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Rationale
The ratings favourably factors in the established position
of IHEL as an engineering, procurement and construction (EPC) company and a
fabricator for equipment/machinery in the capital goods sector, aided by its
long-term technical tie-ups/alliances with several recognised global heavy
engineering companies as well as its in-house design and manufacturing
capability. This apart, the rating reaffirmation factors in the strong
diversification of the company's revenue stream across a number of end user
industries, geographies and clients. The market position is further supported
by a healthy capital goods manufacturing and EPC order book (Rs. 6872 crore as
on September 30, 2019) which lends healthy revenue visibility in the medium
term. Steady execution pace across expanded order book resulted in strong
revenue growth over FY2019 and 9MFY2020 (37% and 24% respectively) which along
with healthy profitability, led to strong cash accruals. Moreover, limited
reliance on debt and absence of long term loans has kept IHEL's debt coverage
metrics strong (Interest coverage of 5.7 times, DSCR of 3.5 times, NCA/Total
Debt of 71% for FY2019). Although the recent acquisition of CBPI Philippines1
(that carries $ 34.7 mn debt on its books) is expected to moderate IHEL's
coverage metrics in the medium term, ICRA notes that the company currently has
moratorium till January 2022 for the associated debt servicing obligations and
plans to liquidate these assets. IHEL's liquidity position continues to be
healthy marked by sizeable undrawn limits and free cash balances, even as there
has been a decline in cash balances and marketable investments over the past
two years with growing working capital requirements. IHEL's exposure to price
risks remains modest as it enters into back-toback arrangements with vendors
for majority of its material and the fact that many of its new orders have
in-built price escalation for key inputs. Further, policy of fully hedging its
forex exposures also mitigates currency fluctuation risks to a large extent.
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