Rationale

 The upgrade in ratings takes into account the continuous healthy financial performance of the company characterised by operating margins of 29.5% in FY2021, comfortable capital structure with gearing of 0.3 times as on March 31, 2021 and strong coverage indicators with Total Debt/OPBIDTA of 0.9 times as on March 31, 2021 and interest cover of 30.8 times in FY2021 on the back of low debt and healthy profitability. Going forward, the company is expected to maintain the healthy financial risk profile supported by healthy operating margins and low debt levels. The ratings also take comfort from extensive experience of the promoter in the information technology industry and Emudhra Limited's (Emudhra) established track record of operations and strong market position as a leading licensed certifying authority for issuing digital signature certificate (DSC) in India, supported by its wide sales and distribution network across the country. The ratings are also supported by its diversified customer base in the DSC segment given it is largely retail in nature and established relationship with reputed customer base and strong order book in the enterprise solutions segment. Further, the company has invested a total amount of ~Rs. 30.3 crore in its overseas subsidiaries to increase its market share in the foreign market and the performance of the subsidiaries will remain a key rating monitorable. The ratings, however, are constrained by Emudhra's moderate scale of operations as reflected in its top line of ~Rs 131 crore in FY2021 (even though the operating income achieved a growth of 13% in FY2021 from Rs. 116.4 crore in FY2021). The company is expected to achieve a healthy revenue growth in FY2022 on the back of improved average sales realisation of DSC and increase in sales of enterprise solution in the export market. The business is susceptible to changes in the regulatory framework, with respect to applicability of DSC and any changes in the guidelines by the Controller of Certifying Authorities (CCA), the regulatory body for certifying authorities in India. The company remains exposed to technology obsolescence risks, cyber security and data management risks given the nature of business. The company also faces stiff competition in the DSC segment, despite its strong market share, from other licensed certifying authorities leading to pricing pressures. Further, Emudhra faces competition from established players based out of U.S. and Europe in the international market for the enterprise solutions segment. However, Emudhra's enterprise solution has cost advantage over its competition supported by low payroll cost incurred in India. The Stable outlook on the long-term rating reflects ICRA's expectation that Emudhra will continue to benefit from its established market position in the digital authentication market and enterprise solution segment coupled with healthy financial profile maintained by the company.