Rating Rationale
October 04, 2022 | Mumbai
Zen Technologies Limited
Rating outlook revised to 'Positive'; Rating reaffirmed; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.151 Crore (Enhanced from Rs.10 Crore)
Long Term RatingCRISIL BBB/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Zen Technologies Limited (ZTL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB’.

 

The revision in outlook reflects ZTL’s improved performance. Despite a strong order book, execution during the initial quarters were slowed down by Covid-situation and semiconductor and electronic chips shortage. However, with the easing of semiconductor chip shortage, the company’s performance recouped in Q4FY2022. Strong performance continued in Q1FY23 also, backed by the healthy order book of over Rs. 400 crore. The ratings continue to factor the established market position of the company in the design, development, and manufacture of training simulators for the defense segment. The ratings also factor in the company's healthy financial risk profile. These strengths are partially offset by exposure to tender based nature of operations and working capital intensive operations.

Analytical Approach

For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of ZTL, Zen Technologies USA and Unistring Tech Solutions Private Limited. This is because they are managed by the same promoter group and there are strong business and financial linkages

 

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:

  • Established market position of the company in the design, development and manufacture of training simulators for the defence segment: The group is the sole manufacturer in India for the simulation training equipment and anti-drone systems. Further the market position is strengthened by the continuous research and development which the company undertakes for its new products, which has aided the company to secure an order of Rs.155 crore for the supply of anti-drone systems to the Indian Air Force. Along with other orders, the total order book stand strong at around Rs.445 crore as on date. The company is also expected to benefit from the extensive experience of its promoters over the medium term

 

  • Healthy financial risk profile: The group capital structure has been at healthy level due to lower reliance on external funds, yielding gearing of less than 1 time for the last four fiscals ended March 2022. Debt protection measures have also been at healthy levels, marked by interest coverage and net cash accrual to total debt (NCATD) ratio at 6.92 times and 0.49 time respectively for fiscal 2022. The financial risk profile is expected to sustain over the medium term, with no immediate debt-funded capex plans. 

 

Weaknesses:

  • Exposure to risks related to tender based operations:  The company's revenue profile is exposed to risks related to tender based nature of operations. As a result of the same, the turnover has been volatile in the range of Rs. 148 crore to Rs.70 crore over the last three fiscals ended March 2022. Volatility in revenue profile restricts the group's operating efficiency, as reflected in the volatile operating profitability in the range of 8% to 43% over the same period. The nature of operations shall continue to constrain the group's business risk profile. Improvement and sustainability of the revenues shall remain a key monitorable over the medium term.

 

  • Working capital intensive operations: Gross current assets were at 467-545 days over the three fiscals ended March 31, 2022. Its large working capital requirements arise from its high debtor and inventory levels. ZTL is required to extend long credit period. Furthermore, due to its business need, it holds large work in process and inventory. However, improvement expected over the medium term backed by the faster debtor realization terms as per the defence procurement policy.

Liquidity: Adequate

The group's liquidity is adequate; marked by low utilization of the fund based working capital limits and adequate cash accruals, against which there are no repayment obligations. Fund based working capital limits have been utilized at an average of around 1% over the last 12 months ended July 2022. Further the group is expected to generate cash accrual of around Rs. 15 to 20 crore annually over the medium term. The company has an unencumbered cash and bank balances of around Rs. 110 crore, which shall support liquidity over the medium term.

Outlook: Positive

CRISIL Ratings believe the group will continue to benefit from the extensive experience of its promoter, and established relationships with clients

Rating Sensitivity factors

Upward factors

  • Steady growth in revenue by 30% with sustenance of operating margin above 20%, on a consistent basis
  • Significant improvement in working capital cycle while sustaining financial risk profile and liquidity position

 

Downward factors

  • Decline in turnover by more than 20% and/or reduction in operating profitability to less than 8%
  • Any large debt funded capital expenditure and/or any further stretch in working capital cycle, adversely impacting the financial risk profile.

About the Company

Incorporated in the year 1993, ZTL develops, designs and manufactures PC based Training Simulators and anti-drone systems for Ministry of Defence, Police and Para-military Forces, Government Departments, and private players. Zen has an ISO 9001:2008 (QMS), ISO 27001:2005 (ISMS) certifications and is a CMMI Level 3 company. Zen's R&D unit is recognized by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

54.24

49.80

Reported profit after tax

Rs crore

2.43

3.82

PAT margins

%

3.73

8.23

Adjusted Debt/Adjusted Net worth

Times

0.04

0.00

Interest coverage

Times

2.16

8.19

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)

ISIN

Name of instrument

Date of

allotment

Coupon

rate (%)

Maturity

date

Issue size (Rs.Cr)

Complexity

Levels

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

10

NA

CRISIL BBB/Positive

NA

Proposed Fund-Based Bank Limits

NA

NA

NA

141

NA

CRISIL BBB/Positive

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Zen Technologies Limited

100%

Parent

Zen Technologies USA

100%

Subsidiary

Unistring Tech Solutions Private Limited

100%

Subsidiary
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 151.0 CRISIL BBB/Positive   -- 22-12-21 CRISIL BBB/Stable   --   -- Withdrawn
Non-Fund Based Facilities ST   --   --   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 10 HDFC Bank Limited CRISIL BBB/Positive
Proposed Fund-Based Bank Limits 141 Not Applicable CRISIL BBB/Positive

This Annexure has been updated on 04-Oct-2022 in line with the lender-wise facility details as on 22-Dec-2021 received from the rated entity.

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
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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