Electromech Material Handling System (India) Private Limited

February 08, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Fund based-Term loan 40.00 20.00 [ICRA]BBB (Stable); Reaffirmed
Fund based- Working Capital Facilities 30.00 40.00 [ICRA]BBB (Stable); Reaffirmed
Fund based-Unallocated 5.00 5.00 [ICRA]BBB (Stable); Reaffirmed
Fund based- Interchangeable^ (30.00) (40.00) [ICRA]A3+; Reaffirmed
Non-fund based- Letter of
50.00 60.00 [ICRA]A3+; Reaffirmed
Credit/Bank Guarantee
Total 125.00 125.00
* Instrument details mentioned in Annexure-1; ^ sublimit of working capital facility

Rating action
ICRA has reaffirmed a long-term rating of [ICRA]BBB (pronounced ICRA triple B) to the Rs. 65.00-crore fund-based
facilities of Electromech Material Handling Systems (India) Private Limited (EMHS or the company). ICRA has also
reaffirmed the short-term rating of [ICRA]A3+ (pronounced ICRA A three plus) to the Rs. 60.00-crore1 non-fund-based
facilities and 40.00-crore fund-based interchangeable facility of the company. The outlook on the long-term rating is
‘Stable’.

Rationale
The reaffirmed ratings continue to derive comfort from the promoter’s experience, established presence of EMHS in the
domestic overhead travelling crane manufacturing industry, technology tie-ups with reputed global players and the
reputed and diversified customer profile from automotive, infrastructure, steel and engineering industries. The ratings
also factor in the current order book position which stands at ~2.24 times the revenues for FY2017 largely comprising an
export order which will likely improve the revenue performance over FY2019-2021. The ratings are, however,
constrained by the increase in debt levels and utilisation of cash accruals in business to fund the redemption of the
compulsory convertible debentures (CCDs) (issued to the PE investors) which has impinged liquidity to an extent. While
ICRA notes that the level of external debt has been lower than anticipated levels and the company has been able to part
prepay the loans in FY2018, the impending scheduled repayments are expected to keep the debt protection metrics at
subdued levels in the near term. Nevertheless, the capital structure is moderate with a gearing of 0.6 times as on March
31, 2017 and the reliance on working capital borrowings is kept in check. The ratings also take into consideration the
subdued revenue performance of the company in FY2017 and H1FY2018 due to muted order inflows in domestic as well
as export markets and the intense competition from organized as well as unorganized segments. The same is reflective
of exposure of the company’s revenues to the capital investments in the manufacturing industries and the overall
macroeconomic environment as emphasized by ICRA in the past. Decline in revenue coupled with high operating
leverage impacted profitability performance as reflected in decline in operating profitability in FY2017 though
moderated to an extent in H1FY2018.

1
100 lakh = 1 crore = 10 million

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Increasing the scale of operations with improvement in the profitability indicators without any deterioration in the
working capital cycle or liquidity position will be key rating sensitivities going forward.

Outlook: Stable
ICRA believes EMHS will continue to benefit from the extensive experience of the company in the overhead travelling
crane industry. The outlook may be revised to ‘Positive’ if the company reports strong revenue growth, gains a
meaningful market share and thereby demonstrates a longer performance track record. The outlook may be revised to
‘Negative’ if the company fails to maintain adequate financial flexibility on account of any slowdown in the industry,
pressures on profitability and strain on liquidity position or coverage indicators due to the impending debt repayments.

