By Gokulakrishnan Madhusuthanan

India Ratings and Research (Ind-Ra) has affirmed Cybertech Systems and Software Limited’s (CSSL) 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 facilities

-

-

-

INR200

IND BBB-/Stable/IND A3

Affirmed

Non-fund-based facilities

-

-

-

INR80

IND A3

Affirmed

Analytical Approach: Ind-Ra continues to take a consolidated view of CSSL and its subsidiary Cyber Tech Systems and Software Inc. (CSSI), USA, while arriving at the ratings, as the latter accounts for over 84% of its revenue.

KEY RATING DRIVERS

Improving Credit Metrics: CSSL’s credit metrics remained comfortable in FY19. On a consolidated basis, the company reported a net cash position in FY19 (FY18 net financial leverage (Ind-Ra adjusted net debt/operating EBITDAR: 0.2x, FY17: 0.2x), primarily driven by a rise in cash and cash equivalents to INR179 million (INR92 million, INR71 million). Its EBITDA interest coverage (operating EBITDA/gross interest expense) improved to 16.4x in FY19 (FY18: 4.9x, FY17: 13.3x) due to an increase in operating EBITDA to INR178.6 million (INR92 million, INR139 million).

 

On a standalone basis, interest coverage was 12.2x in FY19 (FY18: 4.4x, FY17: 12.8x) and net leverage was 1.1x (0.1x, 0.4x)

 

Comfortable Liquidity: CSSL’s average maximum utilisation of the fund-based limits was about 65% for the 12 months ended June 2019. Its fund flow from operations and cash flow from operations were positive over FY15-FY19.  The company’s fund flow from operation was INR168 million in FY19 (FY18: INR87 million). The cash flow from operations improved to INR201 million in FY19 (FY18: INR90 million) owing to the improvement in absolute EBITDA. At FYE19, the company had cash and bank balance of about INR179 million (FYE18: INR92 million), liquid investments (mutual funds) of about INR127.2 million (INR61.7) and fixed deposits of INR6.6 million (INR11.3 million).

 

Diversified Product Portfolio; Experienced and Qualified Management: CSSL broadly classifies its business into innovation of software services and products, and Application Maintenance Organisation. 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.

 

Stable Revenue Growth: Consolidated revenue grew 11.2% yoy to INR967.6 million in FY19, primarily due to an increase in orders from the domestic market and increase in realisation in the US market. The total operating income, including rental income, rose to INR1,011 million in FY19 (FY18: INR931 million). It also generates lease rental income (major lease agreement expires in FY22), which adds a steady revenue to the business. During FY19, rental income was INR43.3 million (FY18: INR62 million).

 

On a standalone basis, revenue increased 5% yoy to INR538 million in FY19 owing to increase in revenue from domestic market.

 

Modest EBITDA Margin: Consolidated EBITDA margins ranged between 8.9% and 17.7% during FY15-FY19 (FY19: 17.7%, FY18: 9.9%). The improvement was on account of the increase in price realisation in the US market. Its return on capital was 12% in FY19. On standalone basis, the company reported EBITDA margin of 24.7% in FY19 (FY18: 16.3%)

Geographical Concentration Risk:
CSSL continued to generate about 84% of its revenue from the US in FY19 (FY18: 90%). 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 increasing above 1.5x, could be negative for the ratings.


COMPANY PROFILE

Incorporated in 1995, CSSL develops various software products, 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) is the promoter.


FINANCIAL SUMMARY (Consolidated)

Particulars

FY19

FY18

Revenue (INR million)

1,011

931

EBITDA (INR million)

179

92

EBITDA margin (%)

17.7

9.9

Interest coverage (x)

16.4

4.9

Net leverage (x)

0.0

0.2

Source: CSSL, Ind-Ra

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

27 June 2018

19 May 2017

Issuer rating

Long-term

-

IND BBB-/Stable

IND BBB-/Stable

IND BBB-/Stable

Fund-based limits

Long-term/Short-term

INR200

IND BBB-/Stable/IND A3

IND BBB-/Stable/IND A3

IND BBB-/Stable/IND A3

Non-fund-based limits

Short-term

INR80

IND A3

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.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Gokulakrishnan Madhusuthanan

    Analyst
    India Ratings and Research Pvt Ltd Harmony Square 3rd Floor, Door No. 48 & 50 Prakasam Street T Nagar Chennai - 600017
    044 43401700

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121