Rationale

ICRA has upgraded the ratings of Nuevosol Energy Private Limited (NEPL) and removed it from the Issuer Not-Cooperating (INC) category owing to NEPL’s cooperation in concluding the rating exercise. The ratings factor in NEPL’s extensive experience in manufacturing precision components and its established customer relationships that support repeat business. The ratings also factor in a healthy capital structure and comfortable debt metrics, reflected in a gearing of 0.1x (PY: 0.1x) and TOL/TNW of 0.4x (PY: 0.5x) as on March 31, 2025, and total debt/OPBDITA at 0.4x (PY: 0.3x) and interest coverage at 14.6x (PY: 27.0x) in FY2025. The ratings are constrained by high customer concentration and the company’s moderate and volatile scale of operations. Around 90–99% of the consolidated operating income over the three years ended FY2025 was derived from the top five customers, with more than 50% contributed by the largest customer. The company has high dependence on a limited customer base with a predominantly export‑oriented revenue profile, largely concentrated in the US and Germany. Consequently, any moderation in order inflows from the key customers or geographies has the potential to materially impact the revenues and profitability, as observed in the past. This is evident from the volatility in the company’s operating income, which increased. from Rs. 104.8 crore in FY2021 to Rs. 327.5 crore in FY2023, before declining to Rs. 187.2 crore in FY2025; the revenues are expected to remain range-bound at Rs. 190-200 crore in FY2026. Similarly, the operating margins have been volatile, from peaking at 22.5% in FY2023 to moderating thereafter to 13.4% in FY2025, indicating margin volatility driven by variability in order mix and changing macro- and micro-level conditions. The operating margin has been supported by a higher share of export orders, particularly in the post-Covid period, when the company benefitted from the China+1-related diversification trends. Also, NEPL’s profitability remains susceptible to foreign exchange fluctuation risk, given the sizeable share of export revenues and the absence of a formal hedging mechanism. Further, as the company’s sales orders are largely fixed price in nature, the operating margins are exposed to the volatility in raw material prices, which could adversely impact the profitability in case of any adverse movement in input costs. However, this risk is partially mitigated by the company’s practice of undertaking order-backed procurement for majority of its export sales, along with a periodic (monthly) reset of selling prices for export orders. ICRA notes the company’s ongoing efforts to diversify into the domestic market; however, given the history of significant receivable write-offs between FY2018 and FY2022, the ability to scale up the domestic business on a sustained basis, despite the adoption of improved collection safeguards, remains to be seen. The Stable outlook reflects ICRA’s opinion that the company will be able to sustain its operating performance and maintain comfortable debt protection metrics.