Rating Rationale
November 20, 2019 | Mumbai
Suyog Telematics Limited
Ratings migrated to 'CRISIL BBB-/Negative/CRISIL A3' 
 
Rating Action
Total Bank Loan Facilities Rated Rs.90 Crore
Long Term Rating CRISIL BBB-/Negative (Migrated from 'CRISIL BBB-/Stable ISSUER NOT COOPERATING'*)
Short Term Rating CRISIL A3 (Migrated from 'CRISIL A3 ISSUER NOT COOPERATING'*)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Issuer did not cooperate; based on best-available information
Detailed Rationale

Due to inadequate information, CRISIL, in-line with the Securities and Exchange Board of India guidelines, had migrated the rating on Suyog Telematics Ltd (STL) to 'CRISIL BBB-/Stable/CRISIL A3 Issuer Not Cooperating'. STL has subsequently provided the necessary information, Consequently CRISIL is migrated its ratings to 'CRISIL BBB-/Negative/CRISIL A3' from 'CRISIL BBB-/Stable/CRISIL A3 Issuer Not Cooperating'. 
 
Revision in outlook reflects the expected weakening in the company's business risk profile due to likely stretch in receivables and moderation in revenue growth and profitability on account of overall sluggishness in the telecom sector. Significant elongation in receivables cycle may also weaken the financial flexibility and would be a key rating monitorable.
 
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 all term loans. These strengths are partially offset by STL's modest scale of operations with geographical concentration, low tenancy ratio of its towers and sizeable capital expenditure (capex) expected over the medium term.

Key Rating Drivers & Detailed Description
Strengths
* Established regional market position: The company, a passive telecom infrastructure provider, is primarily engaged in installing and commissioning of poles, towers and optical fibre cable systems since 1995. It is registered as Infrastructure Provider Category-I (IP-I) with the Department of Telecommunications (DoT).  The company has a strong presence in the government sector in Mumbai supported by the fact that it has the sole license to install towers and poles for Mumbai Metropolitan Region Development Authority (MMRDA) and Mumbai State Road Development Corporation Ltd (MSRDC) sites across the city's flyovers, sea link and skyways. The exclusive license from government agencies ensures stable revenue growth and profitability.

The company has healthy presence in low cost slums sites, with high density of population and government sites; they also focus on installation of poles, which requires lower capex and variable cost compared to towers. This coupled with significant presence in Mumbai has led to operating margin on par with peers, despite lower occupancy levels. 

* Above-average financial risk profile: Despite planned capex of Rs 90-100 crore over the next fiscal, financial risk profile is expected to remain healthy. Networth, Rs 97.5 crore as on March 31, 2019, is expected to improve to over Rs 110 crore by the end of fiscal 2020.

Leverage is low as reflected in estimated total outside liability to adjusted networth (TOLANW) ratio of 1.1 times as on March 31, 2019. A term loan of Rs 25-30 crore is likely to be availed per fiscal over the medium term to fund the planned capex. Even though overall debt levels are expected to increase over the medium term to Rs 90-100 crore, TOLANW is likely to remain at similar level owing to moderate accruals.

Debt protection metrics also remain comfortable; interest coverage was 7.8 times in fiscal 2019 and net cash accruals to total debt (NCATD) was 0.6 times. Interest coverage ratio  and NCATD is likely to remain comfortable over the medium term.

Weaknesses
* Modest scale of operations and limited geographical presence
Scale of operations is modest with operating income of Rs 105.3 crore in fiscal 2019. The operations are concentrated in Mumbai region. While STL has competitive advantage in the city, revenues are exposed to any revision in rental agreement with customers or in long-term lease agreements with MSRDC and MMRDA, which might affect the company's revenues significantly. Although the company has started diversifying its geographical base with orders from Gujarat, Uttarakhand and the National Highways Authority of India (NHAI; 'CRISIL AAA/Stable'), benefits from the same are expected to accrue over the medium term and the extent remains to be seen. Hence, scale of operations will continue to be modest and exposed to geographical concentration risk.

