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.
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