| Kapston Services Limited | ||||||
| Rating outlook revised to 'Negative'; Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 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 revised its outlook on the long-term bank facilities of Kapston Services Limited (KSL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at 'CRISIL BBB'. The short-term rating has been reaffirmed at ‘CRISIL A3+’.
The outlook revision factors in expected moderation in the company’s business performance on account of moderated operating margin in the ongoing fiscal and deterioration in the financial risk profile. While the company has been reporting revenue growth on account of incremental contribution from the staffing business, operating margin has moderated to less than 4% over the nine months through fiscal 2023. Higher reliance on working capital debt coupled with reduction in operating profit has resulted in weakening of the debt protection metrics. However, significant improvement in revenue contribution from staffing business and improvement in operating margin will remain key rating sensitivity factors.
The ratings continue to reflect the experience of the management of KSL, established track record of operations and improving scale of operations. These strengths are partially offset by moderation in the operating margin, moderate financial risk profile and large working capital requirement. |
Key Rating Drivers & Detailed Description Strengths: Experienced management The promoter, Mr Kodali Srikanth, has experience of over a decade in the facilities management and security services business. Mr Chereddi Ramachandra Naidu, the chairman, takes care of the human resource management, industrial relations, strategy and project management. They are supported by the other directors, Mr Naveen Nandigam and Ms Doddapaneni Kranti Kiran.
Established track record of operations KSL is a proven brand in providing IFM and security services to diversified clients. The company started venturing into providing contract staffing solutions to both general and information technology (IT) companies from fiscal 2020. The staffing segment witnessed significant growth in the first two years and achieved revenue of Rs 87 crore over the nine months through fiscal 2023 and is estimated at around Rs 125 crore for the ongoing fiscal.
Improving scale of operations Scale of operations is significantly improving year-on-year, as reflected in revenue of Rs 273 crore in fiscal 2022 owing to increased contribution from the staffing business and the IFM vertical. Revenue stood at around Rs 293 crore over the nine months through fiscal 2023 and is estimated at Rs 400 crore for the full fiscal. The company continues to add customers in the staffing business, and from the next fiscal, contact staffing is expected to contribute revenue of above Rs 200 crore.
Weaknesses: Moderation in the operating margin Operating margin moderated to 4.7% in fiscal 2022 from 7.9% in fiscal 2021 and stood at 3.9% over the nine months through fiscal 2023. The higher fixed cost and employee cost have led to moderation in the operating margin. Improvement in operating margins on account of incremental revenue will continue to remain a key monitorable.
Moderate financial risk profile The financial risk profile has moderateds on account of higher reliance on the working capital limit. The capital structure has moderated, with overall gearing increasing to 1.49 times in fiscal 2022 from 0.93 time in fiscal 2021. Reliance on the working capital limit is expected to continue over the medium term. Debt protection metrics have moderated as well, as indicated by interest coverage ratio of 1.74 times over the nine months through fiscal 2023 vis-à-vis 3.25 times in fiscal 2021.
Large working capital requirement Operations will remain working capital intensive, especially in projects where the company follows the pay-and-collect model. Consequently, receivables remained high resulting in high reliance on working capital borrowings. |
Liquidity: Adequate Bank limit was utilised at 72% on average over the 12 months ended December 31, 2022. Net cash accrual, expected at Rs 13-15 crore in fiscal 2024, will sufficiently cover yearly debt obligation of Rs 4-5 crore. |
Outlook: Negative The ‘Negative’ outlook reflects moderation in the financial risk profile and business performance of KSL. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company KSL (formerly known as Kapston Facilities Management Ltd), incorporated in 2009, is ISO 9001 and OHSAS 18001:2007 certified for providing integrated facility management services for security, housekeeping, M&E (electro-mechanical) and landscaping (horticulture) and allied services. It is listed on the National Stock Exchange. Mr Kodali Srikanth is the promoter of the company. For the 9 months through December 2022, the company reported revenue and profit after tax (PAT) of Rs 293.73 crore and Rs 4.16 crore, respectively, against Rs 189.79 crore and Rs 1.80 crore, respectively, in the corresponding period previous fiscal |
Key financial indicators
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Status of non-cooperation with previous CRA KSL has not cooperated with Acuite Ratings and Research Ltd, which has classified the company as non-cooperative through a rationale dated April 22, 2021, on account of non-furnishing of information for monitoring of ratings. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 08-Mar-2023 in line with the lender-wise facility details as on 30-Mar-2022 received from the rated entity.
Criteria Details
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