By Pavithra Murugan

India Ratings and Research (Ind-Ra) has revised Indian Cables & Electricals Private Limited’s (ICEPL) Outlook to Stable from Negative while affirming its Long-Term Issuer Rating at ‘IND BBB’. 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 limit

-

-

-

INR535

IND BBB/Stable

Affirmed; Outlook revised to Stable from Negative

Non-fund-based bank facilities

-

 -


-

INR180

IND A3+

Affirmed

Proposed non-fund-based bank facilities*

 -

 -

INR100

IND A3+

Assigned

*Unallocated

The Stable Outlook reflects the diversification in ICEPL’s trading segment’s product portfolio along with the increased revenue contribution from the engineering, procurement and construction (EPC) segment during 9MFY21. Ind-Ra also takes comfort from the ICEPL’s healthy operating profitability over FY20-9MFY21 and the likelihood of it remaining stable over the medium term. 

KEY RATING DRIVERS

Healthy Operating Performance: ICEPL’s EBITDA margin improved to 6.4% in FY20 (FY19: 5.7%; FY18: 5.2%) due to the sale of higher-margin products in the electrical cable trading segment and infra projects). The return on capital employed was 19% in FY20 (FY19:16%). The operating EBITDA stood at INR165.7 million in FY20 (FY19: INR130.79 million). According to the interim financials for 9MFY21, the company’s EBITDA margin was around 6.4%. Ind-Ra expects margins to remain healthy over the medium term due to the sale of higher-margin products.

 

Medium Scale of Operation; Product Diversification in EPC Segment: ICEPL’s revenue grew 13.39% yoy to INR2,572.90 million in FY20, driven primarily by an increase in the orders executed as a result of product diversification. The continuous order inflow from the existing customers and new customers supports revenue growth. As on 8 February 2021, ICEPL had an order book worth INR1,287.3 million, comprising EPC orders totaling INR976.2 million and distribution orders totaling INR311.1 million, which will be completed by end-December 2021. This provides moderate revenue visibility for the medium term. In 9MFY21, the revenue booked was INR1,498.52 million (9MFY20: INR1,975 million). In January 2020, the company added new products in the trading segment such as secure brand house hold/industrial & solar meter, and ring main unit switchgear. Ind-Ra expects ICEPL’s revenue to moderate in FY21, on account of the revenue decline in 1QFY21 due to the impact of COVID-19 impact. The EPC segment contributed around 10% to the total 9MFY21 revenue (FY20: 3.6%) and remaining came from the trading segment.

 

Improving Credit Metrics: ICEPL's net leverage (net debt/EBITDA) improved to 2.84x in FY20 (FY19: 3.70x) and interest coverage (EBITDA/gross interest expense) to 3.23x (2.45x), driven by a rise in the operating EBITDA. Ind-Ra expects the credits metrics to improve over FY21-FY22 in view of the improving absolute EBITDA.

 

Market Exclusivity for Popular Brand; Long-Standing Ties with Suppliers and Customers: ICEPL has been one of the distributors of Polycab India Limited (‘IND AA’/Stable) in Maharashtra since 1988. Of the company’s total purchases in FY20, 84% (FY19: 82%, FY18: 91%) were from Polycab India. Moreover, ICEPL has had ties with its suppliers for over two decades, resulting in a smooth and stable product supply. The promoters have been in the cable trading business for over 30 years, which has helped the company maintain strong ties with customers, and thereby secure repeat orders.

 

Low Customer Concentration: ICEPL, which has been operational for over three decades, has a strong clientele base diversified across sectors such as automobile, infrastructure, construction, engineering and power. ICEPL’s top 10 customers accounted only for 27.06% of its revenue in FY20 (FY19: 20%; FY18: 23%). The customer concentration is likely to remain low over the near term. Furthermore, the company added new customers in all its segments in FY21, thereby diversifying its customer profile further.

 

Liquidity Indicator – Stretched: ICEPL’s average peak utilisation of its total sanctioned fund-based limits of INR535 million was 82.9% and that of its non-fund-based limits was 82.05% over the 12 months ended December 2020. ICEPL reported positive cash flow from operations of INR15.12 million in FY20 (FY19: negative INR28.2 million) on an account improvement in the operating EBITDA. The working capital cycle improved to 120 days in FY20 (FY19: 128 days) on account of the reduced debtor days of 97 (104) as well as inventory days of 55 (67). ICEPL's cash and equivalents remained low at INR3.16 million at FYE20 (FYE19: INR7.28 million). Furthermore, the entity does not have any capital market exposure and relies on banks to meet its funding requirements. Moreover, as informed by the management, there are no major capital expenditure plans over the near-to-medium term. The company availed the Reserve Bank of India-prescribed moratorium over March-August 2020, but did not avail any COVID-19 loan.

 

Intense Competition:  The cable industry is characterised by several organised and unorganised players leading to intense competition, and the resultant pressure on prices. Moreover, increasing inventories in the unorganised sector have created high supply-low price risk in the market.

 

Moderate Geographic Concentration:  ICEPL is a distributor of all wires and cables across pan India. However, the EPC segment is concentrated in a single region - Maharashtra. To mitigate the concentration risks, the company plans to acquire new projects in -other states.

 


RATING SENSITIVITIES

Positive: A diversification in the business profile and/or a substantial improvement in the scale of operation, along with an improvement in the profitability margins and liquidity position, leading to improved credit metrics with the interest coverage staying above 3.0x, all on a sustained basis, will be positive for the ratings.

 

Negative: Any substantial decline in the scale of operations or the profitability margins, leading to deterioration in the credit metrics, with the interest coverage falling below 2.5x, all on a sustained basis, and/or deterioration in the liquidity profile will be negative for the ratings.


COMPANY PROFILE

Incorporated in 1988, ICEPL is a Pune-based distributor of cables and accessories. It also undertakes electrical erection projects for Maharashtra State Electricity Distribution Company.

FINANCIAL SUMMARY

Particulars

FY20

FY19

Revenue (INR million)

2,572.90

2,269.07

EBITDAR (INR million)

165.73

130.79

EBITDAR margin (%)

6.44

5.76

Gross interest coverage (x)

3.23

2.45

Net leverage (x)

2.84

3.70

Source: ICEPL, Ind-Ra



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

6 March 2020

5 February 2019

31 January 2018

30 January 2017

Issuer rating

Long-term

-

IND BBB/Stable

IND BBB/Negative

IND BBB/Stable

IND BBB/Stable

IND BBB-/Stable

Fund-based working capital limits

Long-term

INR535

IND BBB/Stable

IND BBB/Negative

IND BBB/Stable

IND BBB/Stable

IND BBB-/Stable

Non-fund-based working capital limits

Short-term

INR280

IND A3+

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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Applicable Criteria

Analyst Names

  • Primary Analyst

    Pavithra Murugan

    Analyst
    India Ratings and Research Pvt Ltd Harmony Square 3rd Floor, Door No. 48 & 50 Prakasam Street T Nagar Chennai 600 017
    +91 44 43401713

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121