ICRA has re-affirmed the AA- rating outstanding on the Rs 450 million fund based facilities of Tata Elxsi (TEL). The outlook on the long term rating is stable. ICRA has also re-affirmed the A1+ rating outstanding on the Rs 100 million non-fund based facilities of TEL.
The re-affirmation of the ratings continues to factor TEL's established market position in the engineering services industry, the company's strong financial profile and its sustained revenue growth momentum over the last few years. During 2013-14, the company reported revenue growth of 24.7% even as the operating margins witnessed a rebound supported by cost rationalization and resource realignment measures undertaken by TEL resulting in higher employee utilization levels.
TEL's revenues continue to remain fairly diversified across business divisions, industry verticals and customers thereby providing stability to an extent. The ratings continue to derive comfort from the company's strong parentage with Tata Sons (rated AAA / Stable/A1+) holding ~45 %stake in TEL and its experienced and professional management set up.
The company's financial profile remains strong as reflected by healthy margins, robust capital structure and sound debt protection metrics. With cash and liquid investment balances of Rs 515 million as on Mar. 31, 2014 and unutilized bank credit lines, the company's liquidity profile remains comfortable. While the long term demand outlook for outsourced engineering and R&D services from India continues to remain positive, the growth is expected to be constrained to an extent owing to competitive nature of the industry and remains susceptible to macro-economic conditions in the key target markets.
The ratings also take into account sustained losses of its visual computing labs division, limited revenue visibility given relatively short term nature of the projects and vulnerability of the company's margins to wage inflation and unfavorable foreign exchange movements.
Shares of the company gained Rs 33.75, or 6.05%, to settle at Rs 591.30. The total volume of shares traded was 691,272 at the BSE (Thursday).
