ICRA-assigned Credit Rating for Rs. 92.50 crore bank facilities and Issuer Rating of Indotech Transformers Limited

Based on a review of the latest developments, the Rating Committee of ICRA, after due consideration has reaffirmed the long-term rating to [ICRA]BB (pronounced ICRA double B). The Rating Committee of ICRA, after due consideration has reaffirmed the short-term rating at [ICRA]A4 (pronounced ICRA A four). The outlook on the long-term rating is revised to Stable from Negative. Instruments with [ICRA]BB rating indicate moderate risk of default regarding timely servicing of financial obligations.

The revision in rating outlook assigned to Indotech Transformers Limited (ITL) takes into account the company's rebound in financial performance in FY2021. Despite the operational challenges faced by the company in Q1FY2021 and Q2FY2021, the company was able to generate the operating income of Rs. 206.0 crore in FY2021 as against Rs. Rs. 205.3 crore in FY2020. Further, the operating margin significantly improved and stood at 5.6% in FY2021 as against 1.0% in FY2020. This is on account of increased contribution of higher load transforms in overall sales mix where margins are relatively higher. Furthermore, the company's order book position remains healthy with an order book of Rs. 268.0 crore as of March 2021, which is 1.3 times the gross operating income reported in FY2021, providing adequate revenue visibility for medium term. ICRA also positively takes note of the company's comfortable capital structure, backed by healthy net worth position. Further, the ratings derive comfort from the extensive experience of the new promoter namely Shirdi Sai Electricals Limited (SSEL) and ITL's proven operational track record in the transformers industry spanning nearly three decades. The ratings positively factor in SSEL's established position with significant scale of operations in the transformer industry, which is expected to provide operational synergies to ITL and lend economies of scale (through joint sourcing, joint lead generation and reduction in manufacturing cost). ICRA expects ITL to derive long-term benefit required for scaling up the operations and improvement in gross margin.

However, the ratings are constrained by linkages with its parent company (SSEL) whose credit profile is relatively weaker (rated at [ICRA]BB (Stable)/A4) due to stretch in liquidity position on account of higher receivable position. Further, the rating takes into consideration the company's higher customer concentration risk where top ten customers contributed 65% of total revenues in FY2022. Nonetheless, the counterparty risk remains low owing to its reputed clientele. Further, ITL operates in transformer industry which is highly fragmented in nature which results in intense competition, which in turn translates to pricing pressure to a certain extent. The ratings also consider the high working capital intensity of operations and susceptibility of profitability to volatility in raw material prices.

Shares of Indo Tech Transformers Limited was last trading in BSE at Rs. 172 as compared to the previous close of Rs. 175.75. The total number of shares traded during the day was 10417 in over 103 trades.

The stock hit an intraday high of Rs. 179.7 and intraday low of 167. The net turnover during the day was Rs. 1747486.

Source : Equity Bulls

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