Rating Rationale
March 29, 2022 | Mumbai
Techno Electric And Engineering Company Limited
Ratings reaffirmed at 'CRISIL AA- / Stable / CRISIL A1+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.1480 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.50 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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 reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper programme of Techno Electric and Engineering Company Ltd (TEECL).

 

Operating performance witnessed healthy recovery during the first nine months of fiscal 2022 after being impacted by lockdown and supply chain disruptions during the first quarter of the fiscal. Operating income grew by 14% year-on-year during this period and crossed pre-pandemic levels. The earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin declined to 23.9% from 29.2% due to commodity and freight headwinds as well as one-time gain of Rs 35 crore in the wind business during the first nine months of 2021.

 

The company had outstanding EPC (engineering, procurement, construction) orders of Rs 1,680 crore as on December 31, 2021. While opportunities in the EPC market may increase over the medium term led by high expected investments in the power transmission and distribution (T&D) segment, ability to increase order flow will remain a key monitorable. Timely receipt of long-pending receivables in the wind business from Tamil Nadu Generation & Distribution Corporation Ltd (TANGEDCO) will also be a key monitorable.

 

The company is planning to undertake EPC of data centre projects and also intends to initially own one such asset in this vertical. It is expected to be a minority owner by way of investment in a special-purpose vehicle (SPV) with a joint venture (JV) partner. Building of order book and successful EPC execution of the projects would be monitorables for this new segment.

 

Financial risk profile continues to be robust, backed by low working capital debt and healthy networth, nil long-term debt, an asset-light EPC model, and absence of major capital expenditure (capex). Despite plans to invest Rs 200-250 crore in fiscal 2023 in the data centre SPV, liquidity should remain strong on the back of available cash equivalents and liquid investments of Rs 869 crore as on December 31, 2021, and expected annual cash accrual of Rs 125-175 crore in fiscals 2022 and 2023.

 

The ratings continue to reflect the established market position of TEECL in executing substation-based EPC projects, strong operational efficiency and robust financial risk profile. These strengths are partially offset by exposure to intense competition and stretched working capital cycle, and to risks associated with wind assets such as an adverse change in regulations and variability in wind speed and pattern.

Analytical Approach

CRISIL Ratings has considered a standalone approach to arrive at the ratings of TEECL. Any change in the management policy regarding support to the JVs/associates will be a key rating sensitivity factor.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the EPC business in the power sector: The company has been in the EPC business for around three decades and has an established track record in setting up high-voltage substations in India. Key clientele comprising Power Grid Corporation of India Ltd ('CRISIL AAA/Stable/CRISIL A1+'), NTPC Ltd ('CRISIL AAA/FAAA/Stable/CRISIL A1+'), and state transmission companies account for the bulk of capex in the power generation/transmission sector in the country. With high technical capabilities, TEECL has a strong market position in executing 765 kilovolt (KV) extra high voltage (EHV) substation projects and a track record of efficient execution, as reflected in its higher-than-industry operating margin. As on December 31, 2020, unexecuted orders stood at Rs 1,680 crore.

 

  • High operating efficiency is driven by strong technical capabilities with value-added nature of projects, selective bidding strategy of high-margin orders, and demonstrated track record of timely execution. While the overall return on capital employed (RoCE) stood at 14% in both fiscals 2021 and 2020, RoCE in the EPC business has remained over 50% driven by the asset-light business model. Operating margin in the EPC segment was around 17% for the nine months through December 2021 and is better than most peers. The performance is expected to sustain over the medium term.

 

  • Robust financial risk profile is backed by small working capital debt and healthy networth, and absence of long-term debt. Low reliance on working capital borrowing resulted in strong gearing of 0.05 time as on March 31, 2021. Total debt was low at Rs 40 crore as on December 31, 2021, and gearing is expected to sustain below 0.1 time over the medium term. Debt protection metrics are robust, with interest coverage ratio of over 70 times in the nine months through December 2021.

