Centum Electronics Achieves Major Credit Rating Upgrade: A Testament to Strong Performance and Future Growth

In a significant validation of its robust financial health and promising growth trajectory, Centum Electronics Ltd. has seen its credit ratings upgraded by CARE Ratings. This decisive move underscores the company's strong performance, healthy order book, and strategic positioning in critical sectors.

The prestigious upgrade now places Centum Electronics' long-term bank facilities and Non-Convertible Debentures (NCDs) at 'CARE BBB' from the previous 'CARE BBB-'.

Simultaneously, its short-term bank facilities have been elevated to 'CARE A3+' from 'CARE A3'. Crucially, the outlook for these ratings has been maintained as 'Positive', signaling CARE's confidence in the company's continued improvement in its business and financial risk profiles.

So, what's fueling this optimistic assessment? CARE Ratings highlighted several key strengths underpinning the upgrade.

Firstly, Centum boasts a remarkably healthy order book, standing at an impressive Rs 1,466 crore as of December 31, 2023. This substantial backlog provides revenue visibility for approximately 2.37 years, a strong indicator of sustained future performance.

Secondly, the company has demonstrated significantly improved profitability.

Driven by better absorption of fixed costs and a strategic shift towards higher-margin projects, Centum reported a robust Profit After Tax (PAT) of Rs 15.6 crore in Q3 FY24, a notable jump from Rs 4.4 crore in the corresponding quarter last year. For the first nine months of FY24, PAT surged to Rs 30.6 crore from Rs 7.9 crore in 9M FY23, showcasing a strong upward trend.

Furthermore, Centum Electronics maintains a comfortable liquidity position, evidenced by a cash flow from operations (CFO) of Rs 64.9 crore in 9M FY24 and an unencumbered cash balance of Rs 17.6 crore as of December 31, 2023.

This solid financial footing provides the necessary flexibility for operations and future investments.

The rating agency also acknowledged the strong support from Centum's experienced promoters and the strategic equity infusion from private equity investors. Coupled with an established track record spanning over three decades in the design, development, and manufacturing of advanced electronics, this leadership stability and expertise are invaluable assets.

Adding another layer of resilience is Centum's diversified revenue stream.

The company's reach extends across critical sectors including Space, Defence, Medical, Industrial, and Transportation. Its strong presence and growing demand from key clients like ISRO, DRDO, BEL, HAL, L&T, and Godrej Aerospace, particularly in the Space and Defence segments, insulate it from sectoral downturns and position it for long-term growth.

While the outlook is overwhelmingly positive, CARE Ratings did note certain inherent challenges, including the working capital intensive nature of operations, project execution risks given the R&D-intensive and long-gestation period of projects, and intense competition from both domestic and international players.

However, these factors are carefully weighed against the company's significant strengths and proactive management.

The 'Positive' outlook on Centum Electronics' ratings truly encapsulates CARE's belief that the company is poised for further enhancements in its business and financial risk profiles.

With a healthy order book and proven execution capabilities, Centum Electronics appears well-positioned to capitalize on emerging opportunities and continue its impressive growth trajectory in the advanced electronics sector.