Press Release

Modison Limited
January 05, 2024

Facilities/Instruments Amount (₹ crore) Rating1 Rating Action

Long-term bank facilities 60.00 CARE A; Stable Reaffirmed; Outlook revised from Negative
Short-term bank facilities 17.50 CARE A1 Reaffirmed
Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

The reaffirmation of the ratings assigned to the bank facilities of Modison Limited takes into account its experienced promoters,
strong market position in India in manufacturing of electrical contacts and reputed customer as well as supplier base. The rating
further derives strength from stable scale of operations, comfortable capital structure and debt coverage indicators and adequate
liquidity position.
The rating strengths, however, continue to be constrained by long working capital cycle, fluctuating profitability margins and
susceptibility of profitability to fluctuations in prices of its major raw materials and foreign exchange rates.

Rating sensitivities: Factors likely to lead to rating actions

Positive factors
• Improvement in profit before interest, lease rentals, depreciation and tax (PBILDT) margin to more than 15% on a
sustained basis and return on capital employed (ROCE) of 18%.
• Operating cycle of below 90 days on a sustained basis.
Negative factors
• Deterioration in PBILDT margins beyond 7% on a sustained basis.
• Higher-than-envisaged level of debt resulting in deterioration of capital structure to above 0.3x on a sustained basis.

Analytical approach: Standalone

Outlook: Stable
The revision in outlook to ‘Stable’ is on account of improvement in profitability during H1FY24 over H1FY23 while maintaining its
comfortable capital structure and adequate liquidity position. CARE Ratings Limited (CARE Ratings) expects the company to
sustain its financial risk profile in the medium term on back of its established and reputed customer base alongwith its comfortable
capital structure.

Detailed description of the key rating drivers:

Key strengths
Experienced promoters and long track record of operations
Modison Limited was established by G.L. Modi in 1965 as a trading unit. A decade later in 1975, the first manufacturing facility
was set up in Mumbai for refining of silver and exporting it. Furthermore, in 1978, the promoter started manufacturing of electrical
contacts. G. L. Modi has more than four decades of experience in electrical equipment industry and has been instrumental in
establishing the company as one of the leading electrical contacts manufacturing companies in India. Along with G.L. Modi, his
son Jay Kumar Modi, his relative Rajkumar Modi and Murli Nikam, CEO, take care of the business. The promoters are well
supported by a qualified team of professionals with significant experience in their respective fields.

Strong business profile

Modison is a leading manufacturer of silver/copper/tungsten based electrical contacts for high, low and medium voltage (HV, LV
& MV) switchgears in India and abroad. It has presence from silver refining to producing electrical contacts materials to finished
contacts. Electrical contact manufacturing is a technology-intensive business and the company acquired the technological know-
how through technical alliance with Doduco, Germany, a global leader in electrical contact manufacturing. LV (including MV) &
HV contributes nearly 75% and 25% respectively to the overall revenues of the company. Modison has an installed capacity of
250 thousand arcing contacts for HV and 33 tonnes per annum of LV contacts at its Vapi plant as on March 31, 2023.

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Complete definition of the ratings assigned are available at [Link] and other CARE Ratings Ltd.’s publications

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Established customer and supplier base

Modison has an established customer base and caters to five out of top ten switchgear manufacturers in India. Contribution to
sales from top five customers was around 40-45% over the last three years.
The major raw materials required for manufacturing of contacts are silver, copper and tungsten, which it procures from reputed
suppliers. The top five suppliers accounted for around 65-70% of purchases over the last three years. Modison’s high dependence
on customers and suppliers leads to concentration risk. However, long-term relationship with these suppliers and customers helps
mitigate the risks to a large extent.

Stable scale of operations

Modison’s scale of operations have been continuously increasing Y-o-Y from FY19-22. However, Modison’s total operating income
declined marginally by 1.94% from ₹342.42 crore in FY22 to ₹335.78 crore in FY23 owing to decline in quantity sold. However,
Modison has already booked sales of Rs. 183.39 crore during H1FY24 and has an unexecuted order book of around ₹ 64 crore as
on December 25, 2023, which is expected to be executed in the next 4-6 weeks, thereby deriving short-termrevenue visibility.

