IL&FS Technologies Ltd

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1 Ratings IL&FS Technologies Ltd Facilities Amount (Rs. crore) Ratings1 Remarks Long-term Bank Facilities (Fund-based) 48 (enhanced from 43) CARE A- [Single A Minus] Reaffirmed Long-term Bank Facilities (Non-fund-based) Total Facilities 162 (enhanced from 117) 210 (Rupees Two hundred and ten crore only) CARE A- [Single A Minus] Reaffirmed Rating Rationale The rating assigned to the bank facilities of IL&FS Technologies Ltd (ITL) continues to take into account its strong parentage being part of the IL&FS group which has presence in diverse sectors of infrastructure value chain, wide range of IT services, strong order book position and favourable business outlook for e-governance segment. These rating strengths are, however, partially offset by the leveraged capital structure, highly competitive industry scenario and exposure to tender driven process risk, increasing operating cycle and dependence on economic conditions of the foreign markets. Going forward, the ability of the company to implement the projects within the timelines as envisaged with effective working capital management and improvement in the capital structure will remain the key rating sensitivities. CARE has taken a consolidated view of ITL and its subsidiaries/joint ventures (JVs) while arriving at this rating. Background ITL is a part of the IL&FS group which holds the majority stake (58.29% as on March 31, 2016) in the company through IL&FS Ltd (rated CARE AAA ). ITL was incorporated on February 9, 1993, and is engaged in complete end-to-end technology solutions offering consulting, software development, systems integration, data digitisation and management service and solutions, performance tuning solutions and IT infrastructure management services to global customers. ITL works closely with various government departments (pan India and globally) to create e-governance infrastructure. ITL, over the years has developed significant expertise in developing and delivering citizen centric IT projects in Public Private Partnership (PPP) mode in both domestic and international markets. Credit Risk Assessment Strong parentage ITL is a part of the IL&FS group which has strong presence in infrastructure value chain that includes power, roads, maritime, education, PPP advisory, water, and waste management & environmental services. IL&FS is one of India s leading infrastructure development and finance companies promoted by the Central Bank of India (CBI), Housing Development Finance Corporation (HDFC) and Unit Trust of India (UTI). IL&FS was established with twin mandates of providing financial services and to develop infrastructure projects under a commercial format. During FY08 (refers to the period April 1 to March 31), the non-group assets (mainly investment banking division) of IL&FS were transferred to its wholly-owned subsidiary IL&FS Financial Services Ltd. (IFIN), whereas IL&FS was transformed to function as a holding company for the group with a focus on investments in and lending to the group companies. IL&FS received certificate of registration as Core Investment Company (CIC-ND-SI) from RBI dated September 11, IFIN has also extended financial support to ITL in form of unsecured loans for the ongoing projects (both operational and under-implementation projects) and working capital. Wide range of IT services Range of IT services and solutions provided by ITL address the technology needs of a variety of business segments including e-governance projects, BFSI, Power & Utilities, Manufacturing, Real Estate, Urban Transportation, Land Records Departments, IT infrastructure security solutions & services, GIS, etc. Whilst continuing with the above, IL&FS, through ITL is looking to provide managed information and communications technology (ICT) services across various infrastructure projects. ITL leverages on the strong expertise of IL&FS group in infrastructure sector (including roads, ports and power sector), advisory and financing of infrastructure projects. ITL s areas of operation includes e-governance services (nationally to state governments and central government departments and internationally in Philippines), Land Management & information system (secure land titles and registration process), Implementation of projects (on lump-sum or transaction fee basis) and system integration and management. ITL derives revenues from four streams viz, Software development (support service including desktop support), Computerisation project development (project implementation phase revenue), Information & processing fee (user fee charged per customer per transaction from the end user for completed projects) and IT & infrastructure implementation (includes setting up civil and IT infrastructure for government entities). 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 Favourable business outlook E-governance is an efficient, cost effective, convenient and transparent way of making the government services available to the citizens. It has gained significant importance in the recent times as it acts as an interface for exchange of information and communication transactions between government-to-customer (G2C), government-to-business (G2B), and governmentto-government (G2G). The National e-governance Plan (NeGP) is an initiative adopted by the government of India to enable the citizens to get an access to all government services through electronic media. Thus there is immense potential for the companies like ITL to offer their specialised services in this domain. Strong order book position ITL is executing various e-governance projects in states of Bihar, Madhya Pradesh, Andhra Pradesh, Delhi, Assam, Odisha, Tamil Nadu and other North Eastern states. The consolidated unexecuted order book as on June 30, 2016, stood at around Rs.1107 crore spread across various Indian states and abroad. Besides ITL has completed the computerisation of land registration and allied online transactions for the Land Registration Authority (LRA), government of Philippines and has been generating Information processing fee for the past 3 financial years. ITL through a joint venture company Land Registration Systems (LARES in which ITL has 67% stake) was awarded a contract for the computerisation of LRA under Build Own Operate (BOO) basis for a concession period of 10 years to be executed in five phases. This is the biggest project the company has executed so far. The total cost of the project was approximately Rs.1,400 crore funded in a debt equity ratio of 3.94:1. The Land Titling Computerisation Project (LTCP) covers the development of a System Integrated Information Technology Solution Infrastructure that interconnects LRA s Registries of Deeds (RDs) nationwide, enable on-line transaction processing, and integrate its critical business processes. The phase-i of LARES project is slated to conclude in November 2016 and the proposal for extension of the concession period (and aligning the same with other phases) is underway with the competent authority. The extension of concession period is being sought on account of issues pertaining to delay in site handover which has hindered with the project completion. Highly competitive industry scenario The Infrastructure and Communication Technology (ICT) is a very competitive with presence of numerous well established Indian companies and global IT giants. ITL is present in most of the service offerings in e-governance space which includes renowned and established companies like HCL, Wipro, TCS, KPMG, Deloitte and PWC. Besides above the company also competes with 3i Infotech, Accenture, Capgemini which have dominant position in the advisory services and HP, Microsoft, IBM, Accenture, CMC, Wipro, Sun, Patni Computer, Mastek, which possess expertise in the project implementation. Furthermore, orders are generally tender-driven floated by various government organisations. High competition in the operating space poses a risk of non-receipt of contracts or delay in site hand-over which may have an adverse impact on the revenues and profitability. During FY16, there were substantial projects delayed by the government which resulted in lower than envisaged revenues however the cash accruals have been stable over the past few years. Leveraged capital structure The financial profile of the company is marked by presence of large external debt primarily on account of capital-intensive nature of business that requires upfront investment for BOOT projects. The debt profile of the company comprises term loan with respect to the loans availed in the subsidiaries and under implementation project besides loans taken from related parties. The total debt as on March 31, 2016 stood at Rs.1, crore (as against Rs.1, crore as on March 31, 2015) with an overall gearing at 2.86x (as compared to 2.65x PY). The total debt includes loan extended to another group company to the tune of Rs.351 crore availed from one of the related parties. The adjusted gearing after excluding this loan improves to 2.14x as on March 31, Furthermore, the company has also extended surety/indemnity in favour of a foreign banks (Asia United Bank in Philippine Peso) and Indian NBFC on behalf of its subsidiaries in connection with sanction of a bridge loan and credit facilities sanctioned to the subsidiaries to the tune of Rs crore (Rs crore PY).During FY16, the company has allotted compulsory convertible preference shares to the tune of Rs.75 crore to CISCO systems (USA) Pte. Ltd for initiatives under the smart city projects in future. The company has registered growth of around 17% in FY16 over the previous year which has primarily been driven by IT & Infrastructure implementation segment (grew by 67% in FY16 on y-o-y basis) and Information processing fee segment (grew by 14% in FY16 on a y-o-y basis). The PBILDT margin declined during FY16 on account of direct cost pertaining implementation projects charged to the revenues in comparison with relatively lower income booked for these projects. Furthermore, during FY15 there was reversal of depreciation due to change in method of charging depreciation which resulted in relatively higher PAT than FY16, however the cash profits of the company have remained stable. Dependence on economic conditions of the foreign markets The company derives major part of its revenue from information processing fee from LTCP project which accounted for 55% of the total revenue in FY16. The company has been conferred rights to collect user fee from the end user of the service to recover their cost and profitability from the project over a period of 10 years of concession period. Thus, the dependence on single project exposes the company to the adversities of this country s economic conditions. Although the contribution from other segments has been consistently rising on the other hand while the receivables from the state government in India has been increasing on the other hand. Even though the payment from the government is assured, however the payment takes relatively longer time which has elongated the overall operating cycle from 31 days in FY15 to 54 days in FY16. 2

