Rationale

 The ratings factor in the expected strong performance of Olectra Greentech Limited's (OGL) e-bus division in H2 FY2022 which is likely to support growth in its revenues and margins. The company's order book of the e-bus division improved significantly to 1,575 buses as on November 16, 2021 as against 792 as on June 30, 2020. While the order execution was impacted by the Covid-19 pandemic over the past 18 months, the company plans to deliver ~100-110 buses in Q3 FY2022 and ~200 – 300 buses in Q4 FY2022 (as against 88 buses sold in FY2021 and 29 buses in H1 FY2022) which would lead to significant growth in revenues and healthy profits. It's ability to achieve the growth and the timely delivery of the buses would remain a key rating monitorable. The ratings factor in the favourable demand prospects for electric vehicles (EV'-s), which would aid healthy order inflow and ramp-up in operations. The assistance from Government initiatives such as reduction of GST rate on e-buses, introduction of FAME I and FAME II scheme to promote electric mobility in India, etc also support the growth prospects. The ratings consider strong financial flexibility enjoyed by OGL, being a step-down subsidiary of Megha Engineering & Infrastructures Limited (MEIL). The company's capital structure remains strong given the significant equity infusion from the parent group and overall equity infusion of Rs. 660.6 crore during the past three years. ICRA notes that while the company has significant capex plans over the next 12-18 months, its debt metrics are expected to remain robust, considering the funding support from the parent group. The ratings consider OGL's technical collaboration with BYD, which is a renowned and established player in the EV space and the company's established track record in the polymer insulators segment. The ratings are, however, constrained by its high working capital intensity, as reflected in high NWC/OI of 77% as on March 31, 2021, primarily owing to high debtor days due to delays in receiving payments from Evey Trans Private Limited (Evey) for the buses supplied. However, ICRA notes that the receivables reduced significantly in November 2021 with receipt of most of the payments from Evey. The working capital requirements for the e-bus division are anticipated to increase, given the sizeable ramp-up expected in the near term. However, the likely advances from Evey towards supply of buses would support the funding of working capital requirements. Further, ICRA notes that OGL's bus division operations are dependent on technology support from BYD and faces stiff competition from players such as Tata motors Limited (TML), Ashok Leyland Ltd, Foton PMI, and JBM Solaris, etc. The ratings also consider the exposure of its insulators division's profitability to fluctuation in raw material prices as seen in the past, given the fixed-price nature of the insulator orders.