By Gokulakrishnan Madhusuthanan

India Rating 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

-

-

-

INR100 (reduced from INR200)

IND BBB-/Stable/IND A3

Affirmed

Non-fund-based facilities

-

-

-

INR30 (reduced from INR80)

IND A3

Affirmed

Analytical Approach: Ind-Ra continues to take a consolidated view of CSSL and its fully owned subsidiaries Cyber Tech Systems and Software Inc. (CSSI), USA and Spatialitics LLC, USA to arrive at the ratings owing to the strong operational and strategic interlinkages among the companies, as they operate in the same line of business.

KEY RATING DRIVERS

Stable Revenue Growth: CSSL’s consolidated revenue grew 11.9% yoy to INR1,176 million owing to an increase in orders from the domestic as well as US market, and increased realisation in the US market. The company’s standalone revenue grew 15% yoy to INR622 million in FY20. The company also recorded a revenue of INR304 million in 1QFY21.

 

The company also generates lease rental income, which although contributes only 4% to the operating income of the company, meets the company’s entire interest expenses. This rental income grew to INR48 million (FY19: INR46 million); the company’s major lease agreement expires in FY22.

 

Diversified Product Portfolio and Experienced and Qualified Management: CSSL broadly classifies its business into two segments: innovation of software & products and application maintenance organisation. The ratings benefit from the promoters’ over two decades of experience in the IT industry that has led to established relationships with existing customers and its  ability to add new customers. The company has partnered with major global IT players SAP, Esri Partner Network, CISCO, Microsoft, and SalesForce. Moreover, the company focuses more on fast-growing as well as high-margin applications such as geospatial and geoshield.

 

Comfortable Credit Metrics: CSSL’s gross interest expense (operating EBITDA/gross interest expense) improved substantially to 45.4x in FY20 (FY19: 16.4x) due an increase in the operating EBITDA to INR230 million (INR179 million). Its net leverage (total adjusted net debt/operating EBITDA) turned negative to -0.2x in FY20 (FY19: 0.0x) due to a decrease in total debt to INR28 million (INR178 million). The credit metrics have remained comfortable, over the past four years, as a result of its lower dependence on external debt, and the agency expects to remain the same in FY21 as well.

 

Liquidity Indicator- Adequate: CSSL’s average maximum utilisation of its fund-based limits was about 32% for the 12 months ended August 2020. Its fund flow from operations and cash flow from operations were positive over FY16-FY20. The company’s cash flow from the operations, however, deteriorated slightly to INR175 million in FY20 (FY19: INR201 million) due to a stretch in the cash conversion cycle to 47 days (42 days) owing to a deterioration in creditors days to 41 (48). The company’s liquidity is supported by a cash and bank balance of about INR79 million and liquid investments, including mutual funds and fixed deposits, worth about INR287 million at FYE20. The company has nil repayment obligations in FY21.

 

Healthy EBITDA Margin: CSSL’s EBITDA margins have historically been volatile in the range of 9.9%-19.5% during FY16-FY20 owing to the competitive nature of the business. Its margin expanded to 19.5% in FY20 (FY19: 17.7%) primarily on increased realisations in the US market. The company’s return on capital employed stood at 17% in FY20 (FY19:12%). Ind-Ra expects the company’s EBITDA margin in FY21 to remain at the FY20’s level in FY21. 

Geographical Concentration Risk and Inherent Industry Risk: CSSL continued to generate about 95% of its revenue from the US in FY20, exposing it to geographic risks. The company also faces the risk of cyclical nature of the economy, the threat from the advent of technological change, and no entry barriers, which increases competition. The company also faces a pricing risk, wherein the company cannot increase the price sharply and has low control on the cost side.


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 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. Viswanath Tadimety is the promoter, chairman and the chief executive officer of the company.

 

FINANCIAL SUMMARY

Particulars

1QFY21

FY20

FY19

Revenue (INR million)

304

1,176

1,011

EBITDA (INR million)

70

229.7

178.6

EBITDA margin (%)

23.0

19.5

17.7

Interest coverage (x)

89.1

45.4

16.4

Net leverage (x)

-

-0.2

0.0

Source: CSSL, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

26 July 2019

27 June 2018

19 May 2017

Issuer rating

Long-term

-

IND BBB-/Stable

IND BBB-/Stable

IND BBB-/Stable

IND BBB-/Stable

Fund-based limits

Long-term/Short-term

INR100

IND BBB-/Stable/IND A3

IND BBB-/Stable/IND A3

IND BBB-/Stable/IND A3

IND BBB-/Stable/IND A3

Non-fund-based limits

Short-term

INR30

IND A3

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.

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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

    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

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121