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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 57.00 | ACUITE BB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 55.00 | - | ACUITE A4+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 112.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long term rating at 'ACUITE BB' (read as ACUITE double B) and the short term rating of 'ACUITE A4+' (read as ACUITE A four plus) on the Rs.112.00 Cr. bank facilities of Ducon Infratechnologies Limited (DIL). The outlook is ‘Stable’.
Rationale for the rating The rationale behind reaffirmation in rating is on account of sustained operational performance, experienced management, adequate order book position. The above factors are underpinned by the stretched working capital cycle of the company, high working capital limit utilization, thin margins and average financial risk coverage profile. |
| About Company |
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Incorporated in March 2005, Maharashtra based Ducon Infratechnologies Limited (DIL) is the Indian arm of Ducon Technologies Inc., USA. The company is promoted by Mr Arun Govil, Ducon undertakes turnkey projects for setting up industrial pollution control and material handling systems. Ducon Infratechnologies Limited was setup in India to take advantage of opportunities in the Indian subcontinent in the field of Air Pollution Control, Bulk Material Handling and other related industrial projects. Being an EPC (Engineering Procurement & Construction) company, DIL has executed multiple projects during the last 14 years in India.
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| About the Group |
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The Ducon Group (DG) consist of two companies i.e. Ducon Infratechnologies Limited and its wholly owned subsidiary company Ducon Combustion Equipment Inc. (DCE). In the year 2017, DIL has set up its wholly owned subsidiary company in the name of Ducon Combustion Equipment Inc. (DCE) in New York, USA in order to sell diversified combustion and power products. The products includes steam & power turbines, heat recovery steam generators and cogeneration plants using both gas and biomass fuels.
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Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| The team has consolidated the business and financial risk profiles of Ducon Infratechnologies Limited (DIL) and its wholly own subsidiary Ducon Combustion Equipment Inc. (DCE) together referred to as the ‘Ducon Group’ (DG). The consolidation is in view of the common management, same line of business and financial linkages between the entities.
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Key Rating Drivers
| Strengths |
| Established tracked record of operations along with experienced management
Ducon promoted by Mr. Arun Govil (Managing Director), is engaged in undertaking EPC contracts for setting up industrial pollution control, material handling systems and dealing in IT hardware. The company forayed into FGD systems in thermal power plants along with Bulk Material Handling Services and Rural and Urban electrification including construction of substation etc. The promoter Mr. Arun Govil has gained experience of over three decades from overseas business in Ducon Technologies Inc and is ably supported by well experienced second line of management. The experience of promoters and well established track record of operations helped the company to build a strong relationship with some of the reputed clientele in the country such as NTPC Limited, Steel Authority of India,L&T, IOCL to name a few. Acuité believes that the company will sustain its existing business risk profile on back of an established track record of operations and experienced management over the medium term. Revenue and Profitability The company has registered the operating income of Rs.384.36 Crore in FY22 against Rs.341.95 Crore in FY21. The decline in revenue is on an account of decline in order book position and no new order was registered till FY21. Furthermore, the revenue was also impacted due to pandemic which restricted various movements across the country. The operating margins of the company has improved on an account of new orders allotted in FY22. The EBITDA Margins of the company is at 4.30 percent in FY22 against 3.69 percent in FY21 on an account of reduction in raw material prices. The PAT margins of the company is 1.15 percent in FY22 against 0.12 percent in FY21. In past the decline in PAT margin on an account of higher interest outgo. Moderate Financial Risk Profile The financial risk profile of the company is moderate marked by tangible net worth, gearing and moderate debt protection metrics. The tangible net worth of the company stood at Rs.150.11 Crore in FY22 against Rs.145.67 Crore in FY21. The gearing level of the company stood at 0.55 times in FY22 against 0.45 times in FY21. The borrowings of the company include working capital borrowings and unsecured loans of Rs.82.45 Crore in FY22. The interest coverage ratio increased at 1.78 times in FY22 against 1.06 times in FY21. The debt service coverage ratio of the company is at 1.58 times as compared to 1.05 times in FY21. |
| Weaknesses |
| Working Capital Intensive nature of business
The operations of the company are working capital intensive in nature marked by Gross current assets days of 259 in FY22 against 271 days in FY21. Last year, the GCA days were higher on an account of high receivable days which stood at 266 days in FY21 but now it has decreased at 255 days in FY22. DIL doesn’t have any inventory as the products are also customized as per client’s requirement and it directly stores in the plant of the client. As it crosses through three stages (Mechanical completion, Commissioning and Performance guarantee check) and on completion of each stage they get payment for that particular stage this is how their receivables remains high. Further, the creditors of the company are at 61 days in FY22 as compared to 62 days in FY21. However, in the coming years the company will receive advances from customers of Rs.40 Crore out of which company will repay its unsecured loans and balance amount will be utilised to repay the creditors. However, in the coming years the company has shown less trade payables in succeeding years. |
| Rating Sensitivities |
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| Material Covenants |
| None. |
| Liquidity Position |
| Stretched |
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The liquidity profile of the company is stretched. As the company is having net cash accruals of Rs.5.57 Crore in FY22 against no repayment debt obligations in the same period. The fund based average bank limit utilisation of the company is at 99% and non-fund based average bank limit utilisation is at 15% in FY22. In addition to this, the current ratio of the company is at 2.23 times in FY22 against 2.02 times in FY21.
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| Outlook: Stable |
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Acuité believes that the company will maintain ‘Stable’ outlook in the medium term on account of the extensive experience of the promoters in the Industrial Machinery industry and healthy orders from reputed companies from the country. The outlook may be revised to 'Positive' in case the company registers significant growth in its revenue and profitability. Conversely, the outlook may be revised to 'Negative' in case of lessthan-expected generation of cash accruals or stretch in its working capital cycle led by further delay in realizing receivables leading to deterioration of its financial risk profile and liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 384.36 | 341.95 |
| PAT | Rs. Cr. | 4.43 | 0.42 |
| PAT Margin | (%) | 1.15 | 0.12 |
| Total Debt/Tangible Net Worth | Times | 0.55 | 0.45 |
| PBDIT/Interest | Times | 1.78 | 1.06 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm |
| Note on Complexity Levels of the Rated Instrument |
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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 categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties 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 Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in. |
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