October 19, 2020

Mamta Transformers P Ltd: [ICRA]B+(Stable)/[ICRA]A4; ratings assigned

Summary of rating action

Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Long term - Fund based - Overdraft Limits 5.00 [ICRA]B+ (Stable); assigned
Short term - Non fund based- Bank Guarantees 6.00 [ICRA]A4; assigned
Short term - Unallocated Limits 5.00 [ICRA]A4; assigned
Total 16.00

Rationale
The assigned ratings favourably factor in the extensive experience of Mamta Transformers P. Ltd.’s (MTPL) promoters in
the power and distribution transformer manufacturing industry. The ratings also derive strength from the company’s
established relationship with customers.

The ratings, however, are constrained by the high client- and geographical-concentration risk to which MTPL is exposed.
The company’s relatively smaller scale of operations and intense competition in the industry also impact the ratings. The
moderation in the company’s order book position on account of weak order inflows in FY2019 and FY2020, which has
resulted in a decline in revenues, is another credit challenge. The ratings are also constrained by the company’s
moderate financial profile, characterised by high utilisation of working capital limits, moderate gearing, profitability
indicators and debt coverage indicators. The ratings also take into consideration MTPL’s high working capital intensity, as
payments from customers are prolonged and the company has a high inventory position.

The Stable outlook on the [ICRA]B+ rating reflects ICRA’s opinion that the company will continue to benefit from its long
track record in the transformer manufacturing industry. Its experienced management and established relationship with
customers are other credit strengths.

Key rating drivers and their description

Credit strengths
Experienced promoters with established track record in transformer manufacturing industry – MTPL was incorporated
in 1997 and has a successful operational track record in the power and distribution transformers manufacturing
business. The promoters—Mr. Vineet Ora and Mr. R.L. Ora—have more than three decades of experience in the
transformer manufacturing industry. Also, MTPL has adequate regional presence in Madhya Pradesh and Tamil Nadu.

Long association with customers – MTPL’s proven operational track record in the transformers industry has enabled it to
build established relationship with its clients and secure repeat orders from the same through competitive bidding.

Credit challenges
High client- and geographical-concentration risk – MTPL has high client-concentration risk as most of the revenues in
the past came from two state power distribution utilities which accounted for 94%, 90% and 79% of overall revenues in
FY2018, FY2019 and FY2020, respectively. However, its long-term association with these entities provides comfort.
Furthermore, most of the orders executed in the past were concentrated in Madhya Pradesh and Tamil Nadu, resulting
in high geographical-concentration risk.

1
Small scale of operations restricts competitive position – MTPL is a small-sized manufacturer of power transmission
and distribution transformers. The company reported an operating income (OI) of ~Rs. 16.06 crore (audited) and ~Rs.
12.17 crore (provisional) in FY2019 and FY2020, respectively. Its existing scale of operations remains smaller than the
big-sized players in the transformers manufacturing industry. This constrains its ability to benefit from economies of
scale and weighs on its competitive position vis-à-vis the large-sized entities. Further, a small scale exposes the company
to the risk of a business downturn. Hence, its ability to absorb a temporary disruption and leverage fixed costs remains
to be seen.

Moderation of order book position – The order book position of the company has moderated on account of the muted
order inflow in FY2019 and FY2020, which has resulted in a decline in revenues.

Moderate financial profile – The company’s financial profile remains moderate characterised by high utilisation of
working capital limits, moderate gearing, profitability indicators and debt coverage indicators. Its operations continue to
be working capital intensive, resulting in stretched liquidity profile as reflected in the consistently high utilisation of
sanctioned limits.

Intense competition – There is an overcapacity in the domestic fragmented transformer industry with installed capacity
exceeding the required level, leading to stiff competition and limiting the pricing flexibility of most players in this
segment, thereby putting pressure on the revenues and margins.

High working capital intensity – The company’s working capital cycle remains high due to an elongated receivable cycle
due to slow payment realisation from state discoms. State power distribution utilities have longer payment periods due
to varying inspection, approval timelines and moderate financial health. Also, it has a long operating cycle and needs to
maintain a high inventory to meet orders in a timely manner, which further results in high working capital intensity.
However, it gets a high credit period from its suppliers, which provides comfort to the working capital position to a
certain extent. The company’s NWC/OI stood at 61% in FY2020 against 48% in FY2019.

