Rating Rationale

Detailed Rationale

CRISIL Ratings continues its ratings on the bank facilities and short-term debt programme of Revathi Equipment Limited (REL) (part of Revathi Group) on ‘Rating Watch with Developing Implications’.

The rating continues to reflect the impact of an announcement made by the company regarding approvals obtained for composite scheme of arrangement (SoA). On May 4, 2022, REL had received ‘’No objection” from the SEBI and the Stock Exchanges i.e., BSE Limited and National Stock Exchange of India Limited (NSE) for the Composite SoA of REL and associate companies, Renaissance Advanced Consultancy Limited (RACL), Renaissance Consultancy Services Limited (RCSL) and Renaissance Stocks Limited (RSL), Semac Consultants Private Limited (SCPL) and Renaissance Corporate Consultants Limited (RCCL), and their respective shareholders and creditors.

The main transaction in the SOA involves demerger of drilling and spares business of REL (includes assets, liabilities, properties, titles, rights, duties, obligations etc) as a going concern into RCCL. Upon this scheme coming into effect, RCCL shall be named as Revathi Equipment India Limited (REIL) and will be unlisted as it will merge with the currently unlisted RCCL. Further, SCPL, which is currently a subsidiary of REL, is proposed to be merged into the residual business of REL and the name of REL will be changed to Semac Consultants Limited (SCL) and by virtue of merging with listed entity REL. SCL will be a separate listed entity.

CRISIL Ratings understands that the above scheme of arrangement will be applicable effectively from April 1, 2022 subject to the approval of NCLT which the company has filed an application on July 28, 2022. Further the shareholders and the unsecured creditors of the Company has approved for the SoA in the meeting dated 3rd December, 2022 which was held as directed by NCLT vide their order dated Oct 12th 2022. Final NCLT hearing was conducted on 19th April 2023 however final order for the same is yet to be pronounced.

CRISIL Ratings will continue to monitor progress of the SoA and will engage with REL’s management to understand the exact contours of the SoA, and expected asset-liability position of the entities post the split, and its implications on the business and financial profile of REL. Final rating action will be taken once clarity on above aspects is received and all key regulatory approvals are obtained.

For fiscal 2022, REL’s consolidated revenue improved to Rs.181 crore, a growth of 36% on year-on-year basis. Operating margins had marginally declined to ~9.4 % on consolidated basis during fiscal 2022 (9.9 % in corresponding period of previous year) due to moderation in operating margins of REL’s drilling equipment business owing to increase in prices of raw materials such as mild steel plates, angles and rods.

REL’s consolidated revenue has grown by 144 % on year basis during first 9 months of fiscal 2023, on account of higher execution of orders during the said period by subsidiary Semac consultants Pvt Ltd(SEPL) in Design and build segment. However, profitability has declined to 8.29% on account of with rise in input prices like steel, angle, rods which are key RM for the company which company had to partially absorb. However with the softening of the raw material prices and higher order execution in the coming quarters, profitability is expected to improve in coming quarters. Over the medium term, REL’s performance is expected to improve driven by steady increase in revenues in drilling equipment division supported by increasing private mining of coal and focus on exports.

The ratings continue to reflect REL’s healthy market position and steady growth prospects for the drilling equipment division (DED), and adequate financial risk profile and liquidity. These rating strengths are partially offset by working capital-intensive operations, and intense competition for SCPL in design services for construction sector.