| Amara Raja Power Systems Limited | ||||||
| Ratings placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ratings on the bank facilities of Amara Raja Power Systems Ltd (ARPSL) on ‘Rating Watch with Developing Implications’.
The rating action follows the scheme of arrangement involving ARPSL and group company Amara Raja Infra Pvt Ltd (ARIPL), wherein one of the business segments of ARPSL, EPC/Projects (includes assets, liabilities, properties, titles, rights, duties, obligations), is being demerged from ARPSL as a going concern into ARIPL. The scheme is aimed at consolidating/streamlining the business assets of the Amara Raja group leading to operational rationalisation and optimum utilisation of resources. ARPSL has already filed an application with the National Company Law Tribunal (NCLT) and approvals from shareholders/creditors are expected by the end of June 2022.
CRISIL Ratings understands that the scheme of arrangement will be applicable effectively from April 1, 2022, subject to the approval of NCLT, lenders and other stakeholders.
The demerger of the EPC/Projects division, which is a major revenue contributor (46 % of revenue in fiscal 2021) could reduce the scale of operations of ARPSL. However, the debt is also expected to reduce considerably as majority of the debt will be transferred to ARIPL. CRISIL Ratings will engage with the company’s management to understand the exact contours of the split, its timeline, the expected asset-liability position of the entities post the split, and its implications on the business and financial risk profiles of the group. CRISIL Ratings will continue to monitor developments regarding the transaction and take rating action on its completion and once there is more clarity regarding its impact on the credit risk profile of ARPSL. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of ARPSL. |
Key Rating Drivers & Detailed Description Strengths: Established relationship with customers for the supply of integrated power supply (IPS) systems: ARPSL has established relationships with various zonal divisions of Indian Railways and other industrial players. The designs of power back-up products are approved by the Railway Research Designs & Standards Organization (RDSO), which has resulted in ARPSL garnering a healthy share of the market for IPS systems. Revenue from the power control and panels segment is also driven by established relationship with customers.
Healthy financial risk profile: The financial risk profile continues to benefit from minimal debt obligation, absence of major capex, and adequate debt protection metrics. Gearing remained low at 0.22 time as on March 31, 2021 which provides adequate cushion for raising debt during any exigencies. Additionally, ARPSL benefits from the financial flexibility of the promoters resulting in timely infusion of capital when needed.
Weakness Working capital-intensive operations: ARPSL has large working capital requirement as its customers largely comprise state-run distribution companies and railway departments, and are given extensive credit periods. Inventory to ensure uninterrupted operations and revenue skewed towards the second half of the fiscal resulting in pile-up of receivables at the fiscal end lead to large working capital requirement.
Exposure to intense competition in the Products and EPC business: Product business involving manufacturing of power back up systems for industrial application and EPC projects segment is highly fragmented leading to pricing pressure. Furthermore, the company faces intense competition from established players such as Techno Electric and Eng Co Ltd which has an established track record of more than 30 years in executing projects in the segment. |
Liquidity: Adequate ARPSL has adequate liquidity with bank lines of Rs 69.9 crore utilised 40%. Liquidity will be supported by adequate cash accrual of Rs 15-20 crore over the medium term against debt obligation of Rs 3-4 crore. Also, financial support from the promoters will be forthcoming when needed. |
Rating Sensitivity factors Upside factors
Downside factors:
|
About the Company ARPSL, a part of the Amara Raja group, was set up in 1984. It manufactures power backup systems for railway signals, telephone stations, electricity substations, and industry control systems. Its manufacturing facility is at Karakambadi near Tirupati in Andhra Pradesh. It entered the project execution and low-tension (LT) panel manufacturing business in 2011. The revenue contribution of these segments has grown at a healthy pace in the recent past. |
Key Financial Indicators
|
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^Bank guarantee and letter of credit limits are 100% interchangeable *Rs 30 crore inclusive of VBD sub-limit of Rs 20 crore |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|