EMT Megatherm Pvt Ltd

Transcription

1 Ratings EMT Megatherm Pvt Ltd Facilities Amount Ratings 1 Remarks Long term Bank Facilities 17.1 (reduced from 18) CARE BB+ (Double B Plus) Reaffirmed Short term Bank Facilities 27 (reduced from 28) CARE A4+ (A Four Plus) Reaffirmed Long/Short term Bank CARE BB+/CARE A4+ (Double B Plus/ A Four 25 Facilities Plus) Reaffirmed Total Bank Facilities 69.1 (Rupees sixty nine crore ten lacs) Rating Rationale The ratings assigned to the bank facilities of EMT Megatherm Pvt Ltd (EMT) continues to remain constrained by deterioration in financial performance in FY15 & H1FY16, moderate financial risk profile with tight liquidity position, high exposure to group companies, working capital intensive nature of operations and susceptibility of profit margins to volatility in raw material prices. The rating, however, derives comfort from the long experience of promoter, strong market position in a niche product segment and reasonable revenue visibility in the near-term in view of the satisfactory order book position. The ability of the company to scale up its operations and efficient management of working capital are the key rating sensitivities. Background EMT Megatherm Pvt Ltd (EMT: erstwhile known as Engel India Machines & Tools) was incorporated in July 1998 by the Government of West Bengal (GoWB) for manufacturing of injection moulding machines for the plastic industry. In October 2005, Mr. S. B Chanda took over around 90.1% stake in EMT. Prior to acquisition, Mr. Chanda was engaged in the manufacturing and execution of EPC contracts for induction technology through its group entity, Megatherm Electronics Pvt Ltd (MEPL). Post-acquisition, Mr. Chanda gradually transferred its entire operation from MEPL to EMT. Currently, MEPL is also engaged in executing certain EPC contracts for induction technology on its own, wherein the raw-material (i.e. induction equipments) is procured from EMT to execute the contract. EMT products are mainly used in steel, foundry & forging and transformer sector. Credit Risk Assessment Experienced promoters The day-to-day affairs of the company are looked after by Mr. S.B. Chanda who is an electrical engineer (gold medalist) from Jadavpur University. Mr. Chanda has over two decades of experience in the capital equipments segment. Apart from manufacturing of capital equipments, the group also undertakes turnkey contracts and provides after sales service and spares for projects through a group company MEPL. Strong market position in a niche product segment Manufacturing of high capacity induction furnace is a niche market segment with a handful of players. EMT, by virtue of the superior quality of products and long relationship with existing customers, remains a major supplier in the induction equipment segment. Further, the integrated nature of operations of the group also assists the company in garnering repeat orders from customers and enhancing its market position. Apart from strong presence in the domestic market, the company also export its products to various countries. During FY15, export sales to various countries stood at Rs crore (increased from Rs crore in FY14). The counter-party payment risk remains minimal as the majority of export orders are backed by confirmed letter of credit. Reasonable revenue visibility in the near term in view of satisfactory order book position EMT has a satisfactory outstanding order book of around Rs crore as on Dec 15, 2015 (as against Rs crore as on Oct 31, 2014), representing roughly 1.05x of the gross billing for FY15. It includes export order book of Rs crore. Further, EMT has a diversified order book position in terms of number of clients. Deterioration in financial performance in FY15 & H1FY16 EMT s total income from operation declined by 5.4% y-o-y in FY15 mainly due to subdued demand from steel industry. However, 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 PBILDT level increased by 10.5% y-o-y in FY15 due to few high margin export orders executed by the company in FY15. Despite increase in PBILDT level, interest coverage ratio deteriorated from 1.83x in FY14 to 1.60x in FY15 due to higher interest expenses associated for funding its stretched working capital. In FY15, the company reported GCA of Rs.2.82 crore vis-à-vis debt repayment obligation of Rs.0.30 crore. The working capital cycle of the company has elongated from 129 days in FY14 to 197 days in FY15 due to increase in both inventories and receivables. The increase in receivables is mainly due to slow collection from its group company, MEPL. During H1FY16 (Prov), EMT reported PBT of Rs.1.19 crore on net sales of Rs crore. Moderate financial risk profile with tight liquidity position The financial risk profile of the company has deteriorated in FY15 due to reliance on corporate term loan and higher bank borrowings to fund its stretched working capital & repay the unsecured loan. Consequently, overall gearing and total debt/gca deteriorated from 1.73x and 12.75x as on Mar 31, 2014 to 2.01x and 18.59x as on Mar 31, 2015, respectively. The liquidity position of the company continued to remain tight as evident from high utilisation of working capital limits (around 98% during 12 months ended Dec 2015) due to stretching of working capital cycle from 129 days as on Mar.31, 2014 to 197 days as on Mar.31, This is mainly due increase in both inventory and receivables. The increase in receivables is mainly due to increase in receivables from its group company, MEPL. High exposure to group companies EMT s exposure to its group company, MEPL, has increased from Rs crore (67% as % of networth) as on Mar 31, 2014 accounting to Rs crore (104% of networth) as on Mar 31, 2015 due to significant increase in receivables. This is mainly due to a portion of receivables has been utilized for executing a real estate project undertaken by MEPL, which is in its final stage of completion. According to the management, the exposure to group companies is expected to come down by September 2016 as the proceeds from sale of commercial real estate project and lease rental income from MEPL would be utilized to reduce the receivables of EMT. Working capital intensive nature of operations High working capital requirements are an inherent characteristic of the industry in which EMT operates. The working capital requirements are high due to relatively longer processing period necessitating high inventory holding period. The raw material required for the company mainly constitutes high value copper related products, which are mainly imported. The working capital requirement also increases as a certain portion of its receivables (i.e. retention money) is released by its clients upon expiry of defect liability period. Susceptibility of profit margins to volatility in raw material prices Raw material consumption is the single largest cost component for EMT. Currently, the company procures its raw material requirements from open market from players in the domestic market as well as by way of imports. These raw materials being commodity items are highly volatile on pricing front and hence, the company is susceptible to fluctuations in prices of raw materials. Prospects The prospects of the company are dependent upon its ability to scale up operations and efficient management of working capital. Financial Performance (Rs. Cr) For the period ended / as at March 31, (12m, A) (12m, A) (12m, A) Working Results Net Sales Income from Continuing Operations PBILDT

