with the incremental demand for anti-drone systems has increased the orderbook position to an all-time high of more than Rs 1400 crore. The company will also continue to benefit from the extensive experience of its promoters.
Improving business risk profile: Revenue has picked up significantly to Rs 219 crore in fiscal 2023 backed by better order execution and strong orderbook position. The company has already achieved around Rs 131 crore in the first quarter of the ongoing fiscal and business growth momentum is expected to continue in the medium term. Orderbook has also been witnessing significant growth and currently stands around Rs.1400 crore. Operating margin improved to above 30% and is likely to remain at 30-35% over the medium term.
Strong financial risk profile: The capital structure has been above average due to lower reliance on external funds, yielding a gearing of less than 0.1 time for the four fiscals ended March 2023. The company aims to remain debt free in the medium term. Hence, capital structure and debt protection metrics will continue strong. The company currently has free cash balance of more than Rs 200 crore, which will be utilised for meeting the incremental working capital requirements for the growing scale of operations.
Weakness: Exposure to risks related to tender based operations: The company's revenue profile is exposed to risks related to tender based nature of operations and the successful and timely execution of the same. As a result, the turnover has been volatile at Rs 219 crore to Rs 70 crore over the three fiscals ended March 2023. This is mitigated by the recent favourable government regulations and the well-established market presence of the company. However, any adverse government regulations to the segments catered to by the company will continue as monitorable.
Working capital intensive operations: Gross current assets were sizeable at 467-545 days over the three fiscals ended March 31, 2023, driven by high debtor and inventory levels. However, debtors and inventory days are expected to improve over the medium term backed by faster debtor realisation terms as per the defence procurement policy and management is also working towards improving the working capital cycle. |
Liquidity: Strong Liquidity is strong; marked by nil utilisation of the fund-based working capital limits in the 12 months ended July 2023 and strong cash accrual of more than Rs 100 crore expected, against which there are no repayment obligations. The company had free cash balance of Rs 110 crore as on March 31, 2023. The management has indicated that they will maintain sizeable cash balances over the medium term and sudden outflow resulting in the weakening of liquidity profile is not expected to occur. |
Outlook Stable CRISIL Ratings believes the group will continue to benefit from its established track record and strong orderbook position. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated 1993, ZTL develops, designs and supplies PC based training simulators and ant-drone systems for the Ministry of Defence, police and para-military forces, government departments, and private players. ZTL has ISO 9001:2008 (QMS), ISO 27001:2005 (ISMS) certifications and is a CMMI Level 3 company. ZTL's R&D unit is recognised by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India.
For the 6 months through September 2023, the group reported consolidated revenue and profit after tax (PAT) of Rs 206.97 crore and Rs 62.07 crore, respectively, against Rs 75.79 crore and Rs 14.65 crore, respectively, in the corresponding period previous fiscal |
Key Financial Indicators
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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 | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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