Comfortable capital structure and debt coverage indicators

Modison has comfortable financial risk profile with no major term debt and only working capital borrowings on its books as on
March 31, 2023, whose utilization also remained low. As on March 31, 2023, the overall gearing improved to 0.03x (vis-à-vis
0.10x as on March 31, 2022) due to lower utilization of working capital limits as on balance sheet date.
Despite decline in cash accruals, the debt coverage indicators improved with total debt/GCA at 0.31 times in FY23 (vis-à-vis 0.83
times in FY22) due to lower debt outstanding as on balance sheet date. Due to lower profits booked during the year, the interest
coverage ratio deteriorated marginally but remained comfortable at 14.21 times in FY23 (vis-à-vis 14.41 times in FY22).

Key weaknesses
Fluctuating profitability margins
The operating margins have shown declining trend during the period of FY19-23 from 13-14% to 7% in FY23 owing to volatile
input prices and competitive pressure in global market from China. The profit after tax (PAT) margins also declined in lines with
PBILDT margin from 4.27% in FY22 to 3.36% in FY23. Modison also partially hedges silver on MCX as per market scenario
resulting in mark-to-market losses/profit over the years.
Modison’s profitability has improved during H1FY24 over H1FY23 marked by PBILDT margin of 7.73% and PAT margin of 6.06%
as compared to 3.84% and 3.86% respectively for H1FY23 on back to increasing trend of input prices. However, the margins are
monitorable with fluctuations in silver prices.

Elongated working capital cycle

The operations remain working capital intensive as the company operates in the electrical equipment industries. The operating
cycle deteriorated to 134 days in FY23 vis-à-vis 128 days in FY22 on account of higher inventory days. The company needs to
maintain sufficient inventory for continuous manufacturing requirements, which has led to higher inventory holding. The inventory
period remained high at 84 days in FY23 vis-à-vis 73 days in FY22.
The company extends around 60-90 credit days to its customers. The collection days remained at 60 days in FY23. Considering
the reputed customer profile, credit risk remains low.
With higher inventory holding period and higher collection period and minimal creditors’ period, the operating cycle is elongated.
However, the working capital requirement is primarily funded from internal accruals.

Susceptibility of profitability to fluctuations in prices of raw materials and foreign exchange rates
Modison is exposed to the inherent risk of price fluctuation of its major raw material i.e., silver, copper and tungsten with silver
forming around 86% of raw material purchases. The raw materials account for around 84.74% of the cost of sales in FY23.
Modison has arrangement to procure silver on monthly basis where-in prices are reset on weighted average basis and are linked
to LME prices. Modison hedges part of its inventory in MCX through forward contracts based on market dynamics. At present,
around 35% of inventory is hedged. On an average it takes around 30 days for LV contacts and around six weeks for HV contacts
to supply to customers.
Modison also has exposure to foreign currency risk on account of its payable and receivables in foreign currency. Modison follows
natural hedging as well as enters into forex forward contracts to mitigate the foreign currency risk. The foreign exchange forward
contracts mature within a period of one month to two years. In H1FY24, Modison booked a profit of ₹2.51 crore (FY23: ₹ 0.37
crore) on hedging of silver and a forex gain of ₹2.19 crores (FY23: loss of ₹2.96 crore).

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Liquidity: Adequate
The liquidity position remained adequate marked by moderate cash accruals (₹16.39 crore in FY23) as compared to no term debt
repayment obligations and free cash and bank balance of ₹1.87 crore as on September 30, 2023. The average maximum and
average utilization of working capital limits (fund based) stood low at 50% and 34% respectively and the average maximum
utilization of NFB limits stood low at 1.87% for the last 12 months ended November 2023. The unutilized bank lines are adequate
to meet its incremental working capital needs over the medium term.
Furthermore, the current ratio and quick ratio stood at 4.78 times and 2.02 times respectively as on March 31, 2023 (vis-à-vis
4.11 times and 2.11 times respectively as on March 31, 2022). Cash flow from operations stood at Rs. 23.99 crore in FY23 (vis-
à-vis Rs. 19.96 crore in FY22).

