By Bhavana Mhavarkar

India Ratings and Research (Ind-Ra) has affirmed Oasys Cybernetics Private Limited’s (Oasys) Long-Term Issuer Rating at ‘IND BBB’. The Outlook is Stable. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based working capital facilities

-

-

-

INR920

IND BBB/Stable

Affirmed

Term loan

-

-

June 2024

INR107

WD

Withdrawn (fully repaid)

Non-fund-based facilities

-

-

-

INR815

IND A3+

Affirmed


KEY RATING DRIVERS

Improvement in Liquidity: Oasys’ collectible period considerably reduced to around 150 days post the receipt of pending bills worth INR848.8 million from Tamil Nadu and various state governments as on 1 March 2018. The proceeds were used to fully repay its long-term debt as well as other short-term obligations. At 5 March 2018, the company had unutilised fund-based limits of INR432 million. The company is expected to generate healthy Ind-Ra adjusted cash flow from operations of around INR632 million in FY18 (FY17: negative INR156.51 million) on account of a likely improvement in net working capital cycle.


The company’s peak average use of the working capital limits was 99.5% during the 12 months ended February 2018 due to elongated net working capital cycle of 260 days in FY17 (FY16: 223 days).


Improving EBITDA Margin: Although the company’s EBITDA margin improved to 15.39% in FY17 (FY16: 12.62%), it was below Ind-Ra’s expectation of 19% due to a high cost incurred for deployment of e-governance projects. However, post the deployment of the projects, the company reported a healthy EBITDA margin of 22.9% as of 9MFY18. The management expects to achieve EBITDA margin of over 25% on account of a decrease in operating expenses.


Likely Improvement in Credit Metrics: Net leverage (total adjusted net debt/operating EBITDAR) was stable at 2.9x in FY17 (FY16: 2.9x), while net interest coverage (operating EBITDA/net interest expenses) deteriorated marginally to 2.17x (2.3x) due to high debt levels. However, Ind-Ra expects Oasys’ net leverage and gross coverage to improve to 1.1x and 3.3x, respectively, in FY18, owing to the reduction in debt and improvement in the EBITDA margin. Ind-Ra expects the credit metrics to improve on account of the company’s growing EBITDA base (FY17: INR406.62 million, FY16: INR322.52 million).


Stable Revenue Growth: Revenue grew 3.38% yoy to INR2.64 billion in FY17 supported by timely execution of IT turnkey projects towards various state governments, strong demand from the public distribution system of various state governments and state electricity boards. The company had a total order book of INR9.3 billion as on 1 March 2018; an initial deployment is completed for majority of the projects. Of INR9.3 billion of orders, the company received payments of INR3.4 billion as on 1 March 2018. Oasys expects to receive the remainder payment in equal instalments over the next three to five years on a monthly/quarterly basis. On 1 March 2018, it had an order book of INR556 million, to be executed over the next one and a half years. Further, the company expects to receive orders of around INR6.4 billion, to be executed over the next two years.


During 11MFY18, the company booked revenue of INR2.4 billion. Management expects to achieve revenue of INR2.7 billion during FY18.


Strong Project Execution Capability: Oasys has over a decade of experience in executing end-to-end turnkey projects.

Capex:
Management anticipates capex of around INR340 million in the next two years for executing new and existing projects. These projects are likely to be funded through internal accruals.


RATING SENSITIVITIES

Negative: An elongation of the working capital cycle or a decline in the EBITDA margin leading to a stress on the liquidity position will be negative for the ratings. Deterioration in the credit metrics from the current level would be negative for the ratings.

Positive:
A significant growth in the revenue along with an improvement in the operating margins and the overall liquidity profile, leading to net leverage reducing below 1.5x on a sustained basis will be positive for the ratings.


COMPANY PROFILE

Oasys is a technology company, incorporated in 2012 by K.R. Ilanghovan. The company focuses mainly on turnkey IT projects in the end-to-end computerisation of public distribution system and electoral rolls management system with different state governments.


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

20 December 2016

Issuer rating

Long-term

-

IND BBB/Stable

IND BBB/Stable

Fund-based working capital facilities

Long-term

INR920

IND BBB/Stable

IND BBB/Stable

Term loan

Long-term

INR107

WD

IND BBB/Stable

Non-fund-based limits

Short-term

INR815

IND A3+

IND A3+


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments please visit https://www.indiaratings.co.in/complexity-indicators

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Bhavana Mhavarkar

    Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    022 40356167

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121