Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 8.50 ACUITE BB+ | Stable | Upgraded -
Bank Loan Ratings 11.50 - ACUITE A4+ | Upgraded
Total Outstanding Quantum (Rs. Cr) 20.00 - -
 
Rating Rationale
­Acuite has upgraded its long-term rating to ‘ACUITE BB+’ (read as ACUITE double B plus) from ‘ACUITE B’ (Read as Acuite B) and the short-term rating to ‘ACUITE A4+’ (read as ACUITE A four plus) from ‘ACUITE A4’ (Read as Acuite A four) on the Rs.20.00 crore bank facilities of Captronic Systems Private Limited (CSPL). The outlook is ‘Stable’.

Rationale for Upgrade
The rating upgrade considers CSPL’s improved operating performance marked by stable revenue and profitability and change in its management risk profile. As of August 2022, CSPL became a wholly owned subsidiary of Safran Data Systems Investment SAS which is a subsidiary France based ‘Safran Electronics and Defense’ with its ultimate parent ‘Safran S.A’ having a global presence and expertise in the defence and aerospace industries.The parent group has facilitated  additional liquidity support to CSPL in terms of an over-draft facility (backed by its corporate guarantee) of Rs.35 crore, which is expected to enable CSPL to undertake higher value orders with longer execution cycles which would further augment the growth in its  scale of operations. The revenue of CSPL stood at Rs.51.94 crore in FY2022 against Rs.45.04 crore in FY2021 and is expected grow to Rs.63.48 crore as per FY2023 (Prov.). The rating upgrade also considers the long track record of operations of CSPL and its reputed clientele. However, the rating remains constrained due to the intensive nature of working capital operations leading to elongated cycle and  consequent strain on the liquidity profile.

About the Company
­Bangalore based Captronic Systems was established as a proprietorship in the year 1999 by Mr. Vinod Thomas Mathews. In 2004, it was reconstituted into a Private Limited Company named - Captronic Systems Private Limited (CSPL). CSPL is engaged into manufacturing of custom built Embedded Systems, Automated Test Equipment (ATE's), Automation & Data Acquisition services to Aero Defense, Space, Auto and Manufacturing industries. In August 2022, it became a step-down subsidiary of the France based ‘Safran Group’.
 
About the Group
­Safran S.A. is a French multinational company that designs, develops and manufactures aircraft engines, rocket engines as well as various aerospace and defense-related equipment or their components. It was formed by a merger between SNECMA and the defense electronics specialist SAGEM in 2005. Safran's acquisition of Zodiac Aerospace in 2018 significantly expanded its aeronautical activities. The Safran Group was created on 11 May 2005 with the merger of Snecma and Sagem SA Safran Electronics & Defense, formerly known as Sagem Défense Sécurité, is a French company specializing in optronics, avionics and electronic systems, as well as software for civil and military applications in the naval, aeronautical and space sectors. It is one of the ten entities that make up the Safran Group. The company has three divisions: Avionics, Optronics & Defense and Safran Electronics.[12] Today, it has nine facilities in France and twelve subsidiaries spread across four continents. Safran Data Systems Investments SAS is a subsidiary of Safran Electronics & Defense.
 
Standalone (Unsupported) Rating
­ACUITE BB-/stable
 
Analytical Approach
Acuité has considered the standalone business and financial risk profile of CSPL to arrive at this rating. The rating has been notched-up by considering support from its parent group – Safran Group (Safran Electronics and Defense) in the form of corporate guarantee provided for it's working capital funding.
 