* Significant capex plans and low tenancy ratio
Tenancy ratio declined in fiscal 2018 mainly on account of closure of operations by Aircel and Reliance Communication, and these low levels have been maintained in fiscal 2019 as well. With capex of Rs 90-100 crore to be completed over the next fiscal, tenancy ratio may weaken further, if off-take is slow. Timely completion of planned capex and its stabilisation thereof at similar or higher tenancy ratio, will be a key rating sensitive factor.
'
* Working capital intensive operations
Operations are working capital intensive with gross current assets of 200 days as on March 31, 2019 (150 days a year ago), driven by debtors of 73 days (64 days) and large accrued income. Elongation in debtor cycle is largely on account of the overall sluggishness in the telecom sector. Operations may continue to be working capital intensive with likely further elongation in receivables cycle, which would be a key rating sensitivity factor.

Liquidity: Adequate
Net cash accrual, expected to be around Rs 35-40 crore per fiscal over the medium should comfortably cover annual term against debt obligation of Rs 12-18 crore. Further, the loan structure provides for an escrow account along with a DSRA equivalent to 3 months of interest and principal repayments to ensure timely servicing of the debt obligations. Nearly 65-75% of the planned capex of Rs 90-100 crore over the medium term is funded by term debt. Any significant stretch in receivables or lower-than-expected accruals may exert pressure on the liquidity profile, however, support from promoters, healthy balance sheet enabling further borrowing and presence of escrow and DSRA accounts, is likely to support liquidity.
Outlook: Negative

CRISIL believes that the business risk profile and financial flexibility of STL may moderate over the medium term due to stretch in receivables cycle and moderation in revenue growth and profitability on account of overall sluggishness in the telecom sector.

Rating sensitivity factor
Upward factors
* Revenue growth of 20-25% per annum over the medium term and operating margin sustained at above 46%
* Improvement in working capital cycle, especially receivables cycle across clients and sustained financial risk profile with TOLANW remaining below 1.1 times and strong debt protection metrics.

Downward factors
* Moderation in revenue growth and operating margin falling below 40% leading to lower-than-expected cash accruals
* Stretch in working capital cycle, especially due to continued elongation in receivables
* 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 fiber cable systems.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 105.3 84.6
Profit After Tax (PAT) Rs crore 28.6 18.5
PAT Margin % 27.2 21.9
Adjusted debt/Adjusted networth Times 0.6 0.88
Interest coverage Times 7.8 4.71

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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)		 Rating assigned
with outlook
NA Bank Guarantee NA NA NA 3.00 CRISIL A3
NA Term Loan NA NA Oct-2021 20.00 CRISIL BBB-/Negative
NA Term Loan NA NA Aug-2025 20.00 CRISIL BBB-/Negative
NA Term Loan NA NA Jun-2022 11.34 CRISIL BBB-/Negative
NA Term Loan NA NA  
Jun-2022		 35.66 CRISIL BBB-/Negative
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  87.00  CRISIL BBB-/Negative  16-05-19  CRISIL BBB-/Stable (Issuer Not Cooperating)*  31-07-18  CRISIL BBB-/Stable  07-04-17  CRISIL BBB-/Stable  29-02-16  CRISIL BBB-/Stable  -- 
            09-01-18  CRISIL BB+/Stable           
Non Fund-based Bank Facilities  LT/ST  3.00  CRISIL A3  16-05-19  CRISIL A3 (Issuer Not Cooperating)*  31-07-18  CRISIL A3  07-04-17  CRISIL A3    --  -- 
            09-01-18  CRISIL A4+           
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 3 CRISIL A3 Bank Guarantee 3 CRISIL A3/Issuer Not Cooperating
Term Loan 87 CRISIL BBB-/Negative Term Loan 87 CRISIL BBB-/Stable/Issuer Not Cooperating
Total 90 -- Total 90 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Framework for Assessing Information Adequacy Risk
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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