Rational
The rating
reaffirmation and revision in outlook factors in the improvement in Exicom
Tele-Systems Limited's (ETSL) performance and its liquidity position in H2
FY2021 and Q1 FY2022, along with ICRA's expectations of the same being
sustained going forward. After a sharp decline in FY2020, the Exicom Group
reported revenue growth in FY2021, supported by recovery in demand, leading to
better absorption of fixed overheads and consequently lower-than-anticipated
losses for the fiscal. Maintaining the momentum, the Group has already
registered revenue of around Rs. 220 crore in Q1 FY2022 (against Rs. 552 crore
in FY2021) and had a sizeable outstanding order book, which provides revenue
visibility for the remaining quarters of the fiscal. Additionally, the sizeable
funds raised by the company in September 2020 (through compulsory convertible
debentures; CCD1 ) coupled with improvement in profit margins and reduction in
receivable levels (outstanding for more than six month) aided the improvement
in the Group's liquidity position. The ratings continue to factor in the
extensive experience of the promoters of the Exicom Group in the power
electronics industry, its reputed and established customer base and comfortable
healthy capital structure (as reflected by gearing of 0.5 times as on March 31,
2021). The Group is focussed on expanding its presence in the electric vehicle
(EV) segment. The favourable demand outlook for the EV segment provides
opportunities for future growth and revenue diversification. However, the
ratings are constrained by pressures on the company's profitability in the
recent years because of limited economies of scale and vulnerability to adverse
movement in raw material prices as well as foreign exchange rates. Also, an
increase in the overall receivable levels has accentuated the funding
requirements of the Group, which have been met through increased reliance on
debt and creditor levels. Moreover, the Group's dependence on the telecom
segment for its revenues remains high, although efforts are being made to
diversify sectoral presence, through expansion in the EV segment. Additionally,
the Group remains exposed to client concentration risk as a single customer
accounts for a sizeable part of its revenue. However, the concentration has
declined, to some extent, over the recent years with diversification of the
customer base.
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