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. This has resulted in steady revenue growth from Rs 110 crores in fiscal 2021, which is estimated to be around Rs 150-160 crores for fiscal 2024.

Moderate financial risk profile: Financial risk profile of the company is marked with comfortable networth at Rs 72.12 crore as on March 31, 2023, which is expected to improve over the medium term backed by steady accretion to reserves and equity infusions. Gearing and total outside liabilities to adjusted networth (TOLANW) ratio stood at around 1.21 times and 2.14 times respectively, as on March 31, 2023. and is estimated to remain at similar levels as on March 31, 2024. Healthy operating margin has kept debt protection metrics comfortable with interest coverage and net cash accrual to adjusted debt ratios at 5.59 times and 0.37 time, respectively, in fiscal 2023 and expected to be above 7 times and 0.5 time, respectively, in fiscal 2024. While the announced capex, if undertaken is expected to moderate the financial risk profile marginally, it is expected to continue to remain comfortable.

Weaknesses:

Large working capital requirement: The operations of the company are working capital intensive with gross current assets (GCAs) of 194 days as on March 31, 2023 driven by sizeable debtors of 139 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 190-200, 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 margins.