Rationale

 The revision in outlook on the long-term rating of Onward Technologies Limited (OTL or the company) reflects the expected improvement in credit profile in the medium term, supported by its comfortable liquidity position, minimal debt on its books and future growth prospects fuelled by the recent round of investments from Convergent Finance LLP. The rating reaffirmation continues to factor in the extensive experience of the promoters of OTL, spanning over three decades in the IT industry. Such an established track record has helped OTL in maintaining well-established relationships with its reputed clientele over the years. Furthermore, OTL's revenue mix exhibits geographical diversification, with presence in both domestic as well as overseas markets. The company is present in the US, the UK and Germany, and has recently launched two subsidiaries in the Netherlands and Canada. Such geographic expansion is expected to reflect positively in OTL's order book. The ratings, however, continue to remain constrained by the modest scale of operations and moderate level of profitability exhibited by OTL over the years. However, its recent phase of expansion along with enhanced focus on high-margin service offerings are expected to expand its revenue base and profitability metrics to an extent. The company faces intense competition in the engineering research and development (ER&D) space by much larger peers and, therefore, remains exposed to constraints on its pricing flexibility to an extent. The company also remains inherently exposed to currency movement risk with its presence in overseas markets. Any adverse movement in forex could, therefore, affect its profitability, although the presence of a hedging mechanism provides some cushion against extreme volatility in forex movement.