Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market position backed by the extensive experience of its promoters and established clientele

TCILSL is an established player in the transportation and logistics industry and has recently forayed into equipment rental business with relatively new fleet. The promoters’ overall experience of more than three decades, their understanding of the market dynamics, and healthy relationships with suppliers and customers should continue to support the business. TCILSL’s key customers include reputed players such as Rashtriya Ispat Nigam Ltd (RINL), Steel Authority of India Ltd (SAIL), Larsen and Toubro Ltd (CRISIL AAA/Stable) and large construction companies, including AFCONS and TATA Projects leading to revenue growth from Rs. 110.28 crores in fiscal 2021 to Rs. 128.47 crores in fiscal 2022 and it is estimated at Rs.145-150 crores for fiscal 2023.

Moderate financial risk profile

Financial risk profile of the company is marked with comfortable networth at Rs 57.33 crore as on March 31, 2022. Gearing and total outside liabilities to adjusted networth (TOLANW) ratio were 1.64 times and 2.54 times, respectively, as on March 31, 2022. Capital structure of the company is expected to improve with gearing to be in the range of 1-1.2 times and TOLANW in the range of 1.6-1.8 times as on March 31, 2023. Healthy operating margin has kept debt protection metrics comfortable with interest coverage and net cash accrual to adjusted debt ratios at 3.57 times and 0.27 time, respectively, in fiscal 2022 and expected to be 4-4.5 times and 0.3-0.4 time, respectively, in fiscal 2023. Debt-funded capex is expected to be incurred over the medium term, but comfortable networth will continue to keep the financial risk profile moderate.

Weakness:

Large working capital requirement

The operations of the company are working capital extensive with gross current assets (GCAs) of 222 days as on March 31, 2022 driven by sizeable debtors of 177 days due to large credit period offered to its customers. Going forward the working capital cycle is expected to remain stretched with GCA days to be in the range of 210-220 days, due to nature of business of the company. However, the company’s ability to stretch payables supports the working capital cycle. Prudent working capital management is critical and will be monitored.

Intense competition and sizeable capital requirements

The company’s equipment rental business requires continuous sizeable capex to be incurred, leading to high capital requirements. The equipment rental business is sensitive to utilisation rates and its performance is closely linked with investments in end-user industries, such as wind energy, power, oil and gas, and infrastructure. Any slowdown in the industry may affect the company's deployment levels, revenue and operating margin.