Rating Rationale
July 08, 2024 | Mumbai
ASM Technologies Limited
'CRISIL BBB-/Stable/CRISIL A3' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.32 Crore
Long Term RatingCRISIL BBB-/Stable (Assigned)
Short Term RatingCRISIL A3 (Assigned)
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 assigned its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank loan facilities of ASM Technologies Limited (ASMTL)

 

The ratings reflect the extensive experience of the promoters, diversified service offerings supporting scale and providing sustainability, healthy financial risk profile, and adequate liquidity, as seen in cash and bank balance of Rs 72.99 crore as of March 2024 due to issue of shares and share warrants at a premium.

 

Operating income increased steadily from Rs 138 crore in fiscal 2021 to Rs 203 crore till fiscal 2024 on the back of regular expansion of customer base. Operating margin dipped to 4.12% in fiscal 2024 from 11.15% in fiscal 2023 due to under-absorption of fixed costs (primarily employee costs) caused by lower revenue following a business realignment with one of the customers. Furthermore, the group incurred net losses in the fiscal 2024 as subsidiaries are in expansion and capacity build-up mode. However, revenue and profitability are expected to improve over the medium term on the back of ongoing expansion plans.

 

These strengths are partially offset by sizeable fixed costs, customer concentration in revenue and vulnerability of operating margin to fluctuations in foreign exchange (forex) rates.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of ASMTL and its subsidiaries due to 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:

  • Extensive experience of the promoters: The promoters have more than two decades of experience in the information technology (IT) industry. The key promoter and Managing Director, Mr Rabindra Srikantan, has an MS degree in computer engineering and computer science from the University of Louisiana, the USA.

 

  • Diversified service offerings support scale and provide sustainability: The company is an established player in the internet software and services industry. Clientele is strong and spread across the semiconductor equipment, network devices, hi-tech, telecom, medical equipment, automotive and aerospace segments; which protects against drop in demand from any particular industry. The group offers consulting and product development services in engineering and product research and development. The group is present across India, the US, Singapore, the UK, Canada, Mexico and Japan.

 

  • Heathy financial risk profile: Networth and gearing improved to Rs 117 crore and 0.59 time, respectively, as on March 31, 2024, from Rs 52 crore and 1.17 times, respectively, previous fiscal due to issue of shares and share warrants at a premium. Debt protection metrics also improved and are expected to improve further over the medium term despite debt-funded capital expenditure (capex) plans.

 

Weaknesses:

  • Sizeable fixed cost and susceptibility to employee attrition: Most of the expenses are fixed cost in nature (employee costs and rentals), making it susceptible to the quantum of work received and subsequently, the level of billing. Variation in operating margin to a large extent depends on the nature of contracts awarded. Operations are also susceptible to employee attrition, which is typical of the IT/IT-enabled services industry.

 

  • Customer concentration in revenue profile: The group faces significant customer concentration risks. Its major customers account for about 70-75% per cent of its total revenue.  The high customer concentration makes the group’s revenue growth and profitability dependent on its key customers’ future growth plans. However addition of customers and organic acquisitions are expected to improve customer base over the medium term.

 

  • Vulnerability of operating margin to fluctuations in  forex rates: As 45-50% of revenue comes from the international market, any sharp fluctuation in forex rates can adversely affect realisations and cash accrual.

Liquidity: Adequate

Bank limit utilisation was around 87% for the 12 months through May 2024. Expected annual cash accrual of Rs 12-18 crore will be sufficient to meet yearly term debt obligation of Rs 8-9 crore, over the medium term. Cash and bank balance of Rs 72.99 crore as of March 2024, resulting from issue of shares and share warrants at a premium, also support liquidity. Current ratio was healthy at 2.03 times. Moderate gearing and networth provide financial flexibility and cushion against any adverse condition or downturn in the business.

Outlook: Stable

The company will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating Sensitivity Fctors

Upward factors

  • Sustained improvement in scale of operation and sustenance of operating margin (over 10%), leading to cash accruals over Rs. 20 crore on a sustained basis.
  • Improvement in financial risk profile and liquidity

 

Downward factors

  • Decline in profitability or operating income resulting in cash accrual below Rs 10 crore
  • Large, debt-funded capital expenditure weakening capital structure/Witnesses a or substantial increase in its working capital requirements thus weakening its liquidity & financial profile.

About the Company

ASMTL provides consulting services in areas of engineering services and product engineering services with offshore development & support centres in India and overseas for its global clientele. Its services include prototyping, testing and pilot production; value engineering; hardware and software designing of embedded systems; design and development of networking, wireless and cloud security products; product lifecycle and sustenance management; and test automation services, among others.

 

Headquarters are in Bengaluru and development centres in Bengaluru, Pune (Maharashtra) and Namakkal District (Tamil Nadu). The company is listed on the Bombay Stock Exchange.

Key Financial Indicators

As on/for the period ended March 31

 Unit

2024

2023

Operating income

Rs.Crore

203.88

221.43

Reported profit after tax (PAT)

Rs.Crore

-7.13

7.14

PAT margin

%

-3.54

3.24

Adjusted debt/adjusted networth

Times

0.59

1.17

Interest coverage

Times

1.01

3.74

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Complexity Levels Rating Assigned with Outlook
NA Standby Line of Credit  NA NA NA 3.45 NA CRISIL A3
NA Cash Credit NA NA NA 23 NA CRISIL BBB-/Stable
NA Overdraft Facility NA NA NA 5 NA CRISIL BBB-/Stable
NA Working Capital Term Loan NA NA Aug-2025 0.55 NA CRISIL BBB-/Stable 

Annexure - List of Entities Consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

ASM Technologies Limited

NA

Holding company

ASM Digital Technologies Pte Ltd

Full

Wholly owned subsidiary

 

ASM Digital Technologies Inc USA

Full

Wholly owned subsidiary

 

RV Forms & Gears LLP

Full

70% Holding

ASM Technologies KK, Japan

Full

Wholly owned subsidiary

 

ASM Digital Engineering Private Limited

Full

Wholly owned subsidiary

 

ASM HHV Engineering Private Limited

Profit/(Loss) from operations

Jointly controlled entity

 

ASM Digital Technologies Co Ltd, Thailand

Full

Stepdown subsidiary

 

ASM Engineering Pvt Limited

Full

Wholly owned subsidiary

 

ASM Digital Engineering Pvt Limited

Full

Stepdown subsidiary;
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 32.0 CRISIL BBB-/Stable / CRISIL A3   --   --   --   -- Suspended
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 23 State Bank of India CRISIL BBB-/Stable
Overdraft Facility 5 ICICI Bank Limited CRISIL BBB-/Stable
Standby Line of Credit 3.45 State Bank of India CRISIL A3
Working Capital Term Loan 0.55 State Bank of India CRISIL BBB-/Stable
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Software Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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