| TD Power Systems Limited | ||||||
| Long-term rating upgraded to ‘CRISIL A+/Stable’; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 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 long-term bank facilities of TD Power Systems Ltd (TDPS, part of the TDPS group) to ‘CRISIL A+/Stable’ from 'CRISIL A/Positive’ and reaffirmed the short-term rating at ‘CRISIL A1’.
The upgrade reflects CRISIL Rating’s expectations of sustenance of healthy business risk profile of TDPS group over the medium term, supported by robust growth in its core business of manufacturing alternating current (AC) generators; while maintaining a healthy operating margin. The resultant cash accrual should be sufficient to meet working capital needs and moderate annual capital expenditure (capex) requirement of Rs 40-70 crore, thereby limiting the need for any significant debt; this will keep financial risk profile comfortable.
Revenue rose 16% on-year in the first half of fiscal 2024, driven by healthy demand in the manufacturing segment on account of conducive macro factors. Revenue is expected to continue its growth momentum and grow by 12-14% annually over the medium term. Operating margin has improved steadily over the past few fiscals to 16.6% in fiscal 2023 and 17.4% in the first half of fiscal 2024, and is expected to be 15-17% over the medium term; benefitting from economies of scale and the group’s cost-optimisation measures.
The group is expected to sustain its established market position in the AC generator business, backed by a healthy order book of Rs 1,324 crore as on September 30, 2023, including orders of Rs 675 crore in the railway segment that are to be executed over the next 4-5 years; the remaining orders are to be executed in 3-9 months.
Financial risk profile is strong backed by healthy tangible networth of Rs 648 crore and nil debt, as on September 30, 2023. Debt protection metrics remain comfortable and liquidity remained robust, supported by cash and liquid investments of Rs 191 crore as on September 30, 2023, a large portion of which remains unencumbered.
These strengths are partially offset by susceptibility of operating performance to cyclical demand in end-user industries and customer concentration in revenue. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of TDPS and its subsidiaries, collectively referred to as the TDPS group.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Strong market position: The group is a leading manufacturer of AC generators in the 1-50 megawatt (MW) segment in India. It has supplied 6,066 generators since its inception till September 30, 2023. The group has the capability to manufacture generators across the steam, hydro, diesel and gas segments, and has a diverse end-user industry base that includes cement, sugar, metals and mining, and power generation. Over the years, the group has been able to partially offset the slowdown in domestic demand by expanding into the overseas market and building relationships with key multinational original equipment manufacturers (OEMs). Favourable industry scenario with higher investments envisaged in end-user industries over the medium term should continue to support business risk profile.
Improving business risk profile: The TDPS group had a healthy order book of Rs 1,324 crore as on September 30, 2023, diversified across the domestic and overseas markets. Over the past decade, the group has gradually increased its presence in the export market and now supplies generators to 103 countries across the globe, with sizeable presence in North America and Europe through own sales offices. To further diversify revenue streams, the group recently started manufacturing motors and will ramp up operations in this segment over the medium term. With expected improvement in scale of operations through higher execution, the continued economies of scale benefit coupled with cost-optimisation measures, should help sustain the operating margin at 15-17% over the medium term.
Robust financial risk profile: The financial risk profile is supported by healthy tangible networth of Rs 648 crore and nil debt as on September 30, 2023, resulting in comfortable capital structure and debt protection metrics. The financial risk profile should remain healthy over the medium term, with increasing cash accrual and adequate liquidity to meet incremental working capital requirement and moderate capex plan, with the group setting up a new manufacturing capacity for generators, motors and their sub-assemblies and parts at a total project cost of ~Rs 100 crore to be executed over fiscals 2024-2025
Weaknesses: Susceptibility of operating performance to cyclical demand in end-user industries: The demand for generators is mainly linked to the capex programmes of end-user industries, thereby exposing the group to the investment plans of its customers, especially during an economic slowdown when many companies may defer capex. Profitability and return on capital employed have weakened significantly in the past (fiscals 2015-2018) on account of low capacity utilisation following slowdown in end-user industries.
Customer concentration in revenue: Revenue from generator manufacturing comes from sales to OEMs of turbines and engines, such as Siemens Ltd, Voith Hydro, General Electric and Triveni Turbine Ltd. The top 10 clients account for 65-70% of gross revenue in the manufacturing segment. |
Liquidity: Strong Cash and liquid surplus stood at Rs 191 crore as on September 30, 2023, a large portion of which remains unencumbered; moreover, the company has nil long-term debt obligation. Liquidity is also supported by bank limit of Rs 40 crore (voluntarily reduced from Rs 120 crore earlier), which remained unutilised as on October 31, 2023. The available liquidity and expected annual cash accrual of over Rs 100 crore will be sufficient to fund the proposed capex in fiscals 2024 and 2025. |
Outlook: Stable The TDPS group will continue to sustain its healthy business risk profile over the medium term with ramp-up in order book, while maintaining comfortable capital structure and liquidity. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Based in Bengaluru, TDPS commenced operations in 2001 and manufactures AC generators of up to 200 MW. The company also executes turbine-generator islands for steam turbine power plants of up to 52 MW. It has three units, one of which is a dedicated large generator manufacturing plant. The company also has a facility in Turkey.
TDPS is listed on the Bombay Stock Exchange and the National Stock Exchange. As on December 31, 2023, the promoters held 34.27% stake, mutual funds held 31.44%, individuals held 18.61%, foreign portfolio investors held 10.11% and the balance was held by others.
For the first half of fiscal 2024, the company reported a profit after tax (PAT) of Rs 59 crore (PAT of Rs 41 crore in the corresponding period of fiscal 2023) on revenue of Rs 494 crore (Rs 417 crore). |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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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 | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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