3 Interest Depreciation PBT PAT (After def Tax) Gross Cash Accruals Financial Position Equity Share capital Net Worth Total capital employed Key Ratios Growth (%) Growth in Total Operating Income Growth in APAT Profitability (%) PBILDT / Total OI APAT / Total OI ROCE Solvency(times) Debt Equity Ratio Overall Gearing (Including Acceptances / Creditors on LC) PBILDT Interest Coverage Term Debt/GCA Liquidity (times) Current ratio Quick ratio Avg. Collection Period (days) Avg. Inventory (days) Avg. Creditors (days) Op. cycle (days) Avg. Creditors Period (days) Op. cycle (days) Details of facilities rated 1.Long-term facilities 1.A. Secured Rupee Term Loan Sr. No. Lender Rated Amount (Rs. Crore) 1. State Bank of India (SBI) Total Rupee term loans 7.10 Remarks Debt Repayment Terms 7.10 Outstanding Proposed to be repaid in 18 quarterly installments of Rs.0.44 crore starting from Sep B. Fund Based limits Sr. No. Name of Bank Fund Based Limits CC* Others Total fund-based limits 1 SBI TOTAL *CC=Cash credit Total long-term facilities as at Dec. 31, 2015 (1.A.+1.B.) = Rs.17.1 crore 3

4 2.Short-term facilities 2.A. Non-Fund Based limits Sr. No. Name of Bank Non Fund Based Limits LC* BG* Derivative/FC Tenure as per sanction letter 1 SBI Up to one year TOTAL * LC= Letter of credit; BG=Bank guarantee Total short-term facilities as at Dec. 31, 2015 (2.A) = Rs.27 crore 3.Long/Short-term facilities 3.A. Fund Based Limits Sr. No. Name of Bank Fund Based Limits CC/EPC/FBD* Others Total fund-based limits 1 SBI TOTAL * EPC=Export Packing Credit; FBD=Foreign Bill Discounting Total long/short-term facilities as at Dec. 31, 2015 (3.A) = Rs.25 crore Analyst Contact Name: Mr Utkarsh Nopany Tel: Cell: utkarsh.nopany@careratings.com (This follows our brief rationale for entity published on 28 January, 2016) Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4

5 CONTACT Head Office Mumbai Mr. Sanjay Kumar Agarwal Mr. Amod Khanorkar Mobile: Mobile: sanjay.agarwal@careratings.com amod.khanorkar@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Website: REGIONAL OFFICE AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: / saikat.roy@careratings.com JAIPUR Mr. Rakesh Jayaraman 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 rakesh.jayaraman@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: ; Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: ; Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: ; Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC