| Thermax Instrumentation Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 of Thermax Instrumentation Limited (TIL).
The ratings reflect the strong technological, managerial, operational and financial support the company receives from its parent, Thermax Ltd (Thermax; rated ‘CRISIL AA+/Stable/CRISIL A1+’). The ratings also reflect the comfortable financial risk profile and stable business risk profile of TIL, benefitting from steady operations and maintenance (O&M) contracts and healthy order book in erection and commissioning contracts for the power projects of Thermax. These strengths are partially offset by exposure to cost overrun in the civil and erection businesses and volatility in the operating margin. |
Analytical Approach CRISIL Ratings has factored in the business, financial and managerial support provided to TIL by its parent, Thermax. |
Key Rating Drivers & Detailed Description Strengths:
TIL is part of the erection and services vertical of Thermax in the power sector and, hence, derives significant support from the parent in sourcing of orders and O&M contracts. Besides, Thermax supports TIL in contract negotiations with the latter’s customers. Financial support from Thermax is also expected to be forthcoming in case of any exigency.
The healthy financial risk profile of TIL is reflected in a debt-free balance sheet and moderate networth of around Rs 43 crore as on March 31, 2022. After a decline in fiscal 2021, revenue recovered to ~Rs 147 crore in fiscal 2022, though it remains below the pre-pandemic level. The working capital requirement is met through internal accrual; hence, reliance on external debt is nil. The company is expected to remain debt free in the absence of any major capital expenditure (capex). Credit metrics, too, are expected to remain at healthy levels in the absence of debt and with the working capital requirement being low.
TIL executes the civil and mechanical erection portion of the contracts won by Thermax in the power sector. It is also involved in O&M of power plants commissioned abroad by Thermax. These O&M contracts are typically for 2-3 years and get renewed periodically. The company had orders worth Rs 220 crore as on March 31, 2022, thereby providing healthy revenue visibility.
Weakness:
Generally, civil and mechanical erection contracts do not have price escalation clauses, which exposes the company to possible cost overrun in case of delays or increase in raw material prices. This has resulted in volatility in the operating margin over the last 2-3 fiscals, as revenue from erection contracts has increased. However, the promoters of TIL have extensive experience in execution and project management, which enables them to handle project profitability. Additionally, O&M contracts protect profitability against possible losses arising from erection contracts. |
Liquidity: Strong TIL enjoys strong liquidity driven by expectation of support from the parent, Thermax, to provide ongoing and need-based support in case of exigencies. On a standalone basis, liquidity is expected to remain adequate, with cash accrual of around Rs 14 crore in fiscal 2022 supporting liquidity in the absence of any debt obligation. Liquidity is also aided by cash and equivalents of around Rs 15 crore as on March 31, 2022. |
Outlook: Stable TIL will continue to derive strong support from Thermax over the medium term, thereby sustaining its credit risk profile. |
Rating Sensitivity factors Upward factors
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About the Company Incorporated in 1996, TIL is engaged in the erection and commissioning of power projects undertaken by the power division of the parent, Thermax, in India and abroad. The power segment contributed to ~20% of the revenue of Thermax in fiscal 2020 and is a major focus point for the group. The company also undertakes O&M for projects executed for Thermax in international markets. |
Key Financial Indicators
*Provisional |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^Bank guarantee and letter of credit is a sublimit of cash credit %Is the sublimit of bank guarantee $Fully interchangeable with bank guarantee |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 10 | ICICI Bank Limited | CRISIL A1+ |
| Cash Credit^ | 10 | Citibank N. A. | CRISIL AA+/Stable |
| Cash Credit^ | 20 | HDFC Bank Limited | CRISIL AA+/Stable |
| Cash Credit/ Overdraft facility$ | 20 | ICICI Bank Limited | CRISIL AA+/Stable |
| Letter of Credit% | 10 | ICICI Bank Limited | CRISIL A1+ |
This Annexure has been updated on 19-Aug-22 in line with the lender-wise facility details as on 18-Jul-22 received from the rated entity.
^Bank guarantee and letter of credit is a sublimit of cash credit
%Is the sublimit of bank guarantee
$Fully interchangeable with bank guarantee
Criteria Details
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