Rating Rationale
March 25, 2022 | Mumbai
TD Power Systems Limited
Ratings upgraded to 'CRISIL A / Stable / CRISIL A1 '
 
Rating Action
Total Bank Loan Facilities RatedRs.374 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL A- / Stable')
Short Term RatingCRISIL A1 (Upgraded from 'CRISIL A2+ ')
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 ratings on the bank facilities of TD Power Systems Ltd (TDPS; part of the TDPS group) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.

 

The upgrade reflects CRISIL Ratings’ expectation that the credit risk profile of TDPS will improve upon strengthening of its business profile driven by robust growth in the domestic market for company’s core business of AC generator manufacturing coupled with sustenance of healthy operating margins. These factors would result in sustained improvement in the company’s operating performance and ROCE.

 

During fiscal 2021, TDPS registered healthy operating performance with year-on-year growth of 15% in operating income to Rs 594 crore (on consolidated basis) and improvement in operating margin to 11.9% from 8.1% in fiscal 2020, led by healthy performance in its manufacturing business.

 

Furthermore, operating performance witnessed substantial improvement during the first nine months of fiscal 2022, against the corresponding period of the previous fiscal wherein the operating income grew 34% year-on-year along with reported EBITDA (earnings before interest, tax, depreciation and amortisation) of Rs 61 crore, against Rs 47 crore reported during the corresponding period of the previous fiscal. The improvement was led by strong performance of the domestic manufacturing business, operating leverage benefits and cost-optimisation measures.

 

TDPS’ established market position in the alternating current (AC) generator business is expected to sustain on back of healthy order book. The company had outstanding manufacturing orders of about Rs 1,005 as on December 31, 2021, which includes railway segment orders amounting to Rs 640 crore, to be executed over next 5 years.  

 

The ratings also reflect TDPS’ strong financial risk profile marked by healthy debt protection metrics with interest coverage of 45.4 times for first nine months pf fiscal 2022 which is expected to improve further in the current fiscal. Moreover, liquidity remains strong, supported by cash equivalents and liquid investments of about Rs 194 crore as on December 31, 2021, and the absence of long-term debt. These strength is partially offset by susceptibility of operating performance to cyclical demand in end-user industries and customer concentration risk in revenue.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of TDPS and its subsidiaries. All these entities are 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 TDPS group is among the leading AC generator manufacturers in the 1-50 megawatt (MW) segment in India. The group has a strong track record in this space and has supplied 5,160 generators since its inception, with an aggregate capacity of over 37,140 MW. It has capabilities in manufacturing generators across steam, hydro, diesel and gas segments. Moreover, the end-user industry base is diverse, and includes cement, sugar, metals and mining sectors, apart from 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 the business.

 

  • Robust financial risk profile: The financial risk profile is backed by high networth of Rs 466 crore against total debt of Rs 52 crore, as on March 31, 2021, with no long-term debt. Overall gearing remains comfortable at 0.11 time as on March 31, 2021, led by low working capital debt. Debt protection metrics are also healthy, with interest coverage ratio of 8.58 times (5.32 times in the previous fiscal).

 

The financial risk profile should remain healthy over the medium term, backed by increasing cash accrual, strong liquidity and absence of any large capital expenditure (capex).

 

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, rendering TDPS vulnerable to investment plans of its customers, especially during an economic slowdown when many companies may defer or postpone their capex plans. Profitability and return on capital employed (RoCE) have weakened significantly in the past on account of low capacity utilisation caused by slowdown in end-user industries, however, are showing signs of improvement in fiscal 2021 with RoCE improving to above 10%.

 

  • Customer concentration risk in revenue: Revenue from the generator manufacturing segment is concentrated mainly in sales to OEMs of turbines such as Siemens Ltd, Voith Hydro, General Electric and Triveni Turbine Ltd. About 70% of gross revenue in the manufacturing segment is derived from sales to the top 10 customers.

Liquidity: Strong

Liquidity is backed by unencumbered cash equivalent and liquid investments of about Rs 194 crore as on December 31, 2021, against nil long-term debt obligation. Liquidity is also supported by unutilised bank lines of over Rs 30 crore as of December 31, 2021. While the company has capex of Rs 15-25 crore per annum, available liquidity and expected annual cash accrual of Rs 60-70 crore during fiscals 2022 and 2023 would be more than sufficient to meet the requirement.

Outlook Stable

TDPS is likely to sustain the momentum in its order book and execution while maintaining its term-debt-free capital structure and healthy liquidity over the medium term.

