Acuite has consolidated the business and financial risk profiles of Allied Digital Service Limited (ADSL) and its eleven subsidiaries (given in the *Annexure 2), as all the entities have common shareholding, common line of business and have significant operational linkages. The group is herein referred to as Allied Group (AG).

Established track record of operations and experienced management
Incorporated in 1984, Allied Group (AG) has an established track record of operation of over three decades in the IT services industry. The group provides a wide range of services across 70 plus countries and has its subsidiaries in eight countries around the world. The operations of the group are managed by a qualified and well experienced senior management team who are ably supported by a strong line of mid-level managers. The extensive experience of the management has helped the group to establish long and healthy relationship with reputed customers and suppliers over the years. The key customers of the company include names such as Tata Motors, Vedanta, Accenture, Air India and Infosys among others. Further, the group is a leading player in providing Smart City Solutions for various state governments in India. The group has completed various Smart City project in the past as a systems integrator in cities like Pune, Aurangabad, Rajkot, Varanasi and Kalyan-Dombivli.
Acuité believes that the management's experience and reputed clientele is expected to support the group in improving its business risk profile over the medium term.

Healthy operating performance
Allied Group (AG) currently has six major revenue streams namely cloud services, cybersecurity, smart city solutions, Infrastructure management services, software solutions and workplace management services. Operating performance of the group has seen a healthy growth with a 35% Y-o-Y growth in the revenue. Revenue of the group stood at Rs. 484.68 crore in FY2022 as against Rs.358.08 crore in FY2021. Growth seen in the revenue is on account of increased demand for IT services and solutions globally on account of reopening of businesses. Further, the company has also seen a robust performance on a standalone level. ADSL provides Smart City solutions to various state governments in India. AG in 2013 has taken up its first smart city solution project at Pune to set up, implement and maintain CCTV surveillance systems across the city. The company subsequently also worked on other smart city projects in Aurangabad, Rajkot, Kalyan-Dombivli and Varanasi. In the current year the company has bagged 5 new Smart City projects in Solapur, Lucknow, Amritsar, Sultanpur and Jalandar. Such projects provide strong near-term revenue visibility of Rs. 160 crores to be recognized over the next 2 years. Operating margin of AG stood at 14.73 percent in FY2022 as against 12.92 percent in FY2021. Improvement in the operating margins are on account of increase in scale of operations and prudent cost optimisation by the group. The profitability of the group stood at Rs. 61.02 crore in FY2022 as against Rs. 19.23 crore in FY2021. The increase in profitability in FY 2022 is majorly due to waiver of a business loan of USD 3,219,918 under Paycheck Protection Program (PPP) from the United States Federal Government. Hence, Rs.23.80 crore of extraodinary gain in recognised in FY2022. The normalised profitability margins excluding the exceptional gain stood at 7.68 percent in FY2022 as against 5.37 percent in FY2021.
Acuité believes that the business risk profile of the group is likely to continue to improve on the back of reputed clientele and healthy demand expected over the near to medium term.

Healthy financial risk profile
Financial risk profile of the group is healthy with a healthy networth, low gearing and above-average debt protection metrics. Tangible networth of the company stood at Rs. 435.74 crore as on 31 st March, 2022 as against Rs. 354.53 crore as on 31 st March, 2021. Growth in the networth is on account of accretion of profits to reserves. Gearing of the group stood low at 0.11 times as on 31 st March, 2022 and has lowered from its peak gearing levels at 0.17 times as in 31st March, 2020. Total outside liabilities to Tangible net worth (TOL/TNW) has seen a declining trend. TOL/TNW stood at 0.31 times as on 31st March 2022 as against 0.44 times as on 31st March 2021 and 0.47 times as on 31st March, 2020. DSCR of the company stood at 19.47 times in FY2022 as against 7.94 times in FY2021. Interest coverage ratio stood at 36.80 time in FY2022 as against 13.21 times in FY2021.
Acuite believes that the financial risk profile is likely to remain healthy in the absence of any debt-funded capital expenditure and any large deviations in incremental working capital requirements.

Working capital intensive nature of operations
Working capital operations of the group are intensive marked by GCA days of 294 days in FY2022 as against 352 days in FY2021. Higher GCA days are on account of higher debtor collection period and other current assets. Debtor collection period stood at 150 days in FY2022 as against 167 days in FY2021. Debtors for the smart city solutions segment are state governments and payments for such projects are delayed beyond the credit period offered. Hence, on a standalone basis the debtor days stood at 412 days in FY2022 as against 520 days in FY2021. Other current assets of the group stood at Rs.97.54 crore in FY2022 as against Rs.88.55 crore in FY2021. Other current assets majorly includes unbilled revenue of Rs.33.11 crore in FY2022 as against Rs.36.83 crore in FY2021. Despite the elongated receivable days, the company’s reliance on working capital limits is moderate with average utilisation of fund-based limits at 57% for 6 months ended November, 2022 Further, the company has maintained cash balance of Rs.55.59 crore in FY2022 as against Rs. 57.67 crore in FY2021.
Acuite believes that the working capital operations of the company will remain intensive over the medium term and will continue to remain a key rating sensitivity.

Highly competitive nature of the IT industry
The global IT services industry is dominated by several large players and small niche technology players. Allied Group faces stiff competition from domestic as well as international IT service companies leading to intense margin pressure. The industry is highly technology oriented which keeps on changing time to time. Thus, the company has to keep upgrading the services it offers according to the needs of the clients and changes in the industry. However, the established relationship with clients and vendors, diversified geographical presence and experienced management mitigates the risk to some extent. Further, the ability of the company to manage industry specific risks such as wage inflation and employee attrition levels determine the companies ability to sustain its business risk profile and will remain a key rating sensitivity.