C&S Electric Limited

Rating History Instrument Rating Outstanding March, 2010 A1+ A1+ LA+ LA+ Previous Ratings September, 2008 A1 A1 LA LA sector (including generation and distribution) and the increase in setting up of industrial units and commercial buildings. CSE has an established strong customer base with several state level utilities, private sector discoms, national level utilities (like the NTPC Limited), equipment manufacturers (like Bharat Heavy Electricals Limited) and several large corporates being its major customers. The company is market leader in Bus bars with over 50% market share. It is the sole domestic player in the BT segment however in LVS segment it is having around 9% -10% market share. The company is exporting its products to nearly 70 countries, which includes country like USA, Canada etc. The products of company are well received in export market. CSE is an approved supplier to several utilities and industries, owing to factors such as cost and quality competitiveness of products, approved facilities and established customer relationships. This has allowed it to capitalize on the strong demand growth for its products, resulting in a substantial growth of around 28% in FY 2009 over FY 2008 in the companys turnover. The companys OI from Rs. 4.34 billion in FY 2008 to Rs. 5.52 billion in FY 2009. The operating margins of the company have remained moderate in the range of 12% to 15% because of competitive pressures. In FY 2009 the operating margins declined slightly from 16.7% in FY 2008 to

Rs. 2000.00 million Non fund based limits Rs. 150.00 million of Commercial Paper Rs. 1300.00 million Fund Based Limits Rs. 350.00 million Term Loans ICRA has upgraded the long term rating+ from LA (pronounced as L A) rating to LA+ (pronounced as L A plus), to the term loan of Rs 350 million term loan (enhanced from Rs. 150 million), Rs. 1300 million fund based limits (enhanced from Rs. 440 million). ICRA has also upgraded the short term rating+ from A 1 (Pronounced A one) to A1+ (Pronounced A one plus) to Rs. 2000 million of non-fund based limits (enhanced from Rs. 860 million) and to Rs. 150 million of short-term debt programme of the company. The long term rating carried stable outlook. The rating upgrade takes into account the significant growth in revenues and profits of the company during FY 2009 and first nine-months of FY 2010 as well as improvement in the capital structure of the company post merger of the control & switchgear contactors Ltd. (only the switchgear operations), erstwhile C & S Protection and Control Limited and erstwhile C&S Lighting & Wiring Accessories Private Limited and equity infusion of Rs. 800 million from a private equity player GE Money. The rating also takes into account CSEs established position in the business segments- low voltage switchgears, control panels and bus ducts/bus trunking- it is operating in. The rating is also supported by the

positive demand outlook for the companys products from the utilities and industries. The rating is, however, constrained by the strong competitive pressures in several of the business segments such as low voltage switchgears, control panels, bus ducts, bus trunking, relays and light & wiring accessories it is operating in and the vulnerability of operations to movements in raw material prices. The ratings also take into account the working capital requirements of the company. Further, there are buyback clauses in the private equity infused and the companys ability to give the investor an exit option by timely IPO will be critical for maintaining the currently healthy capital structure. The companys ability to remain a preferred vendor to industries and utilities by maintaining cost and technical competitiveness and maintain a satisfactory capital structure while funding growth through organic and inorganic expansion will remain key rating drivers. CSE manufactures low voltage switchgears (LVS), control panels (CP), bus ducts (BD), bus trunking (BT), relays and light & wiring accessories. Its products find applications with power utilities (both in generation and distribution), industrials and Commercial /retail buildings. The off take for this companys products has seen a significant growth in recent times, due to increased investment in the power

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14.7% in FY 2009 owing to increased costs. However, higher operating income resulted in an increase in its PAT from Rs. 471.5 million in FY 2008 to Rs. 499.6 million in FY 2009. The working capital requirements as measured by Net working capital/Operating Income increased from 31% in FY 2008 to 35% in FY 2009 mainly due to higher receivables days, however the company has the adequate working capital limits to fund the same. The companys debt levels have remained under control as reflected by gearing level of 0.74 times in FY 2008. Further, the GE moneys Rs. 800 million of equity infusion improved the gearing further to 0.35 times in FY 2009. Increased operating profits coupled with low debt levels have led to adequate coverage indicators with its interest coverage (measured by operating profit before depreciation, interest and tax/ Interest & Finance Charges) at 7.99 and 5.77 times in Key Financial Indicators

FY 2008 and FY 2009 respectively. Its liquidity as measured by unutilized working capital limits too remained comfortable. While ICRA expects CSEs sales volumes to grow, its realisations and margins are likely to see some pressure due to competitive pressures. However, given the current moderate level of gearing without any immediate plans of incurring capex the capital structure should remain satisfactory, with gearing at less than 1 times and coverage indicators adequate. About the company C&S Electric Ltd. (CSE), formerly known as Controls & Switchgear Co. Ltd., a flagship Company of Controls & Switchgear Group was established as a Partnership firm in 1966 by Mr Ravinder Nath Khanna, a first class Engineering Graduate from IIT Kharagpur and his younger brother, Mr Ashok Khanna, also a first class Engineering Graduate from IIT

Madras. It was later converted into a private Company in 1971 and became a public Company in the year, 1988.The Company has recently been restructured by the merger of its erstwhile Group Companies, namely, C&S Protection & Control Ltd., C&S Lighting and Wiring Accessories Pvt. Ltd. and the Switchgear Division of Controls & Switchgear Contactors Ltd. CSE is amongst the leading manufacturers of electrical equipment in India and is Indias largest exporter of industrial switchgear. Its wide range of electrical and electronic products find application in power generation, distribution, control, protection and final consumption. In FY 2009 the company recorded a profit after tax (PAT) of Rs. 499.62 million on an operating income (OI) of Rs. 5.52 billion.

April 2010

Net Sales Operating Income Operating profit before depreciation, interest and tax Profit after Tax Equity capital Net worth Operating profit before depreciation, interest and tax/OI (%) Profit after Tax/Operating Income (%) Operating profit before dep., int. and tax/ Interest & Fin. Charges (Times) Net cash accruals/Total debt (%) Total debt/Net worth (Times) Net working capital/OI (%) Amounts in Rs. million

FY 2008 4261.0 4343.7 725.1 471.5 40.9 1441.6 16.69% 10.85% 7.99 50% 0.74 31%

FY 2009 5441.5 5523.6 811.7 499.6 44.2 2667.0 14.69% 9.05% 5.77 63% 0.35 35%

For further details please contact: Analyst Contacts: Mr. Anjan Ghosh, (Tel. No. +91-22-30470006) aghosh@icraindia.com Relationship Contacts: Mr. Vivek Mathur, (Tel. No. +91-124-4545310) vivek@icraindia.com Copyright, 2010, ICRA Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA
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