Rationale

 The reaffirmation of the ratings factors in Indotech Transformers Limited’s (ITL) healthy financial risk profile, characterised by sustained healthy revenue growth, improved profit margins and comfortable debt coverage indicators. The ratings also factor in the order book position of ~Rs. 700 crore as of June 2024 to be executed by March 2025-end, which provides near-term revenue visibility. The company’s revenues are expected to grow at a healthy rate in FY2025, given its order book position and a robust order inflow expected in the current fiscal on the back of strong demand from renewables. The operating margins are also expected to remain healthy at ~14% plus, aided by scale benefit. Further, the ratings derive comfort from the extensive experience of the promoter group, Shirdi Sai Electricals Limited (SSEL; rated [ICRA]BBB- (Stable)/[ICRA]A3), and ITL’s proven operational track record in the transformer industry spanning nearly three decades. However, the ratings are constrained by high customer concentration risk with the top 10 customers accounting for 62% of the total sales in FY2024. Nonetheless, the counterparty risk remains low owing to its reputed clientele. Further, ITL operates in the transformer industry, which is highly fragmented and competitive, resulting in pricing pressures to some extent. The ratings also consider the high working capital intensity of operations and the susceptibility of profitability to the volatility in raw material prices. However, ICRA notes that ~50% of the order mix includes a price variation clause, which mitigates the risk to some extent. The Stable outlook on the rating reflects ICRA’s expectation that ITL will continue to maintain its credit profile, backed by expected sustained revenue growth, and comfortable debt coverage indicators and liquidity position.