Key rating drivers

Credit strengths
Established player in the domestic overhead travelling crane industry; technology tie-ups with reputed global players-
EMHS occupies healthy market share in a highly fragmented Indian overhead cranes manufacturing industry. It enjoys
~10% of the organized crane market share. The Indian overhead cranes manufacturing industry is highly fragmented with
around 200 crane manufacturers, and current organized market size at ~1,500 crores. EMHS is an exclusive partner in
India for ABUS Kranesysteme of Germany. EMHS has an agreement with Stahl Crane Systems Gmbh, Germany, to act as
its partner for the ‘Ex range’ of Stahl products for the Indian market. Stahl Crane Systems, established in 1876, is
amongst the leaders in the explosion protection technology for material handling systems.
Diversified customer portfolio dealing with large reputed companies- Gaining support from the technology tie-ups with
reputed global players EMHS has a diversified customer profile with reputed customers. and mainly caters to the
automotive and ancillaries, infrastructure, steel and general engineering industries. Additionally, it gets export orders
from its overseas subsidiary in Dubai (Electromech FZE) which adds to its reputed clientele base. Presently EMHS has
cranes installed in over 50 countries across the world.

Improved order book position, currently at ~2.24 times the revenues for FY2017- The order book of EMHS as on
December 31, 2017 is at ~Rs. 304 crores (Rs.103 crore in December 2016) which is approximately 2.24 times of its
revenues for FY2017. The company has received a large export order from an international client for supply of
conventional cranes executable by FY2021. Typically, orders received by November-December each year provide a
reasonable estimate of sales that would be booked in the fiscal, hence with the current order inflows, the company is
well placed to surpass last year’s revenue performance.

Comfortable capital structure; limited reliance on working capital borrowings - Despite availing a term loan of Rs. 30
crores, which led to an increase in debt levels from Rs. 3.6 crore in FY2016 to Rs. 35.4 crore in FY2017, the capital
structure is moderate as represented by gearing of 0.6x as on March 31, 2017. Further, undrawn working capital limits
provides cushion on the liquidity front.

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Credit challenges
Debt protection metrics to remain at subdued levels in the near term owing to repayments on debt availed for CCD
redemption – The company was almost debt free and maintained healthy capital structure with gearing of 0.04 times as
on March 31, 2016. The networth position of the company improved significantly in the past owing to the infusion of PE
funds of Rs. 40 crores from Motilal Oswal Group in FY2011 and FY2012. The amount had been infused in the form of
CCDs with a low annual coupon rate of 0.001%. During FY2017, the entire CCDs were redeemed. The company has raised
a corporate loan of Rs. 30 crores. for funding the said redemption. This marginally impacted the capital structure with a
gearing increased to 0.6x as on March 31, 2017. However, part conversion of CCDs to equity supported the capital
structure to an extent.

The Debt Service Coverage Ratio (DSCR) has been impacted in FY2018 with increase in debt levels resulting in higher
interest expense and repayment obligations. Also, the company has very limited unencumbered cash balance impacting
the liquidity position.

Decline in revenues in FY2017 due to slowdown where capex plans of capital goods industry were at subdued levels–
After reporting a robust growth in FY2014 and FY2015 on the back of few large orders from steel, shipping and oil & gas
industries, the revenues declined sharply by 20% in FY2016 and by 4% in FY2017 due to challenging macroeconomic
environment and subdued order inflows. The standalone order inflow performance was comparatively better, however
the subsidiary in Dubai which had contributed significantly during FY2015, was impacted due to downward crude oil
prices and resultant impact on order inflows from the Middle East region.

Profitability impacted by fixed overheads at operating level - The company has high fixed overheads structure, which
had impacted margins in FY2017 due to decline in operating income.

Exposed to cyclicality in capital investments by end user industries- Though the company has a diversified customer
base across industries, the performance is susceptible to cyclicality in investments by the end user industries. The
diversification protects the company to some extent from slowdown in demand prospects of any particular industry;
however, the user industries have been going through a phase of slowdown over last two years and hence impacted the
performance of EHMS. Further, more than 50% of EMHS’ revenue comes from large companies where the company is
primarily a price taker, which impacts its bargaining power and thereby margins.

