| R Systems International Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| 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 rating outlook on the long-term bank facilities of R Systems International Limited (R Systems) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1’.
The outlook revision reflects the expected improvement in business risk profile with sustained revenue growth and profitability driven by healthy demand prospects in the company’s key verticals including healthcare, telecom and banking and finance services and insurance (BFSI). Benefits of higher volume and higher share of more-profitable digital deals will continue to support operating margins.
In Calendar Year (CY) 2020, revenues grew 9% supported by increased outsourcing by customers and company’s focus on addition of new customers. Operating margin improved by to 13.3% from 9.1% in CY 2019 backed by higher share of digital contracts, forex benefit, improved employee utilisation and cost savings.
In CY 2021, revenues are expected to grow by 12-15% driven by acceleration of digital transformation in key verticals like Telecom and BFSI. Profitability is expected to sustain above 12% due to better service mix and improving efficiency.
The financial profile is supported by negligible debt and healthy networth of Rs 412 crore as of March 31, 2021. Liquidity further supported by expected healthy annual cash accruals of Rs 100-120 crore and cash surplus to ~Rs 310Cr as of March 31,2021.
The ratings continue to reflect the company’s improving business risk profile supported by presence in diversified business verticals and customers, and healthy financial risk profile driven by negligible debt and healthy cash surplus. These strengths are partially offset by exposure to geographical concentration risk, and modest scale of operations |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of R Systems and its subsidiaries, which are an integral part of the company’s business and are, therefore, critical to its credit risk profile. For arriving at the adjusted financials, CRISIL has amortized goodwill created upon the acquisition of Innovizant LLC (Rs 10.07 crore) in January 2019, respectively over a period of 5 years.
Please refer Annexure - List of entities consolidated, which captures all entities considered and their analytical treatment. |
Key Rating Drivers & Detailed Description Strengths:
The company has a healthy financial profile driven by cash balance of ~Rs 310 Cr as of March, 2021.The financial profile is supported by negligible debt of ~1Cr excluding stimulus loans of ~Rs 23 crore recorded as debt in balance sheet. The company has a moderate annual capital expenditure (capex) of Rs 10–12 crore which will be funded by internal accruals. Debt protection metrics are strong with interest coverage of 21 times and ratio of net cash accruals to adjusted debt at 19 times in CY2020. R systems is expected to generate heathy cash accruals of above ~Rs.100Cr over the medium term which will further improve the financial profile.
The company has over 200 customers in about 40 countries across diversified verticals such as telecom, technology, healthcare and life science, finance and insurance and retail and e-commerce. R systems has a stable customer base with majority of the top 10 customers being same over the past three years. Also, there is steady diversification in customer base with top 10 clients contributing 28.5% to overall revenue in CY2020 when compared to 31.8% in CY2019. The company added 28 key customers during the year with 8 potential $1 million accounts. Well-diversified industry and customer portfolios are expected to assure steady business growth.
Weaknesses
The scale of operations has been modest considering the fact that the company has been in business for 2 decades. The company has made small acquisitions since 2002 and it has only gradually ramped up operations compared with peers in the industry. Revenue grew by 8.8% in CY2020 and is expected to grow at 12-15% over the medium term. Profitability is expected to be above 12% over the medium term. Steady growth in scale of operations along with sustaining the healthy financial profile will remain key monitorable over the medium term
Like other IT players in the industry, majority of the revenues of R systems international limited is from North America. North America and Europe contributed 68% and 13% of the total revenues in CY2020. Reliance on these markets (combined) has been high at over 70% since 2006. This exposes the company to economic downturns, volatility of the Indian rupee against the US dollar and change in government policies in these regions. |
Liquidity: Strong Liquidity is strong driven by adequate cash surplus of Rs 310 crore as on March 31, 2021. The fund-based limit of Rs 20 crore remained mostly unutilised. Annual cash accrual is expected at over Rs 100 crore over the medium term, against negligible debt obligation (excluding subsidies, debt stood at Rs 67 lakh as on December 31, 2020). Liquidity is sufficient to cover working capital requirement and modest capex requirement. |
Outlook: Positive Business risk profile of the company will improve driven by steady growth in scale of operations and increase in profitability. The financial profile of the company is expected to be healthy driven by negligible debt, healthy cash accruals, high cash surplus and conservative financial policies. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company R Systems was promoted in 1993 by Dr Satinder Singh Rekhi as a private-limited company. It was reconstituted as a public-limited company in April 2000 and came out with its initial public offering in 2006. As on June 2021, the promoter and promoter-group companies held 52% of the company’s equity shares.
R Systems is a leading provider of technology, artificial intelligence, analytics and knowledge services. It partners with customers to enable or elevate their digital transformation with diversified digital offerings including product engineering, cloud enablement, quality assurance testing and digital platforms and solutions.
R Systems offers services and solutions across telecom, technology, healthcare and life science, finance and insurance and retail and e-commerce. It has 16 development and service centres to serve customers in North America, Europe and the Far East. Around 80% of revenue comes from North America and Europe. |
Key Financial Indicators
*Company follows calendar year |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
*Interchangeable with Letter of Credit, Export Packing Credit (EPC), Pre-Shipment credit in Foreign currency (PCFC) and Pre shipment credit (PSC) |
Annexure - List of Entities Consolidated
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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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit* | 15 | Axis Bank Limited | CRISIL A/Positive |
| Cash Credit* | 5 | ICICI Bank Limited | CRISIL A/Positive |
| Loan Equivalent Risk Limits | 18 | Axis Bank Limited | CRISIL A1 |
| Loan Equivalent Risk Limits | 10 | ICICI Bank Limited | CRISIL A1 |
| Proposed Long Term Bank Loan Facility | 5 | Not Applicable | CRISIL A/Positive |
This Annexure has been updated on 19-Aug-22 in line with the lender-wise facility details as on 04-Aug-22 received from the rated entity.
Criteria Details
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