Rating Rationale
October 09, 2019 | Mumbai
Birlasoft Limited
Ratings removed from 'Watch Developing' ; Ratings Withdrawn
 
Rating Action
Total Bank Loan Facilities Rated Rs.87 Crore
Long Term Rating CRISIL AA-/Stable (Removed from 'Rating Watch with Developing Implications' ; Rating Withdrawn)  
Short Term Rating CRISIL A1+ (Removed from 'Rating Watch with Developing Implications' ; Rating Withdrawn
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has removed its ratings on the bank facilities of Birlasoft Limited (BSL) from 'Rating Watch with Developing Implications.' The ratings have been reaffirmed at 'CRISIL AA-/CRISIL A1+' and a 'Stable' outlook has been assigned to the long term rating. Additionally, CRISIL has Withdrawn its ratings on bank facilities of the company on receipt of 'No Objection Certificate' from the respective bankers. The rating withdrawal is in line with CRISIL's policy on withdrawal of ratings.

The ratings were placed on watch on January 30, 2018, following the announcement by BSL (formerly KPIT Technologies Ltd (KPIT Technologies) that KPIT Technologies and Birlasoft (India) Ltd will work closely to first merge Birlasoft into KPIT Technologies and later split the combined entity into two public companies: one focused on automotive engineering and mobility solutions (KPIT Engineering), and the other being an enterprise digital business information technology (IT) services company (BSL).

Post receipt of all the necessary regulatory approvals, the composite scheme of arrangement has become effective from January 15, 2019 and Birlasoft has merged with KPIT Technologies and KPIT Engineering was demerged. On February 8, 2018, KPIT Technologies was renamed as Birlasoft Limited.

The ratings continue to reflect BSL's healthy business risk profile, with established market position in the BFSI, energy and manufacturing verticals, and strong financial risk profile. These strengths are partially offset by exposure to industry competition, and client and geographical concentration in revenue.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of BSL and its subsidiaries, as all these entities are in the same line of business, under a common management, and have strong financial and operational 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
*Healthy business risk profile, with established presence in the BFSI, hi-tech & media and energy & utilities segments
BSL has an established position in the BFSI, Hi-tech & media, energy and utilities and lifesciences. It also has a well-established client base, which includes large global organizations. The company is also focusing on the digital business as there is a sufficient growth prospect in the vertical. CRISIL believes BSL will sustain its healthy business risk profile on the back of its established market position in the automotive and manufacturing verticals.
 
*Strong financial risk profile
The financial risk profile is supported by healthy networth, robust debt protection metrics, and healthy liquidity. Networth and gearing were at Rs 1199 crore and 0.03 time, respectively, as on March 31, 2019. Net cash accrual to total debt and interest coverage ratios, at 9.0 times and 33.7 times, respectively, in fiscal 2019, reflect healthy debt protection metrics. Debt was at Rs 125 crore (lease liabilities) and cash and cash equivalents at Rs 463 crore as on June 30, 2019.

Operating performance should gradually improve over the medium term with better absorption of employee costs and moderate revenue growth benefitting financial risk profile.
 
Weaknesses
*Exposure to intense competition in the IT industry
The business environment for the IT industry remains challenging. Indian IT players will need to scale up their operations, primarily due to intense competition among themselves and from multinational corporations that are expanding their offshore operations in India. Other key success factors include acquiring and retaining new customers, maintaining an efficient cost structure, and ensuring effective labour retention and utilisation. Protectionist measures adopted by the US remain yet another business challenge for Indian IT companies. However, players are likely to effectively counter challenges backed by the Indian IT industry's inherent strengths.
 
*Client and geographical concentration in revenue
While BSL has a well-established client base. The US market contributed 76% of revenue in Q1-20, which is higher than 55%-65% commonly found in the industry. Although geographical diversity mitigates business risk, this skew in revenue is unavoidable, as the US is the largest global IT spender.

Liquidity: Strong
BSL enjoys strong liquidity driven by expected cash accruals of Rs. 220-250 crore per annum in FY19 and FY20 and cash and cash equivalents of Rs. 478 crore as on June 30, 2019. The company was debt free as of June 2019 and has no long term repayment obligations The company can sufficiently fund its capex  and working capital requirements through internal accruals. With no debt on the books, BSL has sufficient gearing headroom, to raise additional debt to meet its capex requirement if required.

