Rating Rationale
October 29, 2024 | Mumbai
Centum Electronics Limited
Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.399.7 Crore
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
Short Term RatingCRISIL A3+ (Reaffirmed)
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 loan facilities of Centum Electronics Limited (CEL; part of the centum group) at ‘CRISIL BBB/Stable/CRISIL A3+’.

 

The ratings continue to reflect the extensive experience of the promoters and its professional management, established track record in Strategic Electronics Business Unit (SEBU) and Electronic Manufacturing Solutions (EMS) segment and comfortable financial risk profile marked by moderate capital structure and debt protection metrics. These rating strengths are partially offset by working capital-intensive operations and susceptibility to risks related to technology changes and changes in sourcing policies of customers

Analytical Approach

CRISIL Ratings continues with the analytical approach of consolidating CEL with its subsidiaries on account of high degree of operational fungibilities along with common management. This is in line with the earlier analytical approach. The intangible assets of the company amounting to Rs. 83 Cr as on March 2024 are being amortized over a period of 5 years. This is because the assets are revenue generating in nature consisting of computer software and intellectual property rights.

 

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, aided by the extensive experience of the promoter: The promoters and the professional management team have diverse industry experience of about 20+ years. CEL caters to Defence, Space, Aerospace, Transportation, Automotive, Industrial & Energy and Healthcare. The company has had a long-established relationship with most of its customers like Defence Research and Development Organisation (DRDO), Indian Space Research Organization (ISRO), Space Application Centre spanning more than 10-15 years with repeat orders and a strong trust factor developed over many years of successful business relations. Due to the high technical complexity and know-how, the customers have typically stayed with their preferred and established suppliers over the decades. Products being used in critical areas, such as space and defence, bear testimony to the technical capability of the group. CEL is into 2 broad business segments namely Electronic Manufacturing Solutions (EMS), and Strategic Electronics Business Unit (SEBU) consists of Built to Specification (BTS) and Engineering R&D Services (ER&D) ensuring diversity in revenue profile.

 

Strong understanding of market dynamics would continue to support business risk profile. Over the decades, CEL has developed strong engineering and design capabilities which has helped it in meeting the changing demands from its customers. CEL has a healthy order book at hand of Rs.1674 Cr as on June 30, 2024, compared to that of Rs.1090 Cr as on Mar 31, 2023, spanning across its business segments, aided by its established track record of timely and satisfactory completion of projects. Further, established relationship with its key customer, continued innovation, and improving prospects of clean energy will support sustaining healthy growth in the medium.

 

  • Comfortable financial risk profile: Debt protection metrics are comfortable marked by interest coverage and NCATD (net cash accruals to total debt) of 2.71 times and 19% respectively in FY24. Also, in the backdrop of capex done towards improving profitability, debt protection metrics are expected to remain comfortable over the medium term. Net worth and gearing continue to remain moderate at around Rs.196.7 crore and 0.9 times respectively as on March 31, 2024. Total outside liabilities to tangible net worth (TOL/TNW) stood at 4.3 times as on March 31,2024. However, with the expectation of healthy accretion to reserves and no major debt funded capex plans over the medium term, the capital structure is expected to improve over the medium term and would also remain a key monitorable.

 

Weaknesses:

  • Susceptibility to risks related to technology changes and sourcing policies of key customers: Any change in technology will require realignment of products in line with the end-user technology. Delays in such adjustments could weaken the group's competitive position. Also, significant portionof revenue is from various public sector undertakings and defence-related organizations such as Defence Research and Development Organisation (DRDO), Indian Space Research Organisation (ISRO), and the Ordinance factories of Government of India. This renders the company's revenue profile vulnerable to any significant change in Government of India's policies and capex plans regarding defence and space research programs.

