Rationale

The rating assigned to Raj Cooling Systems Private Limited (RCSPL) considers its established position in the industrial air cooler segment and the extensive experience of its promoters in the industry, which has enabled the company to maintain strong revenue growth in the last 18-24 months. These strengths, along with new product additions have enabled the company to scale-up its operating income (OI) to around Rs. 178.5 crore in FY2025, reflecting a healthy compounded annual growth rate (CAGR) of about 103% over the past five years. However, the operating profit margin (OPM) moderated but remained comfortable at 14.5% in FY2025 compared to16.4% in FY2024, primarily due to an increase in raw material prices and higher marketing expenses. ICRA notes that the company’s capacity additions in FY2025 and FY2026, for both existing and new models, are expected to support revenue growth and earnings over the medium term. The rating also draws comfort from RCSPL’s comfortable capital structure, as reflected in Total Debt/TNW of 0.6 times and TOL/TNW of 1.3 times as on March 31, 2025. Further, given the steady earnings, its debt protection metrics remained adequate, characterised by Total Debt/OPBDITA of around 1.1 times, and interest coverage of 13.5 times in FY2025 The rating is, however, constrained by RCSPL’s moderate scale of operations relative to larger industry peers, despite strong improvement in the recent years. The company has incurred debt-funded capex during FY2023-FY2026 towards capacity expansion and addition of warehouses. While these debt-funded expansions are likely to improve its revenues and operating profitability over the medium term, the debt protection metrics are expected to be moderate, going forward, given the sizable repayment obligations. Nevertheless, the debt coverage indicators are estimated to remain comfortable in the medium term. Further, the company’s operations remain working capital intensive, with NWC/OI at around 20% in FY2025, driven by high inventory holding requirements and seasonal business operations. Further, RCSPL’s profitability remains susceptible to fluctuations in commodity prices and stiff competition from few organised players and large small players in the air cooling solutions, which could exert pressure on margins. The Stable outlook on the rating reflects ICRA’s opinion that RCSPL’s operational and financial profile would remain comfortable, adequately supported by its reasonable market position in key products and capacity additions. Further, the outlook underlines ICRA’s expectations that the entity's incremental capex, if any, to further increase its capacity, will be funded in a manner that it is able it to durably maintain its debt protection metrics commensurate with the existing ratings.