Rationale
The revision in the
outlook considers the improved financial performance of International
Combustion (India) Limited (ICIL) in H1 FY2022 and ICRA's expectation that the
trend is likely to sustain going forward. While the performance remained muted
in FY2021, there was considerable improvement in H1 FY2022 with a revenue of Rs
69.59 crore and OPBDITA of Rs 3.18 crore compared with a revenue of Rs 35.84
crore and an operating loss of Rs 4.62 crore, respectively, in H1FY2021.
Consequently, the improved performance supported debt coverage indicators with
an interest coverage and total debt/OPBDITA of around 3.54 times and 1.09 times
(annualised), respectively, in H1 FY2022 compared with -0.57 times and -10.71
times, respectively, in FY2021. However, on an absolute basis, the coverage
continue to be modest. A healthy growth in the order book size to around Rs 100
crore as on October 1, 2021 with new work orders in 9M FY2022 along with a
favourable demand outlook provides revenue visibility. Thus, ICIL is likely to
maintain the improving trend in financial performance. The liquidity position
remained comfortable with cash and liquid investment balance of Rs 14.89 crore
as on September 30, 2021 and adequate cushion in working capital limits. The
ratings continue to factor in the long track record of the company in the
material handling equipment (MHE) and industrial gear/gear drives (gear) segments
and its technological tie-ups with reputed global players, which enhance the
company's competitive position. The capital structure of the company also
remains conservative as reflected in a gearing of 0.16 times as on March 31,
2021. These strengths are, however, offset by the continuing weak performance
of the building material segment, which will continue to exert pressure on the
company's overall profitability and cash flows. Moreover, as a manufacturer of
capital goods, ICIL remains vulnerable to the cyclicality of the end-user
industries, particularly steel, which contributes a significant portion to its
sales. ICRA further notes that most of ICIL's contracts have fixed prices.
Hence, any adverse movement in raw material prices is likely to negatively
impact its profitability. The company faces intense competition from the
unorganised segment and large organised players, which is likely to keep its
margins under check. The Stable outlook on the [ICRA]BB+ rating reflects ICRA's
opinion that ICIL's financial performance is likely to improve going forward,
backed by the strong demand prospects of the user industries.
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