 

Weakness:

  • Exposure to intense competition: Low entry barrier has led to high fragmentation in the power T&D business. Profitability is susceptible to a downturn in demand, environment and structural issues and volatility in the power sector. Any large project deferral or slower execution due to macroeconomic factors lead to cost overruns for players in the industry, which would impact their profitability given that they have limited flexibility to pass on rise in cost to clients. However, these risks are mitigated by the strong technical capabilities and market position of the company in the EHV substation-based projects.

 

  • Stretched working capital cycle: Operations will remain working capital intensive owing to the inherent nature of the EPC business and long project execution cycle (2-3 years). Overall, gross current assets increased to 395 days as on March 31, 2021, from 345 days as on March 31, 2020. However, customer advances relieve some of the pressure on working capital.

 

Receivables have been sizeable in both the EPC and wind segments. In the wind business, payments continue to be delayed by TANGEDCO, leading to receivables of Rs 173 crore as on December 31, 2021, compared to Rs 172 crore as on March 31, 2021. Timely receipt of payment from TANGEDCO will remain a key monitorable.

Liquidity: Strong

Cash equivalent and liquid investment were sizeable at Rs 869 crore as on December 31, 2021; also, the company has no term debt. Additional investments in corporate bonds and non-convertible debentures amounted to Rs 211 crore as of December 2021. Despite plans to distribute a portion of annual profit to shareholders as dividend, and moderate investment plans; liquidity should remain strong with expected annual net cash accrual of Rs 125-175 crore in fiscals 2022 and 2023.

Outlook Stable

Operating performance will continue to benefit from strong execution track record in the T&D industry, unexecuted order book and diversification plans.

Rating Sensitivity factors

Upward factors

  • Significant growth in revenue and order book to revenue ratio of above 3 times on sustained basis, while maintaining healthy profitability
  • Sustained improvement in wind plant load factors and faster realisation of receivables ensuring overall better working capital management and cash flow

 

Downward factors

  • Order book to revenue ratio below 1.5 times on sustained basis, along with lower-than-expected cash accrual because of weak profitability in the EPC business or reduced wind power generation
  • Further stretch in working capital cycle due to delay in realisation of receivables
  • Higher-than-expected investment/capex or outflow owing to buyback/dividend, or significant impairment of investment in corporate bonds/non-convertible debentures, thereby weakening liquidity

About the Company

Based in Kolkata, TEECL undertakes turnkey EPC projects mainly in the power sector across generation and T&D segments. The company has strong technical capabilities in design and execution of 765 KV EHV substation projects.

 

TEECL entered the renewable power generation space in 2009 with 45 megawatt (MW) of wind energy assets by acquiring Super Wind. It acquired Simran Wind Project Ltd (Simran) in 2009, which had installed capacity of 50.45 MW that was subsequently scaled up to 162.35 MW. The company divested 44.45 MW and 33 MW capacities of Simran in May 2015 and January 2017, respectively. TEECL got its current name after its merger with Simran. TEECL currently owns wind power assets of 129.9 MW in Tamil Nadu (111.9 MW) and Karnataka (18 MW).

 

For the nine months ended December 31, 2021, operating income was Rs 766 crore and profit after tax (PAT) Rs 223 crore, against Rs 674 crore and Rs 188 crore, respectively, in the corresponding period previous fiscal.

