| Xplore-Tech Services Private Limited | ||||
| Rating upgraded to 'CRISIL A-/Stable'; 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 upgraded its rating on the long-term bank facilities of Xplore-Tech Services Private Limited (XTSPL; part of the Fusion group) to ‘CRISIL A-Stable’ from ‘CRISIL BBB+/Positive’.
The upgrade reflects the improvement in the business risk profile of the group, driven by stabilisation of the companies acquired in the recent past. Revenue increased to ~Rs 761 crore in 2021 from Rs 493 crore in 2020 amid recovery from the Covid-19 pandemic. Also, because of increase in revenue from the near-shore business, which is more profitable, earnings before interest, tax and depreciation margin rose to 20.8% from 16.8% in 2020. The group has orders worth ~Rs 200 crore, providing healthy revenue visibility for 2022. Profitability will likely be sustained owing to increase in the domestic business. This resulted in cash accrual of Rs 120.6 crore in 2021.
The rating reflects the extensive experience of the promoters in the BPO industry, the sound operational efficiency of the group backed by multilocation delivery centres, and its healthy financial risk profile and diversified revenue profile. These strengths are partially offset by stabilisation risks, and exposure to intense competition and regulatory risks. |
Analytical Approach CRISIL Ratings has combined the business and financial profiles of XTSPL and its wholly owned subsidiaries, Fusion BPO Services Pvt Ltd, Canada; O’Currance Inc, Utah; and Competent Synergies Pvt Ltd; and step-down subsidiaries, Fusion BPO SA de CV (ELS), Fusion BPO Services Phils Inc, Fusion BPO Services Ltd, Vital Solution Inc, Vital Recovery Services LLC, Vital Outsourcing Services Inc, Fusion BPO Services Ltd (formerly known as Verso Group (UK) Ltd), Ameridial, Inc, Fusion BPO Invest Inc, Finaccess BPO SARL, Fusion BPO Services SHPK, Advanced Communications Group Inc, Fusion BPO Services SAS, Fusion BPO Services, Boomsourcing LLC, Teleserv Asia Solutions Inc, Fusion BPO Philippines Inc and Fusion BPO Services Co Ltd. These entities have common promoters and strong operational and financial linkages. Furthermore, they provide business process outsourcing (BPO) services through onshore, offshore or near-shore sites, and service delivery centres.
Please refer Annexure – List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoters The longstanding presence of the group has enabled the promoters, Mr Pankaj Dhanuka and Mr Kishore Saraogi, to ramp up scale through inorganic growth and expand geographical presence by setting up multiple delivery centres in various countries. Moreover, the promoters have turned around the acquisitions by achieving operational synergy at a consolidated level.
Strong operational efficiency, backed by multilocation delivery centres The operational efficiency of the group is supported by presence across multiple locations such as India, Canada, the Philippines, the US, El Salvador, UK, Morocco, Albania and Jamaica. This enables the group to offer the comfort of native English-speaking workforce, local language support and better cultural alignment than offshore centres.
Healthy financial risk profile Networth increased to Rs 285.75 crore as on December 31, 2021 (without adjusting for intangible assets), from Rs 201.7 crore a year earlier because of steady accretion to reserve. Gearing was low at 0.51 time during the four years through 2021 despite the large, debt-funded acquisition. Debt protection metrics were comfortable, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 15.18 times and 0.83 time, respectively, in 2021. The financial risk profile will remain comfortable over the medium term.
Diversified revenue profile The diversified revenue profile of the group helps mitigate customer concentration and regulatory risks as well as cyclicality in the end-user industry. The top five customers contribute to around 22% of the revenue. The healthcare industry accounted for 22% of revenue followed by 18% from travel and transport. Furthermore, around 37% each is recorded from the onshore and near-shore businesses while the remaining comes from the offshore business.
Weaknesses: Exposure to stabilization risks The group has made several inorganic acquisitions over the years, which provided loyal clientele and entry into markets. However, the acquisitions have an incubatory phase pertaining to business and operational synergies, which has a bearing on the profitability. Also, the acquisition size has been increasing. Therefore, the size of acquisition and its impact on capital structure owing to debt will be a key monitorable.
Susceptibility to intense competition and regulatory policies Around 95% of the group’s revenue comes from the BPO segment, which is competitive not only in India but also in international markets. Competition has increased due to the emergence of BPO destinations such as the Philippines, Mexico, Guatemala, Russia, Hungary, Poland, the Caribbean countries and the Czech Republic. Additionally, the group is susceptible to the policies in customer countries regarding offshoring of work and BPO companies with parent companies located abroad. Further, as the group expands through acquisition of companies, it will remain exposed to risks related to retention of clients and organic growth. Organic growth, along with sustenance of acquired customers amid intense competition, will remain a key monitorable. |
Liquidity: Strong Liquidity will remain healthy over the medium term. Cash accrual, projected at Rs 120-130 crore (Rs 120.58 crore in 2021) per annum will sufficiently cover yearly debt obligation of ~Rs 28 crore over the medium term; the surplus cash will be used as working capital. Bank limit utilisation was moderate at 54% on average during the 14 months through February 2022. Current ratio was strong at 2.23 times as on December 31, 2021. |
Outlook: Stable CRISIL Ratings believes the Fusion group will continue to benefit from the extensive experience of the promoters and its healthy financial risk profile. |
Rating Sensitivity Factors Upward factors * Stabilisation and ramp-up of operations of the newly acquired company, resulting in earnings before interest, tax, depreciation and amortisation ratio of more than 20% and steady organic growth. * Stable cash accrual because of nil capital expenditure (capex) * Increase in revenue above Rs 900 crore
Downward factors * Decline in revenue and profitability leading to cash accrual of less than Rs 60 crore * Large, debt-funded capex or acquisition or significant increase in debt obligation |
About the Company Incorporated in February 2004 in Kolkata, XTSPL provides services such as voice and non-voice based BPOs, internet marketing, web development, technical support and software development. Majority of revenue comes from the BPO segment. The group caters to the telecom, banking and finance, media and automotive sectors. The company is promoted by Mr Pankaj Dhanuka and Mr Kishore Saraogi. |
Key Financial Indicators (Consolidated)
*Calendar year. Converted from USD to INR on the average exchange rate in the year |
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 - List of Entities Consolidated
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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 29-Jun-2022 in line with the lender-wise facility details as on 03-Aug-2021 received from the rated entity.
Criteria Details
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