By Pratik Dasgupta

India Ratings and Research (Ind-Ra) has rated Olectra Greentech Ltd’s (OGL) additional bank facilities as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based working capital limit

-

-

-

INR70

IND BBB+/Stable/IND A2

Assigned

Non-fund-based working capital limit

-

-

-

INR94.6

IND A2

Assigned

Proposed non-fund based working capital limit*

-

-

-

INR835.4

Provisional IND A2

Assigned

*The rating is provisional and shall be confirmed upon the sanction and execution of the loan/transaction documents for the above instrument to the satisfaction of Ind-Ra.
 

Analytical Approach: Ind-Ra has factored in financial support from one of its promoters’ MEIL Holdings Limited, a wholly-owned subsidiary of Megha Engineering & Infrastructures Ltd (‘IND AA-’/Stable), while assigning the ratings.

KEY RATING DRIVERS

Improved Operating Performance: OGL’s revenue increased to INR1,129 million in 1QFY20 (1QFY19: INR333 million, FY19: INR2,903 million, FY18: INR1,642 million) on the back of increased revenue generation in the e-buses and insulator segments. During 1QFY20, the company sold 50 e-buses ( FY19: 83; FY18: 32) and booked revenue of INR813 million (INR24 million, INR1,448 million, INR524 million) OGL’s scale of operations is medium.

The e-buses segment reported EBIT of INR57 million with an EBIT margin of 7% in 1QFY20, as against a loss of INR35 million and INR184 million in 1QFY19 and FY19, respectively, (FY18: EBIT of INR24 million with margin of 4.5%) due to increased sales volumes and better absorption of fixed costs. Consequently, the company reported an EBITDA of INR73 million with a modest EBITDA margin of 6.5% in 1QFY20 as against a loss of INR12.93 million and INR138 million in 1QFY19 and FY19, respectively (FY18: EBITDA of INR139 million and EBITDA margin: 8.47%). The company expects the EBITDA margin to remain at 7%-10% in FY20 on the back of work orders in hand, which would help in mitigating the fixed and variable costs.

As of June 2019, the company had an order book of 200 e-buses, to be executed by FYE20. In September 2019, the company also secured bid for 669 buses of the total 1,349 buses floated for tender; work order is yet to be received.

OGL’s credit metrics remain comfortable with gross interest coverage (operating EBITDA/gross interest expenses of 1.9x in 1QFY20 (FY18: 2.3x). The company remained net cash positive in 1QFY20.

Cash Flows from Divestment to Aid Liquidity:
OGL plans to  divest its wholly-owned operating subsidiary, Evey Trans Private Limited (including its subsidiary OHA Commute Pvt Ltd) to MElL Holdings for INR55 million. The total value of the transaction is estimated at INR2,400 million and around INR2,000 million is likely to be settled through pending receivables.

Liquidity Indicator - Adequate:
OGL raised INR5,040 million in equity from MEIL Holdings till FY19 and is likely to further raise INR1,196 million by April 2020 from the conversion of share warrants. As of 30 September 2019, the company had INR400 million of fund-based working capital limits with 70% average utilisation over the 12 months ended September 2019.  OGL’s net working capital cycle remained elongated, although improved to 263 days in FY19 (FY18: 338 days), largely driven by the working capital-intensive insulator and e-buses segments. Ind-Ra expects the company’s working capital cycle to improve substantially by FY20 on receipt of payment from MEIL Holdings for the aforementioned transaction.

With the proposed non-fund-based working capital limits, the management is likely to increase the non-fund-based limits (letter of credit) to fund import of raw materials from
China-based BYD Auto Co. Ltd (BYD), which accounts over 80% of total input costs.

Technology tie up with BYD:
The ratings reflect OGL’s advantageous position in the electric bus segment and its ability to ramp up order book as the market grows. OGL’s market position is strengthened by its long-term technology sourcing agreement with BYD for bus body and chassis design, manufacturing, assembly, sale and after-sales service for fully electric bus (e-bus). BYD is a leading global manufacturer of electric vehicles, including buses. The agreement will stay in force until July 2025, and OGL will remain the sole venture through which BYD can participate in the Indian market.

Evolving Business Model:
In Ind-Ra’s opinion, the current policy framework is favourable for the wider adoption of electric vehicles, particularly in the public transport segment. The subsidies available under the FAME II scheme and certain other actions such as relaxation of permit requirements for electric vehicles are likely to boost the segment. Although OGL’s track record in executing large electric bus orders is limited to only two years, it is offset to some extent by the strong credentials of the technology partner.

OGL plans to own and operate the buses proposed to be delivered to different state travel through Evey Trans Private Limited or through direct outright sales to third parties or state travel units. This will depend on picking up adequate interest from third parties to own and operate buses under gross cost contracts for transport corporations.

Capex for Capacity Enhancement:
For FY20, the company has planned capex of INR1,750 million-INR2,000 million for setting up a new e-bus manufacturing facility in Chandravali, near Hyderabad, which would increase its total annual production capacity to 3,000 buses from 900 buses. The company is likely to meet fund the capex from internal accruals and divestment proceeds.


RATING SENSITIVITIES

Positive: An increase in the order book position for electric buses and the demonstration of track record in timely delivery of orders, leading to an increase in the revenue and operating EBITDA margin, while reducing the net adjusted leverage below 2.0x, all on a sustained basis, may lead to a positive rating action.

Negative
: A continued delay in the ramp-up of the order book for electric buses, leading to the erosion of the operating leverage and a fall in the operating EBITDA margin, and/or the net adjusted leverage above 3x could lead to a negative rating action. 


COMPANY PROFILE

Incorporated in 2000, OGL manufactures silicon-based insulators since 2003. It ventured into the electric bus business in 2016 by entering into a technology tie-up with BYD. The company assembles and markets electric buses of various models, including 12m low-floor AC bus (eBuzz K9), midi semi low floor AC and non-AC Bus (eBuzz K7) and mini AC bus (eBuzz K6).

FINANCIAL SUMMARY

 

Particulars

FY19

FY18

Revenue (INR million)

2,903

1,642

Operating EBITDAR (INR million)

-138

139

EBITDAR margin (%)

-

8.47

EBITDAR interest coverage (x)

-

2.3

Total adjusted debt (INR million)

377.56

859

Cash in hand (including current investments) (INR million)

1,230

10

Net leverage (x)

-

6.1

Source: OGL, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

27 February 2019

Issuer rating

Long-term

-

IND BBB+/Stable

IND BBB+/Stable

Fund-based working capital limit

Long-term/Short term

INR420

IND BBB+/Stable/IND A2

IND BBB+/Stable/IND A2

Non-fund-based working capital limit

Short-term

INR1,744.6

IND A2

IND A2

Proposed non-fund-based working capital limit

Short-term

INR835.4

Provisional IND A2

-


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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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

    Pratik Dasgupta

    Analyst
    India Ratings and Research Pvt Ltd Room No. 1201, 12th Floor Om Towers 32, Chowringhee Road Kolkata 700 071
    +91 33 40302515

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121