Key Financial Indicators (CRISIL Ratings-adjusted numbers)

As on/for the period ended March 31

 

2021

2020

Operating income

Rs crore

886

871

PAT

Rs crore

182

177

PAT margin

%

20.5

20.3

Adjusted debt/adjusted networth

Times

0.02

--

Adjusted Interest coverage

Times

29.06

35.91

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

Commercial paper

NA

NA

7 to 365 days

50

Simple

CRISIL A1+

NA

Fund-based facilities

NA

NA

NA

41

NA

CRISIL AA-/Stable

NA

Fund-based facilities*

NA

NA

NA

160

NA

CRISIL AA-/Stable

NA

Non-fund-based limit^

NA

NA

NA

164

NA

CRISIL AA-/Stable

NA

Non-fund-based limit%

NA

NA

NA

50

NA

CRISIL AA-/Stable

NA

Non-fund-based limit#

NA

NA

NA

60

NA

CRISIL AA-/Stable

NA

Non-fund-based limit$

NA

NA

NA

160

NA

CRISIL AA-/Stable

NA

Non-fund-based limit

NA

NA

NA

260

NA

CRISIL AA-/Stable

NA

Non-fund-based limit

NA

NA

NA

500

NA

CRISIL A1+

NA

Proposed long-term bank loan facility

NA

NA

NA

85

NA

CRISIL AA-/Stable

* Fully interchangeable with non-fund-based limit

# Includes sub-limit of Rs 5 crore for fund-based facilities 

$ Includes sub-limit of Rs 85 crore for fund-based facilities

^ Fully interchangeable with fund-based facilities

% Includes sub-limit of Rs 10 crore for fund-based facilities

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 286.0 CRISIL AA-/Stable   -- 30-03-21 CRISIL AA-/Stable 30-03-20 CRISIL AA-/Stable 05-03-19 CRISIL AA-/Positive CRISIL AA-/Positive
Non-Fund Based Facilities ST/LT 1194.0 CRISIL A1+ / CRISIL AA-/Stable   -- 30-03-21 CRISIL A1+ / CRISIL AA-/Stable 30-03-20 CRISIL A1+ / CRISIL AA-/Stable 05-03-19 CRISIL AA-/Positive / CRISIL A1+ CRISIL AA-/Positive
Commercial Paper ST 50.0 CRISIL A1+   -- 30-03-21 CRISIL A1+ 30-03-20 CRISIL A1+ 05-03-19 CRISIL A1+ CRISIL A1+
Non Convertible Debentures LT   --   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities* 30 DBS Bank Limited CRISIL AA-/Stable
Fund-Based Facilities* 40 HDFC Bank Limited CRISIL AA-/Stable
Fund-Based Facilities 16 ICICI Bank Limited CRISIL AA-/Stable
Fund-Based Facilities 2 IDBI Bank Limited CRISIL AA-/Stable
Fund-Based Facilities 20 IndusInd Bank Limited CRISIL AA-/Stable
Fund-Based Facilities* 90 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA-/Stable
Fund-Based Facilities 3 Vijaya Bank CRISIL AA-/Stable
Non-Fund Based Limit^ 50 Axis Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit^ 114 Citibank N. A. CRISIL AA-/Stable
Non-Fund Based Limit 260 ICICI Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit 100 IDBI Bank Limited CRISIL A1+
Non-Fund Based Limit 230 IndusInd Bank Limited CRISIL A1+
Non-Fund Based Limit% 50 RBL Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit# 60 Standard Chartered Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit 100 State Bank of India CRISIL A1+
Non-Fund Based Limit 70 Vijaya Bank CRISIL A1+
Non-Fund Based Limit$ 109 YES Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit$ 50 YES Bank Limited CRISIL AA-/Stable
Non-Fund Based Limit$ 1 YES Bank Limited CRISIL AA-/Stable
Proposed Long Term Bank Loan Facility 25 Not Applicable CRISIL AA-/Stable
Proposed Long Term Bank Loan Facility 60 Not Applicable CRISIL AA-/Stable

This Annexure has been updated on 14-Mar-2023 in line with the lender-wise facility details as on 23-Feb-2023 received from the rated entity.

* Fully interchangeable with non-fund-based limit

# Includes sub-limit of Rs 5 crore for fund-based facilities 

$ Includes sub-limit of Rs 85 crore for fund-based facilities

^ Fully interchangeable with fund-based facilities

% Includes sub-limit of Rs 10 crore for fund-based facilities

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 rating short term debt

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