Key Rating Drivers

Strengths
Experienced management,  established track record of operations and reputed clientele
CSPL has a long track record of operations with its existence since 1999 Mr. Vinod Thomas Mathews (Managing Director) has more than two decades of experience in designing and development of automated test equipment. As of August 2022, CSPL became a wholly owned subsidiary of Safran Data Systems Investment SAS which is a subsidiary France based ‘Safran Electronics and Defense with its ultimate parent ‘Safran S.A’ having a global presence and expertise in the defence and aerospace industries. The parent group has inducted three directors on the Board of CSPL with Mr. Vinod Thomas Mathew continuing as the Managing Director of the Company.  The founder - promoters' extensive experience and long track record of operations of CSPL has aided the company in building established relationships with its key suppliers and customers over the years. CSPL has established relations with major clients such as Vikram Sarabhai Space Centre, Bosch Automotive Electronics India Private Limited, U R Rao Satellite Centre, Mahindra and Mahindra amongst others.
Acuité believes that the CSPL will continue to benefit from its experienced management, long track of business operations and established relations with its customers and suppliers. Further, the change in ownership of the company and induction of experts on the board is expected to augment the business risk profile of CSPL over the medium term.

Improving revenues and profitability
The operating income of the company improved and stood at Rs.51.94 crore in FY2022 as against Rs.45.04 crore in FY2021. The revenue improved by 15.32 percent. However, the operating and net profit margin of the company moderated to 7.96 percent and 5.11 in FY2022 as against 8.63 percent and 6.48 percent in FY2021. The moderation in margins is primarily on account of increased employee and other administrative expenses. CSPL has recorded a revenue of Rs.63.67 crore for the year FY2023(Prov.) and the operating profitability is expected to be in the range of 12-12.5 percent. It has an unexecuted order book position of Rs.47.95 crore as of January 2023, executable during FY2024.


Moderate  Financial risk profile
The financial risk profile of the company stood average marked by low net worth, moderate gearing, and moderate debt protection metrics. The tangible net worth stood at Rs.6.08 crore as on March 31, 2022, as against Rs.3.45 crore as on March 31, 2021. The total debt of the company stood at Rs.11.26 crore and includes Rs.7.00 crore of long-term debt, Rs.1.50 crore of unsecured loans and Rs.2.76 crore of short-term debt as on March 31, 2022. The gearing (debt-equity) improved and stood at 1.85 times as on March 31, 2022, as compared to 3.28 times as on March 31, 2021. Interest Coverage Ratio stood at 3.36 times for FY2022 as against 2.96 times for FY2021. Debt Service Coverage Ratio (DSCR) stood at 1.21 times for FY2022 as against 0.98 times for FY2021. Total outside Liabilities/Total Net Worth (TOL/TNW) improved and stood at 4.22 times as on March 31, 2022, as against 8.89 times on March 31, 2021. Net Cash Accruals to Total Debt (NCA/TD) stood at 0.28 times for FY2022 as against 0.29 times for FY2021. As per the FY23 (Prov), gearing is expected to increase on account of increased short-term debt. CSPL has availed additional OD facility of Rs.35 crore backed by the corporate guarantee of parent company. ICR and DSCR are expected to improve to approximately 3.77 times and 1.67 times respectively while the overall gearing is estimated to increase over the medium term. Acuite believes that the financial risk profile of CSPL will remain moderate  over the medium term in absence of any debt funded capex plan.
Weaknesses
Intensive nature of working capital operations
The company has an intensive working capital cycle marked by gross current assets (GCA) days of 165 days in FY2022 as against 226 days in FY2021. The receivable days stood at 121 days in FY2022 as against 162 days in FY2021. The inventory days stood at 20 days in FY2022 as against 8 days in FY2021. The average bank limit utilisation stood at high approx. 73 percent for the last 10 months ended January 2023. As per FY2023 (Prov), the GCA days are expected to increase to 376 days, led by 188 days of inventory and 211 days of debtors. The increase is inventory days is due to raw material and work-in-progress inventory outstanding at the year end. CSPL can extend its payables to support the working capital operations. Going forward, it is expected that the GCA days would remain high, as CSPL would be executing higher value orders, which usually span over a period of more than 1 year.

Tender based nature of operations
CSPL majorly executes tender based projects from government organisations. Since the nature of operations is tender based, the business depends on the ability to bid for contracts successfully. Acuité believes that CSPL's revenue and profitability are susceptible to risks inherent in tender based nature of operations.
Rating Sensitivities
  • Improvement in the scale of operations while maintaining the profitability margin.
  • Any further deterioration in working capital management leading to deterioration in the financial risk profile and liquidity.
 