Intense competition from both organized and unorganized players - While overall the Indian crane industry is largely
fragmented and consists of more than 200 players, the unorganized sector (small players) accounts for ~50% of the
revenue market share, with the organized sector constituting the balance ~50%. This creates competition in the market
for bagging orders from the end customer although EMHS enjoys ~10-12% market share of the organized cranes market.
Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology
Construction Equipment Manufacturers

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About the company:
Electromech Material Handling Systems (India) Private Limited (EMHS) was incorporated in May 1996 but started
operations in December 2004. EMHS is involved in the design, manufacturing, installation and servicing of Electric
Overhead Travelling (EOT) Cranes (single girder and double girder), Gantry cranes, Jib cranes, Underslung cranes, wire
rope hoists and customized material handling solutions for material handling for shop floor applications. EMHS has its
manufacturing capacity at Pirangut near Pune and currently has a total installed manufacturing capacity of 1,500 cranes
annually. EMHS setup a 100% subsidiary, Cranedge, in January 2010, which acts as a service agent for EMHS for its
erection and commissioning work as well as provide such services to other players in the industry. The company has also
setup a ~100% subsidiary in Mauritius, which in-turn has setup a wholly-owned subsidiary in Dubai, which acts as a
trading office for EMHS and as a service agent to the foreign customers of EMHS.

In FY2017, the company reported a net profit of Rs.4.1 crore on an operating income of Rs. 135.6 crore, as compared to a
net profit of Rs. 3.4 crore on an operating income of Rs. 141.7 crore in the previous year.

Key Financial Indicators (Audited)

FY2016 FY2017
Operating Income (Rs. crore) 141.7 135.6
PAT (Rs. crore) 3.4 4.1
OPBDIT/ OI (%) 7.5 6.8
RoCE (%) 9.4 8.6

Total Debt/ TNW (times) 0.04 0.6

Total Debt/ OPBDIT (times) 0.3 3.8
Interest coverage (times) 2.8 5.3
NWC/ OI (%) 12 15

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:
Chronology of Rating History for the
Current Rating (FY2018) past 3 years
Date & Date & Date &
Amount Amount Date & Rating in Rating in Rating in
Rated Outstanding Rating FY2017 FY2016 FY2015
Instrument Type (Rs. crore) (Rs. Crore) Feb 2018 Dec 2016 Oct 2015 April 2015
[ICRA]BBB [ICRA]BBB [ICRA]BBB+ [ICRA]BBB+
Fund based-Term Long
1 20.00 19.00 (Stable) (Stable) (Stable) (Stable)
loan Term
[ICRA]BBB [ICRA]BBB [ICRA]BBB+ [ICRA]BBB+
Fund based- Long
2 40.00 - (Stable) (Stable) (Stable) (Stable)
Working Capital term
[ICRA]BBB [ICRA]BBB [ICRA]BBB+ [ICRA]BBB+
Fund based- Long
3 5.00 - (Stable) (Stable) (Stable) (Stable)
Unallocated Term
Fund based- Short
4 (40.00) - [ICRA]A3+ [ICRA]A3+ [ICRA]A2 [ICRA]A2
Interchangeable^ Term
Non-fund based-
Letter of Short
5 60.00 - [ICRA]A3+ [ICRA]A3+ [ICRA]A2 [ICRA]A2
Credit/Bank Term
Guarantee
^ Sublimit of working capital facility

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Amount
Date of Rated
Issuance/ Coupon Maturity Current Rating and
ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook

Fund based-Term [ICRA]BBB (Stable)

NA Dec-2016 11.50% Dec-2021 20.00
loan
Fund based- Working [ICRA]BBB (Stable)
NA - - - 40.00
Capital
Fund based- [ICRA]BBB (Stable)
NA - - - 5.00
Unallocated
Fund based-
NA - - - (40.00) [ICRA]A3+
Interchangeable
Non-fund based-
NA Letter of Credit/Bank - - - 60.00 [ICRA]A3+
Guarantee
^ Sublimit of working capital facility
Source: Electromech Material Handling Systems (India) Private Limited

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ANALYST CONTACTS
K. Ravichandran Suprio Banerjee
+044-4596 4301 +022-6114 3443
[email protected] [email protected]

Preeti Kumaran Kunal Dhatingan

+022- 6169 3356 +020- 6606 9924
[email protected] [email protected]

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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