Rating Sensitivity factors

Upward factors

  • Substantial improvement in size of business, driven by sustained healthy growth in the manufacturing segment and revenue visibility of more than one year
  • Significant improvement in the operating margin to sustainable levels of 13-15%

 

Downward factors

  • In case of weaker-than-expected operating performance driven by weak external demand and low order book, leading to moderation in the business risk profile
  • In case of significant weakening of liquidity with cash and cash equivalent declining to below Rs 100 crore on a sustained basis
  • If any large, debt funded capex is undertaken

About the Company

TDPS, based in Bengaluru, commenced operations in 2001 and manufactures AC generators with capacities up to 200 MW. The company also executes turbine-generator islands for steam turbine power plants with capacities up to 52 MW.

 

TDPS has five wholly owned subsidiaries - DF Power Systems Pvt Ltd in India, TD Power Systems (USA) Inc in USA, TD Power Systems Japan Ltd in Japan, TD Power Systems Europe GmbH in Germany and TD Power Systems Jenerator Sanayi Anonim Sirketi in Turkey.

 

For the nine months ended December 31, 2021, operating income and reported profit after tax (PAT) was Rs 570 crore and Rs 46 crore, respectively, against Rs 425 crore and Rs 30 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators

As on/for the period ended March 31

 

2021

2020

Operating income

Rs crore

594

515

Profit after tax (PAT)

Rs crore

45

30

PAT margin

%

7.6

5.8

Adjusted debt/adjusted networth

Times

0.11

0.16

Interest coverage

Times

8.58

5.32

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

Issue size (Rs crore)

Complexity level

Rating assigned with outlook

NA

Bank guarantee@

NA

NA

NA

183.27

NA

CRISIL A1

NA

Proposed bank guarantee

NA

NA

NA

0.73

NA

CRISIL A1

NA

Letter of credit@

NA

NA

NA

50.00

NA

CRISIL A1

NA

Non-fund-based limit#

NA

NA

NA

20.00

NA

CRISIL A1

NA

Cash credit*@

NA

NA

NA

80.00

NA

CRISIL A/Stable

NA

Cash credit**@

NA

NA

NA

40.00

NA

CRISIL A/Stable

*Includes sublimit of Rs 50 crore for packing credit and Rs 5 crore for inland bill discounting under letter of credit

**Includes sublimit of Rs 20 crore for WCDL/EPC/PCFC/FBD/FBN

#includes sublimit of up to Rs 20 crore for letter of credit and up to Rs 15 crore for bank guarantee

@Includes limits from HDFC bank that will be carved out of the limits from existing lenders such that overall limits remains unchanged.

Annexure – List of entities consolidated

Name of entity

Extent of consolidation

Rationale of consolidation

DF Power Systems Pvt Ltd

Full

Significant operational and financial linkages

TD Power Systems (USA) Inc.

Full

Significant operational and financial linkages

TD Power Systems Japan Ltd

Full

Significant operational and financial linkages

TD Power Systems Europe GmbH

Full

Significant operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 120.0 CRISIL A/Stable   --   -- 23-12-20 CRISIL A-/Stable 13-09-19 CRISIL BBB+/Stable CRISIL BBB+/Stable
Non-Fund Based Facilities ST 254.0 CRISIL A1   --   -- 23-12-20 CRISIL A2+ 13-09-19 CRISIL A2 CRISIL A2
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee& 183.27 Bank of Baroda CRISIL A1
Cash Credit^& 80 Bank of Baroda CRISIL A/Stable
Cash Credit%& 40 Kotak Mahindra Bank Limited CRISIL A/Stable
Letter of Credit& 50 Bank of Baroda CRISIL A1
Non-Fund Based Limit# 20 Kotak Mahindra Bank Limited CRISIL A1
Proposed Bank Guarantee 0.73 Not Applicable CRISIL A1
This Annexure has been updated on 14-Mar-2023 in line with the lender-wise facility details as on 02-Mar-2023 received from the rated entity.
& - Includes limits from HDFC bank that will be carved out of the limits from existing lenders such that overall limits remains unchanged
^ - Includes sublimit of Rs 50 crore for packing credit and Rs 5 crore for inland bill discounting under letter of credit
% - Includes sublimit of Rs 20 crore for WCDL/EPC/PCFC/FBD/FBN
# - includes sublimit of up to Rs 20 crore for letter of credit and up to Rs 15 crore for bank guarantee
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
Rating Criteria for Engineering Sector
CRISILs Criteria for Consolidation

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