Material covenants
­None
 
Liquidity Position
Adequate
CSPL has adequate liquidity marked by cash accruals of Rs.3.15 crore against maturing debt obligation of Rs.2.38 in FY2022. Cash accruals are expected to be in the range of Rs.4.65 crore to Rs.8.34 crore against maturing debt obligations in the range Rs.1.92 – 0.59 crore in the period FY23 to FY25.
The company’s working capital operation are intensive marked by GCA days of 165 days in FY2022 and are further expected to stretch in FY2023, however the company also derives support by stretching its creditors. The current ratio of the company stood at 1.36 times as on March 31, 2022. The average bank limit utilization stood high at approx. 73 percent for the last 10 months ended January 2023.
 
Outlook: Stable
­Acuité believes that CSPL will maintain a 'Stable' outlook over the medium term backed by its experienced management and long track record of operations. The outlook may be revised to 'Positive' in case of better-than-expected order book leading to higher revenue and profitability margin or improvement in working capital management leading to better financial risk profile and liquidity position. Conversely, the outlook may be revised to 'Negative' in case of a decline in revenue or profitability, or any further stretch in its working capital management leading to deterioration in its financial risk profile and liquidity position.
 
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 51.94 45.04
PAT Rs. Cr. 2.65 2.92
PAT Margin (%) 5.11 6.48
Total Debt/Tangible Net Worth Times 1.85 3.28
PBDIT/Interest Times 3.36 2.96
Status of non-cooperation with previous CRA (if applicable)
­CARE vide its press release dated 02 December 2022, has mentioned the rating of CSPL to ‘CARE D/D’ (Issuer Not Cooperating).
 
Any other information
­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
Note on complexity levels of the rated instrument
­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisa"on of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow pa&erns, number of counterpar"es and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Ra"ng Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
04 Mar 2022 Term Loan Long Term 4.65 ACUITE B | Stable (Reaffirmed)
Term Loan Long Term 0.20 ACUITE B | Stable (Reaffirmed)
Proposed Bank Facility Long Term 0.33 ACUITE B | Stable (Reaffirmed)
Bank Guarantee Short Term 11.50 ACUITE A4 (Reaffirmed)
Secured Overdraft Long Term 3.00 ACUITE B | Stable (Reaffirmed)
Term Loan Long Term 0.32 ACUITE B | Stable (Reaffirmed)
29 Oct 2020 Term Loan Long Term 4.87 ACUITE B | Stable (Assigned)
Term Loan Long Term 0.20 ACUITE B | Stable (Assigned)
Secured Overdraft Long Term 2.00 ACUITE B | Stable (Assigned)
Term Loan Long Term 0.40 ACUITE B | Stable (Assigned)
Term Loan Long Term 0.97 ACUITE B | Stable (Assigned)
Bank Guarantee Short Term 9.50 ACUITE A4 (Assigned)
Proposed Bank Facility Long Term 2.06 ACUITE B | Stable (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Canara Bank Not Applicable Bank Guarantee/Letter of Guarantee Not Applicable Not Applicable Not Applicable 11.50 Simple ACUITE A4+ | Upgraded
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 0.36 Simple ACUITE BB+ | Stable | Upgraded
Canara Bank Not Applicable Secured Overdraft Not Applicable Not Applicable Not Applicable 3.00 Simple ACUITE BB+ | Stable | Upgraded
RBL Bank Not Applicable Term Loan Not available Not available Not available 4.41 Simple ACUITE BB+ | Stable | Upgraded
RBL Bank Not Applicable Term Loan Not available Not available Not available 0.41 Simple ACUITE BB+ | Stable | Upgraded
RBL Bank Not Applicable Term Loan Not available Not available Not available 0.32 Simple ACUITE BB+ | Stable | Upgraded

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