By Manju Rajan

India Ratings and Research (Ind-Ra) has affirmed Cybertech Systems and Software Limited’s (CSSL) Long-Term Issuer Rating at ‘IND BBB-’/Stable. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based limits

-

-

-

INR200

IND BBB-/Stable/IND A3

Affirmed

Non-fund-based limits

-

-

-

INR80

IND A3

Affirmed

Ind-Ra continues to take a consolidated view of CSSL and its subsidiary Cyber Tech Systems and Software Inc. (CSSI), USA as the latter accounts for over 90% of its revenue.

KEY RATING DRIVERS

Comfortable Credit Metrics: In FY18, CSSL’s net financial leverage (Ind-Ra-adjusted net debt/operating EBITDAR) marginally improved to 0.19x (FY17: 0.21x), primarily driven by a rise in cash and cash equivalents to INR92 million (FY17: INR71 million). Its EBITDA interest coverage (operating EBITDA/gross interest expense) deteriorated to 4.9x in FY18 (FY17: 13.3x) due to a decline in operating margin to 9.9% (15.1%) and a rise in gross interest expense.

Comfortable Liquidity: CSSL’s average maximum utilisation of the fund-based limits was about 59% for the 12 months ended May 2018. Its fund flow from operations and cash flow from operations were positive over FY15-FY18. The liquidity is supported by a cash and bank balance of about INR92 million at FYE18 and liquid investments (mutual funds) totalling about INR43 million.

Diversified Product Portfolio and Customer Base: CSSL broadly classifies its business into Innovation (software and products; 30% share in revenue in FY18) and Application Maintenance Organisation (70%). The management expects a significant rise in revenue from the domestic market, which represented about 10% of revenue in FY18, in the medium term, driven by higher use of its innovative products across municipal corporations and other companies in India.

Experienced and Qualified Management: The ratings benefit from the promoters’ more than two decades of experience in the IT industry that has led to established relationships with existing customers and their ability to add new customers.

Stagnant Revenue Growth: CSSL’s revenue declined 0.57% to INR870.50 million (FY17: INR875.70 million), primarily due to a fall in domestic sales. The scale of operations continues to be modest. However, its total operating income, including rental income, rose to INR931 million in FY18 (FY17: INR922 million). Rental income, albeit insignificant, adds steady revenue to the company’s business. As on 26 June 2018, CSSL had an outstanding order book of INR350 million for its US business, which will be executed by FYE19, and INR100 million for the domestic market, which will be executed by end-2018. This provides modest short-term revenue visibility. However, CSSL will continue to receive regular orders from its long-standing customers.

Volatile EBITDA Margin: CSSL’s EBITDA margin was 4.42%-15.10% during FY15-FY18 owing to the competitive nature of the business. The margin declined to 9.9% in FY18 (FY17: 15.0%) owing to an increase in other expenses.

Geographical Risk: CSSL continued to generate about 90% of its revenue from the US in FY18. This renders the company’s performance vulnerable to the US market and the US industry conditions.


RATING SENSITIVITIES

Positive: Any substantial growth in the revenue and the EBITDA margin, along with any geographical diversification, while maintaining the credit metrics, could be positive for the ratings.

Negative: Any debt-led capex and/or any significant decline in the revenue and the EBITDA margin, leading to the net leverage exceeding 1.5x, could be negative for the ratings.


COMPANY PROFILE

Incorporated in 1995, CSSL develops various software, mainly for corporate and civic bodies, and provides geospatial, system application products, post implementation services, geographical information systems, custom solutions and public sector-related consultancy services. Mr Viswanath Tadimety (chairman and CEO) and Mr Steven Jeske (director) are the promoters.

CONSOLIDATED FINANCIAL SUMMARY

Particulars

FY18

FY17

Revenues (INR million)

931

921.7

EBITDA (INR million)

92

138.88

EBITDA margin (%)

9.9

15.1

Interest coverage (x)

4.9

13.33

Net leverage (x)

0.19

0.21

Source: CSSL

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

19 May 2017

Issuer rating

Long-term

-

IND BBB-/Stable

IND BBB-/Stable

Fund-based limits

Long-/short-term

INR200

IND BBB-/Stable/IND A3

IND BBB-/Stable/IND A3

Non-fund-based limits

Short-term

INR80

IND A3

IND A3


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels 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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