Liquidity position: Stretched

The company’s liquidity position is stretched. The company had unencumbered cash and bank balance of ~Rs. 0.04
crore as of March 2020 (as per the management) and the fund-based limit utilisation averaged at 93% in FY2020.
Further, MTPL has availed moratorium on the interest part on fund based facilities (for the period March to August
2020) from its lender as a part of the Covid-19 Regulatory Package announced by the Reserve Bank of India (RBI). This
has supported the company’s liquidity to a certain extent. With its business expected to chart a moderate growth
trajectory with thin net profitability metrics, high working capital requirements and moderate annual term debt
repayments in the medium term, its liquidity is estimated to remain stretched.

Further, the current scenario due to the novel coronavirus (Covid-19) pandemic (which may lead to a stuck order book
position, disruptions in payments from the state discoms and further elongation of the receivables cycle) could exert
additional pressure on the liquidity position.

Rating sensitivities
Positive triggers – ICRA could upgrade the above long-term rating if the company demonstrates a healthy and
sustained improvement in its scale and profitability, with improvement in the liquidity position. Moreover, interest
coverage ratio greater than 2.0 times on a sustained basis may trigger a rating upgrade.

2
Negative triggers – Significant decline in OI or operating profitability could exert negative pressure on the company's
rating. Further, stretch in the working capital cycle or absence of timely financial support from the promoters to fulfil
the debt obligations (if needed) could exert negative pressure on the rating.

Analytical approach
Analytical Approach Comments
Applicable Rating Methodologies Corporate Credit Rating Methodology
Parent/Group Support Not applicable
Consolidation/Standalone The rating is based on standalone financial profile of the company

About the company

MTPL was established in 1997 as a private limited company. It manufactures distribution and power transformers from
10KVA to 5MVA capacity for state power utilities and industrial consumers. MTPL’s manufacturing unit is located at
Indore, Madhya Pradesh and has been awarded the ISO 9001:2008 certificate from TNV Certification Private Limited on
quality, infrastructure and the entire manufacturing process. The company’s activities have been focused in Madhya
Pradesh (MP) and Tamil Nadu.

Key financial indicators

FY2019 FY2020
Audited Provisional
Operating Income (Rs. crore) 16.06 12.17
PAT (Rs. crore) 0.17 0.26
OPBDIT/OI (%) 9.19% 12.41%
PAT/OI (%) 1.03% 2.10%

Total Outside Liabilities/Tangible Net

5.14 4.84
Worth (times)
Total Debt/OPBDIT (times) 4.56 4.05
Interest Coverage (times) 1.33 1.30

Status of non-cooperation with previous CRA:

CRA Status Date of Release
CRISIL CRISIL B/Stable/A4 (ISSUER NOT May 15, 2020
COOPERATING)
ACUITE ACUITE B+/Stable/A4 September 27, 2019

Any other information: None

3
Rating history for past three years
Current Rating (FY2021) Rating History for the Past 3 Years
Instrument Rating FY2016 FY2014
Type Amount Rated Amount Outstanding
19-October-2020 15-April-2015 30-December-2013
Fund based –
1 Long Term 5.00 4.84* [ICRA]B+ (Stable) [ICRA]B; Suspended [ICRA]B
Overdraft
Non fund based - Short
2 6.00 - [ICRA]A4 - -
Bank Guarantees Term
Short
3 Unallocated 5.00 - [ICRA]A4 - -
Term
Amount in Rs. Crore
* As on March 31, 2020 (based of MTPL’s provisional financials for FY2020)

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 click here

4
 Annexure-1: Instrument details
Date of Amount
ISI Coupon Maturity Current Rating and
Instrument Name Issuance / Rated
N Rate Date Outlook
Sanction (Rs. crore)
Long term - Fund based - Overdraft
NA - - - 5.00 [ICRA]B+ (Stable)
Limits
Short term - Non fund based- Bank [ICRA]A4
NA - - - 6.00
Guarantees
[ICRA]A4
NA Short term - Unallocated Limits - - - 5.00
Source: MTPL

Annexure-2: List of entities considered for consolidated analysis: Not applicable

5
Analyst Contacts
K Ravichandran Manish Ballabh
+91 44 45964301 +91 124 4545 812
ravichandran@icraindia.com manish.ballabh@icraindia.com

Vipin Jindal Hemant Dahiya

+91 124 4545 355 +91 124 4545 365
vipin.jindal@icraindia.com hemant.dahiya@icraindia.com

Relationship Contact
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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

6
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in

Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87

Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294,
Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008,
Bangalore + (91 80) 2559 7401/4049
Ahmedabad+ (91 79) 2658 4924/5049/2008
Hyderabad + (91 40) 2373 5061/7251
Pune + (91 20) 2556 0194/ 6606 9999

© Copyright, 2020 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer
concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA
office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to
be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it.
While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any
kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained
herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication
or its contents