 

  • Working capital-intensive operations: Working capital intensity remains high: gross current assets were sizeable at 246 days as on March 31, 2024, owing to inventory and debtors of 136 days and 79 days, respectively on the same date.  The same is due to high inventory requirement of the variety of components used and elongated collection cycle accounting to high receivables, as majority of customers are government bodies. However, risk related to the same is mitigated as the tenders generally cater to funded projects / project with allocated budget. Any significant stretch in working capital cycle impacting the liquidity would remain a key rating monitorable

Liquidity: Adequate

Bank limit utilisation is moderate at around 67 percent for the past twelve months ended August 2024. Cash accrual are expected to be over Rs 60 crore which are sufficient against term debt obligation of Rs 38 crore over the medium term. Current ratio are moderate at 1.08 times on March 31, 2024.

Outlook: Stable

CRISIL Ratings believes that CEL shall continue to benefit from its established market position over the medium term.

Rating sensitivity factors

Upward factors:

  • Sustained revenue growth rate while maintaining operating margin of more than 9% resulting in larger accruals against repayments.
  • Sustenance of working capital management along with TOLANW of less than 2.5 times

 

Downward factors:

  • Sustenance of TOLTNW to more than 4 times due to higher working capital debt or debt funded capital expenditure.
  • Stretch in liquidity due to stretch in working capital or material moderation in accruals.

About the Company

Set up by Mr Apparao V Mallavarapu (Chairman and Managing Director - CMD), a first-generation entrepreneur, in 1993, CEL manufactures modules and sub-systems used in the aerospace, defence, and industrial electronic sectors.  CEL manufactures products for the rail transportation market, focusing on improving energy efficiency, security, and real-time information access. CMD is ably supported by his professional team consist of Executive Director Mr Nikhil Mallavarapu, Non-Executive Director Dr Swarnalatha Mallavarapu, five independent directors and Group CFO Mr K S Desikan.

Key Financial Indicators

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

1,090.82

922.97

Reported profit after tax

Rs crore

-3.57

5.64

PAT margins

%

-0.33

0.61

Adjusted Debt/Adjusted Net worth

Times

1.51

2.27

Interest coverage

Times

2.71

2.87

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 the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA  Cash Credit  NA  NA  NA  12 NA  CRISIL BBB/Stable 
NA  Export Packing Credit  NA  NA  NA  84 NA  CRISIL A3+ 
NA  Fund-Based Facilities  NA  NA  NA  83 NA  CRISIL BBB/Stable 
NA  Non-Fund Based Limit  NA  NA  NA  196.7 NA  CRISIL A3+ 
NA  Proposed Fund-Based Bank Limits  NA  NA  NA  1.5 NA  CRISIL BBB/Stable 
NA  Term Loan  NA  NA  31-Mar-28 22.5 NA  CRISIL BBB/Stable 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Centum Electronics Limited

100%

Parent company

Centum T&S Private Limited, India

100%

Subsidiary

Centum Electronics UK Limited

100%

Subsidiary

Centum T&S Group SA, France

90.08%

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 203.0 CRISIL A3+ / CRISIL BBB/Stable   -- 01-08-23 CRISIL A3+ / CRISIL BBB/Stable 30-09-22 CRISIL BBB-/Stable   -- CRISIL BBB-/Stable
      --   -- 21-04-23 CRISIL BBB-/Stable / CRISIL A3 28-01-22 CRISIL BBB-/Stable   -- CRISIL BBB-/Stable / CRISIL A3
Non-Fund Based Facilities ST 196.7 CRISIL A3+   -- 01-08-23 CRISIL A3+ 30-09-22 CRISIL A3   -- CRISIL A3
      --   -- 21-04-23 CRISIL A3 28-01-22 CRISIL A3   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 12 State Bank of India CRISIL BBB/Stable
Export Packing Credit 84 State Bank of India CRISIL A3+
Fund-Based Facilities 43 Kotak Mahindra Bank Limited CRISIL BBB/Stable
Fund-Based Facilities 40 HDFC Bank Limited CRISIL BBB/Stable
Non-Fund Based Limit 19.7 Kotak Mahindra Bank Limited CRISIL A3+
Non-Fund Based Limit 177 State Bank of India CRISIL A3+
Proposed Fund-Based Bank Limits 1.5 Not Applicable CRISIL BBB/Stable
Term Loan 22.5 State Bank of India CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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