| Paras Defence and Space Technologies Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+ / CRISIL A2 '; outlook revised to 'Negative' | ||||||
| Rating Action | ||||||
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| 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 Paras Defence and Space Technologies Limited (Paras) to ‘Negative’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL BBB+’. The rating on the short-term bank facilities has been reaffirmed at 'CRISIL A2'.
The negative outlook reflects continuous stretch in its working capital cycle over the last three years evident from high gross current assets (GCAs) of 428 days as on March 31, 2020, which continues to remain high as on December 31, 2020. Furthermore, with 50% of the revenue are booked in Q4, it has limited cushion available to address the additional working capital requirements given bank lines are more than 95% utilized currently. Hence, timely collection of receivables and enhancement in bank lines will remain key monitorable.
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Analytical Approach: Unsecured loans have been treated as debt. |
Key Rating Drivers & Detailed Description Strengths:
Benefits from the promoters’ experience of more than 3 decades and their strong understanding of market dynamics, should continue to support business risk profile. Over the decades, Paras has developed strong engineering and design capabilities which has helped it in meeting the changing demands from its customers. Paras has a healthy order book at hand of Rs 225 crore as on January-2021 spanning across its business verticals, aided by its established track record of timely and satisfactory completion of tenders.
Paras has a wide range of products which find application in diverse sectors like heavy engineering (22% of revenues), defense & space optics (45% of revenues) and defense electronics (33% of revenues). Its key domestic customers include Bhabha Atomic Research Centre (BARC), Bharat Electronics Ltd (BEL) and Indian Space Research Organization (ISRO) while internationally it exports majorly to companies based in Israel, Singapore and USA.
Paras’s capital structure is marked by comfortable gearing and total outside liabilities to adjusted networth ratios estimated at 0.8 and 1.2 times as on March 31, 2021. Debt protection metrics are adequate, with estimated interest coverage and net cash accruals to adjusted debt of 4 times and 0.29 times in fiscal 2021. Financial risk profile is expected to remain above average over the medium term in absence of any major debt-funded capital expenditure (capex) plans.
Weaknesses:
Working capital requirements are high as reflected by gross current assets of 428 days as on March 31, 2020 (increased from 365 days a year before) which is majorly driven by debtors of 242 days (increased from 197 days a year before) and inventory of more than 200 days. The working capital cycle is high as on March as more than 50% of sales are recorded in Q4 of the fiscal. Since, Paras manufactures various kind of products with long processing times, inventory levels remain high. Paras’ working capital requirements are expected to remain high and management of the same remain a key rating sensitivity factor.
Despite Paras having well-diversified product profile with different products providing different profitability, its business performance is entirely dependent on the nature of tender received from its customers, owing which both scale and profitability are expected to remain volatile. Further, with ISRO accounting for around 50% of its order book of Rs 225 crore (as on Jan-2021), it will continue to remain exposed to concentration risks. |
Liquidity: Adequate Liquidity is adequate, marked by expected cash accrual of over Rs 25-30 crore annually in fiscal 2021 and fiscal 2022, against repayment obligations of Rs. 7.8 crore annually. It has cash and cash equivalents of Rs 4.6 crores as on March 31, 2020. Utilisation of fund-based limit of Rs 39 crore averaged more than 90% over the past 5 months ended January 2021. Liquidity is partly supported by unsecured loans from promoters outstanding at Rs 14.3 crore as on March 31, 2020. CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations and incremental working capital requirements. |
Outlook: Negative CRISIL Ratings believes that Paras’ credit risk profile may be impacted on account of large working capital requirements and high bank limit utilization. |
Rating Sensitivity factors Upward factor
Downward factor
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About the Company Paras, setup in 1977 by Mr. Sharad Shah, is a supplier of tier-2 products to the defense and space sector, in the domain of optics, heavy engineering and electronics. The day-to-day operations are currently managed by Mr. Munjal Shah (son of Mr. Sharad Shah) and it has 3 manufacturing facilities located in Thane, Navi Mumbai and Hyderabad. |
Key Financial Indicators
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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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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