Quality Engineering & Software Technologies Private Limited
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Quality Engineering & Software Technologies Private Limited Instruments Amounts Rating Action (Rs. Crore1) March 2016 Fund based (sub-limit) facilities (5.00) [ICRA]A+ (Stable) / Reaffirmed Fund based facilities 30.00 [ICRA]A1+ / Reaffirmed Non-fund based facilities 1.00 [ICRA]A1+ / Reaffirmed ICRA has reaffirmed the long-term rating outstanding on the Rs.5.00 crore fund based (sub-limit) facilities of Quality Engineering & Software Technologies Private Limited (“QESTPL” / “the company”) at [ICRA]A+ (pronounced as ICRA A plus)2. The outlook on the long term rating is stable. ICRA has also re-affirmed the [ICRA]A1+ (pronounced ICRA A one plus) rating outstanding on the Rs.30.00 crore fund based facilities and the Rs.1.00 crore non-fund based facilities of QESTPL. In arriving at the ratings, ICRA has considered the consolidated view of QuEST Global Pte Ltd, Singapore and its subsidiaries (including QESTPL) given the strong operational and financial inter-linkages between the entities in the QuEST Group (“the Group”) The re-affirmation of ratings factors QuEST Group’s sustained business scale up, its long standing presence in the engineering services outsourcing (ESO) industry, strong promoter background and its experienced management team. By virtue of its regular inorganic investments over the last few years, the Group has acquired capabilities in verticals such as transportation, medical devices and oil & gas which has aided in enriching its overall service offering and diversifying its business mix. The ratings continue to factor the Group’s established and long-term relationships with its clients providing revenue stability and the overall positive outlook for the Indian ESO industry which is expected to support future business growth. ICRA also takes note of the change in QuEST Group’s shareholding during 2015-16 whereby the Group provided an exit to the private equity (PE) major Warburg Pincus by way of facilitating a strategic sale to current investors - Bain Capital, GIC and Advent Capital with a combined shareholding of 34.5% stake. The ratings continue to factor the Group’s financial profile characterized by healthy margins, comfortable capital structure and liquidity profile. While the debt funded acquisition during 2014-15 impacted the Group’s credit metrics, the same have improved during the current fiscal with scheduled repayment of debt and healthy operating accruals. As per provisional financial statements, the Group’s gearing and Total Debt / OPBDITA3 stood at 1.0x and 2.0x as on December 31, 2015 respectively (down from 1.4x and 3.2x as on March 31, 2015 respectively). The ratings continue to take into account moderate scale of the Group’s operations in an industry characterized by growing competition, integration related challenges arising out of multiple acquisitions and vulnerability of its margins to wage inflation and foreign currency fluctuations. This is however mitigated to an extent by the Group’s active hedging mechanism. In line with its strategy to enhance the scale of operations, the Group intends to grow its ESO business organically as well as inorganically. While ICRA expects the Group to finance its inorganic investments in a manner that protects its credit profile, the impact of such investments would be evaluated by ICRA on a case-by-case basis and would continue to be key rating monitorable. Company Profile QESTPL, promoted in 1998 by Mr. Ajit Prabhu and Mr. Arvind Melligeri, is primarily engaged in ESO, viz., engineering consulting services in design, modeling, simulation and custom software development. The Company forms part of the QuEST Group with QuEST Global Services Pte Ltd, Singapore being the holding company for various entities operating across geographies. QESTPL remains one of the key revenue- generating entities for the Group by contributing about 8% to the consolidated revenues for 2014-15. During 2010-11, the Group witnessed PE infusion with Warburg Pincus acquiring 20.6% stake in the services vertical (QuEST Global Services Pte Ltd, Singapore). This was further increased to 26.6% during 2012-13 through stake acquisition from promoters. Subsequently during 2015-16, the Group has provided an exit to Warburg 1 100 lakhs = 1 crore = 10 millions 2 For complete rating scale and definitions, please refer ICRA’s website (www.icra.in) or other ICRA Rating Publications 3 Operating Profit before Depreciation, Interest, Tax and Amortization Pincus by way of facilitating strategic sale current investors - Bain Capital, GIC and Advent Capital with a combined shareholding of 34.5% stake. Recent Results As per provisional financials, the Group reported net profit of USD 26.4 million on revenues of USD 280.7 million for 9M 2015-16 as against net profit of USD 16.6 million on revenues of USD 211.3 million during the same period previous fiscal. For 2014-15, the Group reported net profit of USD 24.8 million on operating income of USD 300.0 million. March 2016 For further details, please contact: Analyst Contacts: Mr. Subrata Ray (Tel. No. +91 22 6114 3408) [email protected] Relationship Contacts: Mr. Jayanta Chatterjee (Tel. No. +91-80-43326401) [email protected] © Copyright, 2016, ICRA Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents. 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