Rationale

 The rating reaffirmation of Comnet Solutions Private Limited (CSPL) factors in in the extensive experience of its promoters in the IT infrastructure industry and its well-established client base of public and private sector entities. Driven by healthy order inflows from private sector companies, expansion in its customer base along with increase in orders from Government entities, the company’s revenues grew YoY by 26.2% to Rs. 835 crore at a consolidated basis. Further, the company had a healthy order book position of ~Rs. 585.3 crore as on November 30, 2024, which provides revenue visibility for the current fiscal. Coupled with a favourable demand outlook, the growth momentum is expected to continue going forward as well. Nonetheless, timely execution and the ability to sustain its fresh order inflow would remain critical for maintaining its profitability levels. Despite this, the ratings remain constrained by the working capital-intensive nature of operations of CSPL, characterised by a high receivable period. ICRA notes the significant increase in the pending receivables of more than 180 days as on November 30, 2024 to Rs. 94.2 crore, majority of which pertains to Government-related entities. ICRA understands that the same is expected to be recovered fully by March 2025, which remains a key monitorable. CSPL’s leverage levels also remain high, marked by high reliance on creditor funding to support operations as evident by the high ratio of total outside liabilities vis-àvis tangible net worth. ICRA notes that this ratio typically peaks in Q4, which is the highest revenue generating quarter for the company and is marked by high receivables. The ratings also remain constrained by the intense competition in the industry, translating into limited pricing flexibility for industry participants such as CSPL. Its profit margins also remain moderate due to relatively limited value-added nature of operations. The Stable outlook on the long-term rating of [ICRA]BBB- reflects ICRA’s opinion that CSPL’s revenues will grow at a healthy rate driven by its current adequate order book and expected new orders as it expands its customer base. Coupled with limited capex plans, this will lead to gradual improvement in leverage and debt coverage indicators.