3 Prospects The Indian IT industry is highly competitive especially the e-governance segment given its significance to the government and future growth prospects. The prospects of the company shall be governed by its ability to identify and procure profitable projects both domestically and internationally, timely completion, effective working capital management and improvement in the capital structure of the company. Financial Performance (Consolidated) (Rs. Cr) For the period ended / as on March 31, (12m, A) (12m, A) (12m, A) Working Results Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity Capital Net-worth Total debt Key Ratios Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total income (%) ROCE (%) Solvency Debt Equity ratio (times) Overall gearing (times) Adjusted Overall gearing (times)* PBILDT/Interest (times) PBIT/Interest (times) Term debt/gross cash accruals (years) Total debt/ Gross cash accruals (years) Liquidity Current ratio(times) Quick ratio(times) Turnover Average collection period (days) Average creditors (days) Average inventory (days) Operating cycle (days) A: Audited * Excluding loan of Rs.351 crore availed from Group Company in FY16 Details of Rated Facilities (Rs.Cr) 1.Non fund based limits S:No. Name of Bank BG* 1 Axis Bank Kotak Mahindra Bank Total *BG=Bank guarantee # fully interchangeable with non-fund based limits 3

4 Analyst Contact Name: Mr Gaurav Dixit Tel: Cell: (This follows our brief rationale for entity published on 02 November, 2016) Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4

5 CONTACT Head Office Mumbai Mr. Amod Khanorkar Mobile: amod.khanorkar@careratings.com Mr. Saikat Roy Mobile: saikat.roy@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Website: REGIONAL OFFICE AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bengaluru Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal SCF No , First Floor, Phase 11, Sector 65, Mohali sajan.goyal@careratings.com Tel: /02 CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: ramesh.bob@careratings.com JAIPUR Mr. Nikhil Soni 304, PashupatiAkshatHeights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: ; Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: ; Tel: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: pratim.banerjee@careratings.com CIN - L67190MH1993PLC

Patel Integrated Logistics Limited

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