Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank loan facilities of Calcom Vision Ltd (CVL).

 

The ratings reflect the company’s adequate business risk profile, driven by its modest scale of operations, significant experience as an original design manufacturer (ODM) in the electronics and lighting industry with in-house technological capabilities, reputed customer base and diversified product profile. The ratings also factor in the extensive experience of the promoters of over four decades in the manufacturing segment. These strengths are partially offset by a moderate albeit improving financial risk profile, exposure to intense competition and vulnerability to technological changes in the electronics industry.

 

CVL registered revenue of Rs 160 crore in fiscal 2024, supported by 70% higher volumes on account of increased orders from new and existing clients, despite a sharp decline in price realisation. With the company diversifying into new products such as solar streetlights and electric vehicle (EV) chargers in fiscal 2025, revenue is expected to reach ~Rs 180-200 crore in fiscal 2025. Though operating margin moderated to 5.4% in fiscal 2024, owing to higher employee and operational cost due to change in the technology, it is expected that in fiscal 2025 it will recover to over 8-10% due to a reduction in employee cost as the company invested in automation for new products. Recovery in margin along with growth in scale will remain monitorable.

 

The financial risk profile of the company improved after equity infusion of Rs 14.91 crore in fiscal 2024 through private placement of Rs 8.66 crore and compulsory convertible warrant of Rs 6.25 crore (of which Rs 1.56 crore was infused in fiscal 2024, and remaining is to be infused in fiscal 2025) leading to improvement in gearing and total outside liabilities to adjusted networth (TOLANW) ratio of 1.07 times and 1.74 times, respectively, in fiscal 2024. Networth is expected to increase further in fiscal 2025 due to placement of remaining warrants and improving profitability. The financial risk profile is likely to remain healthy with expected recovery in the operating margin, infusion of capital and healthy debt protection metrics. Operations are working capital intensive owing to high inventory because the company holds inventory for different types of lights and also offers large credit to customers. Gross current assets (GCAs) were sizeable at more than 200 days, driven by debtors of around 90 days and inventory holding of 81 days. Going forward, with  expected increase in revenue, CRISIL Ratings believes the working capital requirement will continue to remain high and efficient management of the working capital cycle will be a key monitorable.

Analytical Approach

The financial and business risk profiles of CVL and Calcom Taehwa Techno Pvt Ltd (promoted by CVL and Taehwa Enterprises India Pvt Ltd) has been consolidated due to significant operational 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 and established relationships with customers: The promoters have experience of more than four decades in the electronics industry, leading to a strong understanding of local market dynamics along with established relationships with customers and suppliers. Their experience and understanding of the market dynamics have helped diversify the product portfolio into the electronics and lighting segments and establish strong relationships with reputed customers, such as polycab india limited ('CRISIL AA+/Positive/CRISIL A1+') and Panasonic, among others. 

 

• In-house technological capabilities and diversified product profile: The company is an ODM with good technological capabilities. They design products and have experience in segments such as television sets, light-emitting diode (LED) lights, brushless direct current (BLDC) fans and now focusing on EV chargers and solar streetlights. The company started manufacturing lighting products since 2013. It has a diversified product portfolio including wattage bulbs, ceiling lights, lamps, street  flood lights, LED batten, strip lights and LED panels, among others. The company has been undertaking research and development (R&D) on continuous basis to improve the product profile and recently entered the outdoor lighting, EV chargers and solar street lighting segments. While revenue moderated in fiscal 2024 due to technological changes, it is expected to grow 10-13% in fiscal 2025.

 

Weaknesses:

• Moderate albeit improving financial risk profile; improvement supported by equity infusion in the current and previous fiscals: Company has modest debt protection metrics with interest coverage and net cash accrual to total debt ratios at 2.05 times and 0.09 times respectively in fiscal 2024. Same is expected to improve going forward with increase in scale and profitability and absence of any large debt funded capex. CVL’s networth stood at Rs 44.18 crore as on March 31, 2024, compared to Rs 30.73 crore as on March 31, 2023. The company infused Rs 14.91 crore of equity in fiscal 2024 through private placement of Rs 8.66 crore and compulsory convertible warrant of Rs 6.25 crore (of which Rs 1.56 crore was infused in fiscal 2024, and the remaining is to be infused in fiscal 2025). This has improved the capital structure. Networth is further expected to improve in fiscal 2025 due to placement of the remaining warrants and improving profitability. This will ensure that the capital structure of the company remains healthy with gearing and TOLANW ratio improving. Gearing and TOL/ANW stood at 1.07 times and 1.74 times, respectively, in the previous fiscal.

 

• Exposure to intense competition, customer concentration in revenue: Intense competition from several unorganised and organised players and cheaper imports from China limit its pricing power with suppliers and customers, and the ability of the company to withstand downturns. The group also faces high customer concentration risk as it derives a large proportion of its sales from the top five customers. Any change in the policies of customers or their preference for vendors could weaken the business risk profile. However, longstanding relationships with top customers and efforts to diversify the overseas clientele should support the business risk profile.

 

• Vulnerability to technological changes in the electronics industry: The electronics industry is characterised by tectonic shifts in technology. Given the risk of technological obsolescence, the industry players are required to undertake continuous upgrades to  sustain  competitive  advantage. This in turn necessitates continuous upgrade of processes and products  to  sustain  competitive  advantage,  requiring regular capital  expenditure. Hence, business remains susceptible to technological upgrades which remains a major risk. Even in fiscal 2024 there was a change in technology from driver bulbs to Driver on Board (DOB) bulbs, which resulted in additional costs for the company. However, the company is diversifying into various products to shield itself from these disruptions.

Liquidity: Adequate

Expected cash accrual of Rs 9-12 crore per annum should comfortably cover yearly debt obligation of Rs 5-6.5 crore over the medium term. The company is planning capex of up to Rs 12 crore in fiscal 2025, which is to be funded largely through internal accrual, warrants and partly through debt. Liquidity remains comfortable with bank limit utilisation of around 74% as against limits of Rs. 22.5 crore over the 12 months ended March 31, 2024.

Outlook: Stable

CRISIL Ratings believes CVL will benefit from its established market position in the lighting industry and healthy customer relationships.

Rating sensitivity factors

Upward factors:

• Sustained growth in revenue with improvement in operating margin to above 9-10% on sustained basis, resulting in increase in cash accrual
• Sustained improvement in financial risk profile resulting in stronger debt protection metrics

 

Downward factors:

• Subdued revenue growth and operating margin falling below 5-6%, leading to significantly lower cash accrual
• Stretched working capital cycle, large or debt-funded capex, resulting in deterioration of the financial risk profile

About the Company

The Calcom group started its operations manufacturing calculators in 1976. Within a few years the company ventured into manufacturing televisions, catering to leading brands such as Philips, Thomson, BPL, LG and Samsung. In 2013, it began manufacturing lighting electronics and developed an all-inclusive range of LED products, traditional luminaires and electronic ballasts. Its plant in Noida, Uttar Pradesh, has total manufacturing capacity of 5-6 million bulbs per month. Mr  Sushil Malik and his family members are the promoters of the group.

Any other information: Not Applicable