Outlook: Stable
CRISIL believes business risk profile of BSL will continue to benefit by presence in diverse verticals viz: BFSI, automotive, manufacturing and hi-tech media, lifesciences, etc. Financial risk profile is also expected to be healthy with debt free capital structure and absence of large capex plans.

Rating Sensitivity factors
Upward Factor
* Sustained revenue growth of 12-15%
* Steady improvement operating profitability to around 15-16%
* Sustenance of strong financial risk profile and liquidity

Downward Factor
* Significant degrowth in revenues or operating profitability dipping below 8%
* Large debt funded capex resulting in gearing greater than 0.3 time.
About the Company

Birlasoft is a part of the 150 year old CK Birla group, and is engaged in providing IT services. The company focuses on software implementation, testing and product development. Birlasoft specializes in the domains of banking, financial services, manufacturing and healthcare and enterprise resource planning (ERP) implementation.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 2,551 3,664
Profit After Tax (PAT) Rs crore 292 254
PAT Margin % 11.45 6.9
Adjusted debt/Adjusted networth Times 0.03 0.25
Interest coverage Times 33.62 17.30
 
Year to date financials
Particulars Unit 2019 2018
Revenue Rs crore 777 1014
Profit after tax Rs crore 42 79
PAT margin % 5.4 7.8
Interest coverage Times 18.63 25.20
 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of
allotment
Coupon
Rate (%)
Maturity date Issue size (Rs.Cr) Rating assigned
with outlook
NA Bank Guarantee NA NA NA 1.00 Withdrawn
NA Working Capital Facility NA NA NA 86.0 Withdrawn
 
 
Annexure - List of Entities Consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
KPIT (Shanghai) Software Technology Co. Limited, China Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Technologies, France Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Technologies (UK) Limited Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Infosystems Incorporated USA Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Technologies Netherlands B.V. Full common management, similar line of business, business and financial linkages, and common promoters
SYSTIME Computer Corporation, USA Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Technologies GmbH, Germany Full common management, similar line of business, business and financial linkages, and common promoters
Sparta Consulting USA Full common management, similar line of business, business and financial linkages, and common promoters
Impact Automotive Solutions Limited Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Engineering Limited Full common management, similar line of business, business and financial linkages, and common promoters
Yantra Digital Services Pvt Limited Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Infosystems ME FZE UAE Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Solutions GmbH Germany Full common management, similar line of business, business and financial linkages, and common promoters
Micro-Fuzzy Industrie Elektronic GmbH, Germany Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Technologies Solucoes Em Informatica, Ltda Brazil Full common management, similar line of business, business and financial linkages, and common promoters
Micro-Fuzzy KPIT Technologia Ltda, Brazil Full common management, similar line of business, business and financial linkages, and common promoters
KPIT Technologies Corporation Canada Full common management, similar line of business, business and financial linkages, and common promoters
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  86.00  Withdrawn  03-07-19  CRISIL AA-/Watch Developing  23-10-18  CRISIL AA-/Watch Developing  25-09-17  CRISIL AA-/Stable  24-06-16  CRISIL AA-/Stable  CRISIL AA-/Negative 
        10-04-19  CRISIL AA-/Watch Developing  31-07-18  CRISIL AA-/Watch Developing           
        09-01-19  CRISIL AA-/Watch Developing  07-05-18  CRISIL AA-/Watch Developing           
            01-02-18  CRISIL AA-/Watch Developing           
Non Fund-based Bank Facilities  LT/ST  1.00  Withdrawn  03-07-19  CRISIL A1+/Watch Developing  23-10-18  CRISIL A1+/Watch Developing  25-09-17  CRISIL A1+  24-06-16  CRISIL A1+  -- 
        10-04-19  CRISIL A1+/Watch Developing  31-07-18  CRISIL A1+/Watch Developing           
        09-01-19  CRISIL A1+/Watch Developing  07-05-18  CRISIL A1+/Watch Developing           
            01-02-18  CRISIL A1+/Watch Developing           
All amounts are in Rs.Cr.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 1 Withdrawn Bank Guarantee 1 CRISIL A1+/Watch Developing
Working Capital Facility 86 Withdrawn Bank Guarantee 1 Withdrawn
-- 0 -- Term Loan 79.69 Withdrawn
-- 0 -- Working Capital Facility 86 CRISIL AA-/Watch Developing
-- 0 -- Working Capital Facility 276.86 Withdrawn
Total 87 -- Total 444.55 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Software Industry
CRISILs Criteria for Consolidation

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