Rating Rationale
February 22, 2023 | Mumbai
Suyog Telematics Limited
Ratings upgraded to 'CRISIL BBB / Stable / CRISIL A3+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.90 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB- / Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3 ')
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 upgraded its rating on the bank loan facilities of Suyog Telematics Ltd (STL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The upgrade reflects improvement in business risk profile on back of healthy operating performance. Consequently, company’s liquidity has improved with healthy cash accruals. Healthy operating performance was driven by increase in number of towers along with penetration in new geography and rationalization of fixed costs. As compared to 76% tower share in Mumbai in FY’20, the same has reduced to 46% due to expansion in other circles. Company is also expected to benefit from 5G roll out across India.

 

Company’s revenue has grown at compounded annual growth rate of 13% over past 3 years through fiscal 2022 with operating margin at around 58% in fiscal 2022. Company has already reported revenue of around Rs 115 crore at an operating margin of around 65% during 9 months of fiscal 2023. Installation of new towers and healthy orderbook providing tenancy visibility will result in revenue growth over the medium term. Further, debtors more than 6 months being less than 1% of networth limits the debtors’ risk. While company is expected to undertake significant capex for new towers, financial profile particularly liquidity will continue to remain comfortable on account of limited reliance on external debt.

 

The ratings continue to reflect STL’s established market position, healthy financial risk profile and streamlined repayment mechanism through the presence of an escrow account and 3-month debt service reserve account (DSRA) for term loans. These strengths are partially offset by STL’s moderate scale of operations and large capital requirement expected over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

  • Established regional market position: STL was incorporated in 1995 by Mr. Shivshankar Lature, which builds, owns and operates telecommunication Poles, Towers (particularly Roof-top towers), Optical fiber cables (OFC) systems and related assets and provides these passive infrastructure assets on a shared basis to wireless and other communications service providers. It is registered as Infrastructure Provider Category-I (IP-I) with DoT (Department of Telecommunications). Backed by strong relations with various telcos and efficient operations, STL has diversified its operating areas beyond its conventional strong hold of Mumbai circle.  With introduction of 5G network, the telcos are expected to spread their network significantly across the hinterlands of India. Revenue achieved till 31st Dec 2022 is around Rs 115 crore and revenue is expected to reach around Rs 170-180 crore in fiscal 2023

 

  • Above-average financial risk profile: Despite planned capex of Rs 50-60 crore over the next fiscal, financial risk profile is expected to remain healthy. Networth was Rs 188.3 crores as on March 31st 2022 and leverage level is moderate as reflected in total outside liability to adjusted networth (TOLANW) ratio of 0.92 times as on March 31, 2022. While the capex is expected to be partially funded by debt; TOLANW is likely to remain at less than 1 times over the medium term owing to moderate accruals.  Debt protection metrics also remain comfortable; interest coverage was 6.66 times in fiscal 2022 and net cash accruals to total debt (NCATD) was 1.12 times. Interest coverage ratio and NCATD is likely to remain comfortable in the same range over the medium term.

 

Weaknesses:

  • Moderate scale of operations and geographical presence: Although on improving trend, scale of operations continues to remain moderate with operating income of Rs 155.72 crore in fiscal 2022.Although the company has started diversifying its geographical base with orders from 28 circles compared to 12 circles previously, benefits from the same are expected to accrue over the medium term and the extent remains to be seen. Company generates around 60-65% revenues come from Mumbai and Maharashtra, which exposed company to any revision in rental agreement with customers or in long-term lease agreements with government agencies.

 

  • Large capital requirement: The telecom tower industry is capital intensive, though capex is largely built to order. The company is expected to increase its towers with launch of 5G in near term. The company has also added towers in to diversify its geography. Annual capex is projected at over Rs 60 crore for the medium term. While, working capital cycle has improved, with concentration in customer base due to consolidation and exits in industry, receivables can be impacted, thereby resulting in high working capital requirement.  Sustenance of improved working capital cycle to remain monitorable.

Liquidity: Adequate

NCA likely to provide 5-6 times cushion to repayment obligations over the medium term. Net cash accrual, expected to be around Rs 70-75 crore per fiscal over the medium term and should comfortably cover annual term against debt obligation of Rs 11-15 crore. Any delay in payment from the counter parties can put pressure on the liquidity profile. Absence of any working capital limit constrains liquidity profile. However, apart from unencumbered cash of Rs 1.1 crore as on Dec 2022, company also maintains a DSRA equivalent to 1 quarter in form of FDs. The lease rentals come in a designated escrow account from where the lenders take their dues and the balance is available for the company’s use. Capex of Rs 50-60 crore planned over next fiscal is expected to be adequately funded by internal accruals and term debt. Liquidity will remain adequate despite debt funded capex over medium term.

Outlook: Stable

STL should benefit from its promoter's experience in the telecom tower industry and established relationships with customers and agencies.

Rating Sensitivity factors

Upward factors:

  • Growth of 20-25% in revenue with improved operating margin, leading to significantly stronger net cash accrual.
  • Improvement in working capital cycle, especially receivables cycle across clients and sustained financial risk profile with TOLANW remaining below 1 times and strong debt protection metrics.

 

Downward factors:

  • Moderation in revenue growth and operating margin falling below 35% leading to lower-than-expected cash accruals.
  • Larger-than-expected debt funded capex, large dividends or significant reduction in accruals weakening the financial risk profile, especially liquidity.

About the Company

STL, incorporated in 1995 by Mr Shivshankar Lature, is a passive telecommunication infrastructure provider, engaged primarily in the business of installing and commissioning poles, towers and optical fibre cable systems.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

155.72

131.95

Reported profit after tax

Rs crore

47.55

32.76

PAT margins

%

26.57

18.49

Adjusted Debt/Adjusted Net worth

Times

0.30

0.28

Interest coverage

Times

6.52

6.33

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 instrument

Date of allotment

Coupon rate (%)

Maturity date

Complexity level

Issue size

(Rs crore)

Rating assigned with outlook

NA

Bank Guarantee

NA

NA

NA

NA

3

CRISIL A3+

NA

Bank Guarantee

NA

NA

NA

NA

6

 CRISIL A3+

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

NA

30.81

CRISIL BBB/Stable

NA

Term Loan

NA

NA

Mar-28

NA

18

CRISIL BBB/Stable

NA

Term Loan

NA

NA

Jan-26

NA

32.19

CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 81.0 CRISIL BBB/Stable   -- 17-02-22 CRISIL BBB-/Stable 25-02-21 CRISIL BBB-/Stable   -- CRISIL BBB-/Negative
Non-Fund Based Facilities ST 9.0 CRISIL A3+   -- 17-02-22 CRISIL A3 25-02-21 CRISIL A3   -- CRISIL A3
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Term Loan 18 State Bank of India CRISIL BBB/Stable
Bank Guarantee 3 State Bank of India CRISIL A3+
Bank Guarantee 6 Axis Bank Limited CRISIL A3+
Term Loan 32.19 Axis Bank Limited CRISIL BBB/Stable
Proposed Long Term Bank Loan Facility 30.81 Not Applicable CRISIL BBB/Stable

This Annexure has been updated on 20-Mar-23 in line with the lender-wise facility details as on 06-Mar-23 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Assessing Information Adequacy Risk
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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