| U.K.B. Electronics Private Limited | ||||
| Rated amount enhanced | ||||
| 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 rating on the bank facilities of U.K.B. Electronics Pvt Ltd (UKB) at 'CRISIL BBB/Stable'.
The reaffirmation reflects muted revenue growth amid covid-19 wherein the operating revenue stood at Rs 323.68 crore in Fiscal 2021 as against Rs. 326.93 crore in Fiscal 2020. Operating profitability also stood moderated to 6.5% for the Fiscal 2021 as against historical average of 9-9.5% over past four years till Fiscal 2020, largely on account of higher production costs which are passed on to customers with a lag of upto 1 quarter.
The ratings also take cognizance of delay in commissioning of on-going capex at the new Rajasthan plant. The capex however has completed to the tune of 78% till December 2020 and few machines are pending installation, expected to be completed by current fiscal. Though the gearing levels stood elevated on account of higher working capital requirements post recent capex, the same continues to be at comfortable level. The company is expected to benefit from the recent capex along with continuing relationships with existing customers as well as from the pent-up demand in the consumer durables industry. The company in recent months has achieved a monthly sales run-rate, which is almost similar to the pre-covid period, indicating revival post the pandemic.
The rating continue to reflect UKB's established market position in the electrical equipment segment, reputed and established client base, and a comfortable financial risk. These strengths are partially offset by improving, but high, customer concentration in revenue profile, working capital-intensive operations, and exposure to project-related risks |
Analytical Approach Unsecured loans of Rs 25.28 crore as on March 31, 2021 (as against Rs. 26.51 crore as on March 31, 2020) from the directors and promoters have been treated as debt as against earlier 75 debt and 25% equity. This is on account of reduction in the outstanding amounts as at year end as against earlier expectation of their retention in the business. |
Key Rating Drivers & Detailed Description Strengths: Established market position with reputed and established client base: The company has been manufacturing electrical power cords and harnesses for about 20 years, resulting in a strong market position. It mainly supplies to white goods original equipment manufacturers, such as LG, Samsung, Haier, Godrej, IFB, and Panasonic.
Comfortable financial risk profile: Networth was at Rs 97.66 crore while total outside liabilities to adjusted networth ratio was healthy at 1.78 time, as on March 31, 2021 (as against Rs. 87.74 crore and 1.38 time as on March 31, 2020 respectively). Debt protection metrics remained comfortable for fiscal 2021, with interest coverage and net cash accrual to adjusted debt ratios of 3.72 times and 12% as on March 31, 2020 (compared to 5.80 times and 26% as on March 31, 2020). Though the financial risk profile moderated on account of incremental debt requirement post recent capex done, the same is expected to gradually improve over medium term with accretion of profits to networth.
Weakness: Customer concentration in revenue profile, though improving: The company's largest clients, LG and Samsung, accounted for 21% and 10% respectively, of the total revenue in fiscal 2021 (improving from 35% and 15%, respectively, in fiscal 2019). Top 10 customers contributed around 70% of total revenue. Though the company benefits from continued relationship with its customers, client concentration exposes the company to the risk of slowdown in operations of a particular customer or change in its vendor or credit policies.
Working capital-intensive operations: Gross current assets have been 143-180 days in the last four fiscals through 2021. The GCA days stood increased to 189 days as on March 31, 2021 as against 143 as on March 31, 2020 due to moderate receivables and inventory of 92 days and 95 days, respectively, as on March 31, 2021 (as against 69 days 70 days respectively a year ago). The trend may continue over the medium term.
Exposure to project-related risks: The company had undertaken a capex program of Rs 45 crore to set up a new cable manufacturing plant in Neemrana, Rajasthan. As against the earlier expected commissioning date of April 2020, only a part of plant (around 78%) has been started since December 2020m while for the balance, machines are now expected to be installed by December 2021. The delay may partially be attributed to the pandemic. Timely completion of project and its contribution to better revenue and profitability will be a sensitive factor over the medium term. |
Liquidity: Adequate Bank limit utilization is moderate at around 80.86 percent for the past twelve months ended June 2021. Healthy net cash accruals estimated in the range of Rs. 23 crore for fiscal 2022 and Rs. 28.5 crore for fiscal 2023 which would be adequate to meet repayment obligation of Rs. 7-8 crore annually. Current ratio are healthy at 1.26 times on March 31, 2021. The promoters are also likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believes UKB will maintain its credit risk profile over the medium term, backed by its established relationships with customers and an above-average financial risk. |
Rating Sensitivity Factors Upward factors * Sustained improvement in scale of operations by 20% and steady operating margin leading to higher cash accrual * Better working capital cycle
Downward factors * Decline in profitability by 300 basis points or stretch in working capital cycle * Cost overrun due to delay in project weakening capital structure and liquidity |
About the Company UKB was established in 1996 as a proprietorship concern, UKB Electronics. It was reconstituted as a private limited company in 2004 and is promoted and managed by Mr Arun Tayal and his three brothers: Mr Pradeep Tayal, Mr Manoj Tayal, and Mr Vinay Tayal. The company manufactures power cords, connectors, wire harnesses, and PCB assembly required in electronic products and mobile accessories such as chargers, data cables, and earphones. It has six facilities, two each in Noida (Uttar Pradesh), Pune (Maharashtra), and one each in Chennai (Tamil Nadu) and Goa (Maharashtra). The company also has 2 warehouses: one each at Ahmedabad (Gujarat) and Shirwal (Pune, Maharashtra). |
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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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This Annexure has been updated on 7-Oct-2021 in line with the lender-wise facility details as on 7-Oct-2021 received from the rated entity
Criteria Details
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