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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 10.90 | ACUITE B | Stable | Upgraded | - |
| Bank Loan Ratings | 5.00 | - | ACUITE A4 | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 15.90 | - | - |
| Rating Rationale |
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Acuité has upgraded its long term rating to ‘ACUITE B’ (read as ACUITE B ) from ‘ACUITE D’ (read as ACUITE D) and its short term rating to ‘ACUITE A4’ (read as ACUITE A four ) from ‘ACUITE D’ (read as ACUITE D) on the Rs.15.90 Cr. bank facilities of UNITED COOLING SYSTEMS PRIVATE LIMITED (UCSPL). The outlook is ‘Stable’.
Rationale for Upgrade The rating upgrade is majorly on account of timely repayment of the its debt obligations including both interest and principal March 2023. The company has delayed towards payment of its debt obligations during January 2023 and March 2023. The rating also considers the experienced management, improvement in the track record of operations and reputed clientele. However, the rating is constrained due to its weak financial risk profile, stretched liquidity position and working capital intensive nature of operations. |
| About the Company |
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Incorporated in 1994, United Cooling Systems Private Limited (UCSPL) is Coimbatore (Tamilnadu) based company, engaged in manufacturing of cooling towers & heat exchange. It has one manufacturing plants, in Coimbatore, with a total manufacturing capacity of 445 units per annum. Mr. Vairavan Krishnavelu, Mrs. Nagalingam Anusuyadevi, Mr. Krishnavelu Yokeshwaran, Ms. Krishnavelu Mounika are the directors of the company.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of the UCSPL to arrive at this rating
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Key Rating Drivers
| Strengths |
| Experienced management, established track record of operations and reputed clientele
The company has been manufacturing cooling towers & heat exchangers since 1994. The operations are managed by Mr. Krishnavelu who has almost three decades of experience in the above-mentioned line of business. The long standing presence of the promoters has led to establishing healthy relationship with customers and suppliers. The company caters to reputed customers like Indian Oil Corporation Limited, ITC Limited and Vedanta Limited, among others. Acuité expects UCSPL to benefit from the established relationship with customers in securing repeated orders and vast experience of the promoters to support the business risk profile over the medium term. The established track record of company and extensive experience have helped UCSPL to establish long working relations with top customers. The revenue of the company seen a growth of 79 percent in FY2023 with operating revenue of Rs.40.38 crore in FY 2023 (prov) as against Rs.22.51 crore in FY 2022. Acuité believes that UCSPL will continue to benefit from the established presence in the industry and its promoter’s experience over the medium term. |
| Weaknesses |
| Weak financial risk profile UCSPL has a weak financial risk profile mainly marked by low net worth, high gearing and moderate debt protection matrices. The tangible net worth of the company stood low at Rs.5.12 crore as on March 31, 2023 (prov) against Rs.4.32 crore as on March 31, 2022. The gearing of the company stood high despite marginal improvement at 3.27 times in as on 31 March, 2023 (prov) as against 3.71 as on 31 March, 2022. Further, the interest coverage ratio stood at 1.49 times as on 31 March, 2023 (prov) as against 1.51 times as on 31 March, 2022. The debt to EBITDA of the company stood at 4.14 times as on 31 March, 2023 (prov) as against 5.24 times as on 31 March, 2022. However, the TOL/TNW stood to 4.02 times as on 31 March, 2023 (prov) as against 4.38 times as on 31 March, 2022. Acuité believes that the improvement in UCSPL’s financial risk profile will remain a key monitorable over the medium term. Working capital intensive operations UCSPL’s operations is working capital intensive marked by high Gross Current Asset (GCA) days of 180 days as on 31 March, 2023 (prov) as against 263 days as on 31March, 2022. GCA majorly consists of inventory and debtors. Debtors days has improved and stood at 43 days in 31 March 2023 (prov) against 62 days in 31 March 2022. The inventory days have improved and stood at 126 days in 31 March 2023(prov) against 182 days in 31 March 2022. Subsequently, the payable period decreased to 20 days as on 31 March, 2023 (prov) as against 22 days as on 31 March, 2022 respectively. Further, the average bank limit utilization in the last six months ended May 2023 remained fully utilised for fund based facility and 97.27 percent for non-fund based facility. Acuité believes that the operations of the UCSPL will remain working capital intensive over the medium term. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Stretched |
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The liquidity profile of UCSPL is Stretched on account of fully utilisation of its working capital limits owing to working capital intensive nature of operations. The company has high GCA of 180 days as on 31 March 2023 (prov) as against 263 days as on 31 March 2022. The working capital requirement is funded through bank lines which has been fully utilized in last six months ended May 2023. The company has reported cash accruals of Rs.1.33 crore in FY2023 (prov), and Rs.0.86 crore in FY2022 against the repayment obligations of Rs.0.51 crore in FY2023 (prov) and Rs.0.40 crore in FY2022. Unencumbered cash and bank balances stood at Rs.0.26 Cr as on March 31, 2023 (prov). The current ratio of the company stood at 1.44 times in FY2023 (prov). Acuité believes that the liquidity position of the company will continue to remain stretched on account of fully utilisation of its working capital facilities.
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| Outlook: Stable |
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Acuite believes that UCSPL will continue to benefit over the medium term due to its experienced management and established relations with its stake holders. The outlook may be revised to “Positive”, if the company demonstrates substantial and sustained growth in its revenues and operating margins from the current levels while improving its capital structure through equity infusion. Conversely, the outlook may be revised to “Negative”, if Company generates lower-than-anticipated cash accruals, sharp decline in operating margins, or further stretch in its working capital cycle, or larger-than expected debt-funded capex or any significant investments in group entities, or any significant withdrawal of capital thereby impacting its financial risk profile, particularly its liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 40.38 | 22.51 |
| PAT | Rs. Cr. | 0.80 | 0.39 |
| PAT Margin | (%) | 1.98 | 1.73 |
| Total Debt/Tangible Net Worth | Times | 3.27 | 3.71 |
| PBDIT/Interest | Times | 1.49 | 1.51 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: 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 |
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In order to inform the investors about complexity of instruments, Acuité has categorized suchinstr uments 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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