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.
|