Rationale

 The revision in the outlook to Stable from Positive factors in the impact of the fire outbreak at GEL’s facility which has caused sizeable damage to the tune of Rs. 127 crore in the form of inventory and fixed asset loss, which although has been insured but the company has not received any proceeds from the insurance claims so far. The insurance claim receipt remains a key monitorable as the amount remains sizeable vis-à-vis the net worth of the company. After the fire incident, the company was able to resume production in a short time by utilizing the underutilized spaces and outsourcing some part of the production. ICRA also notes that GEL received support from its customers, both in terms of continuation of the order inflow as well as funding of the damaged inventory which aided the liquidity profile of the company. The reaffirmation of the ratings continue to factor in the expectations of steady growth in the company’s turnover driven by favorable demand prospects in the LED TV and IFPD segments and addition of new products and customers. Further, the Company is having backward integrated manufacturing facility, with established execution capabilities and business relationship with consumer durable and electronic appliance manufacturers. Also, the Company has the flexibility to manufacture a wide range ot appliances. Moreover, in the last few years, increased import duties on smartphones, TV sets, microwaves, LED lamps and some other electronics products have benefited domestic manufacturers to an extent, supporting GEL’s revenue growth. While the margins are likely to continue in the similar ranges, the moderation in working capital intensity primarily driven by the lower working capital intensity in the major revenue contributor segments – LED TV and IFPD is likely to keep the working capital borrowings under check. The repayment of the existing debt, along with steady working capital cycle coupled with comfortable cash flow generation is likely to result in steady moderation in the outstanding debt thereby leading to improvement in the leverage and coverage metrics going forward. However, if the company will be required to fund the damaged inventory through debt, the leverage and coverage metrics can witness moderation. The ratings are, however, constrained by competitive intensity led by manufacturing done by OEMs themselves along with larger contract manufacturers, which keep the margins under check. The ratings also factor in the high customer concentration risk, given a large portion of the revenues is derived from top customers. ICRA also notes that while major proportion of the revenue is derived from cost plus model where in the raw material and forex fluctuations can be passed on to the end customers, a portion of revenues remains vulnerable to adverse movement in the forex rates and raw material prices. The Stable outlook on GEL’s rating reflects ICRA’s opinion that the company will continue to benefit from its established track record in the consumer durable and electronic appliance sector which will result in steady cash flow generation keeping the credit profile comfortable.