Applicable criteria
Policy on default recognition
Financial Ratios – Non financial Sector
Liquidity Analysis of Non-financial sector entities
Policy On Curing Period
Rating Outlook and Credit Watch
Manufacturing Companies
Short Term Instruments

About the company and industry

Industry classification
Macro-economic Indicator Sector Industry Basic Industry
Industrials Capital goods Electrical equipment Other electrical equipment

Established by G.L. Modi, Modison Limited (CIN No: L51900MH1983PLC029783) is engaged in the manufacturing of electrical
contacts for low voltage (LV) and high voltage (HV) switchgears. Modison has an installed capacity of 250 thousand arcing contacts
for HV and 33 tonnes per annum of LV contacts at its Vapi plant.
Its group company Modison Copper Private Limited (MCPL; Rated CARE BBB+; Stable/ CARE A2) was established in 1995 and is
engaged in the business of converting metals viz copper, brass, zinc and other alloys into copper alloys that are used for
manufacturing high voltage (HV) electrical contacts.
Brief Financials (₹ crore) March 31, 2022 (A) March 31, 2023 (A) H1FY24 (Prov.)
Total operating income 342.42 335.78 183.39
PBILDT 31.07 25.60 14.18
PAT 14.62 11.27 11.12
Overall gearing (times) 0.10 0.03 NA
Interest coverage (times) 14.41 14.21 15.41
A: Audited; Prov.: Provisional; NA: Not Available; Note: ‘the above results are latest financial results available’

Status of non-cooperation with previous CRA: Nil

Any other information: Not applicable

Rating history for last three years: Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in
Annexure-3

Complexity level of various instruments rated: Annexure-4

Lender details: Annexure-5

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Annexure-1: Details of instruments/facilities

Rating
Date of
Maturity Size of the Assigned
Name of the Issuance Coupon
ISIN Date (DD- Issue along with
Instrument (DD-MM- Rate (%)
MM-YYYY) (₹ crore) Rating
YYYY)
Outlook
Fund-based -
- - - 60.00 CARE A; Stable
LT-Cash credit
Non-fund-
based - ST- - - - 17.50 CARE A1
BG/LC

Annexure-2: Rating history for the last three years

Current Ratings Rating History
Date(s) Date(s)
Date(s) Date(s)
Name of the and and
Sr. Amount and and
Instrument/Bank Rating(s) Rating(s)
No. Type* Outstanding Rating Rating(s) Rating(s)
Facilities assigned assigned
(₹ crore) assigned in assigned in
in 2023- in 2020-
2022-2023 2021-2022
2024 2021
1)Withdrawn
(12-Oct-21)

2)CARE A;
Fund-based - LT- Stable
1 LT - - - - -
Cash credit (12-Oct-21)

3)CARE A;
Positive
(06-Apr-21)
1)Withdrawn
(12-Oct-21)

2)CARE A;
Fund-based - LT- Stable
2 LT - - - - -
Cash credit (12-Oct-21)

3)CARE A;
Positive
(06-Apr-21)
1)Withdrawn
(12-Oct-21)

Non-fund-based - 2)CARE A1
3 ST - - - - -
ST-BG/LC (12-Oct-21)

3)CARE A1
(06-Apr-21)
1)Withdrawn
(12-Oct-21)

Non-fund-based - 2)CARE A1
4 ST - - - - -
ST-BG/LC (12-Oct-21)

3)CARE A1
(06-Apr-21)

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1)Withdrawn
(12-Oct-21)

Non-fund-based - 2)CARE A1
5 ST - - - - -
ST-BG/LC (12-Oct-21)

3)CARE A1
(06-Apr-21)
1)Withdrawn
(24-Mar-23)

2)CARE A;
Fund-based - LT- Negative
6 LT - - - - -
Term loan (17-Feb-23)

3)CARE A;
Stable
(07-Apr-22)
1)CARE A;
Negative
(24-Mar-23)

CARE 2)CARE A;
Fund-based - LT-
7 LT 60.00 A; - Negative - -
Cash credit
Stable (17-Feb-23)

3)CARE A;
Stable
(07-Apr-22)
1)CARE A1
(24-Mar-23)

Non-fund-based - CARE 2)CARE A1

8 ST 17.50 - - -
ST-BG/LC A1 (17-Feb-23)

3)CARE A1
(07-Apr-22)
*Long term/Short term.

Annexure-3: Detailed explanation of covenants of the rated instruments/facilities – Not Applicable

Annexure-4: Complexity level of the various instruments rated

Sr. No. Name of the Instrument Complexity Level
1 Fund-based – LT - Cash credit Simple
2 Non-fund-based – ST - BG/LC Simple

Annexure-5: Lender details

To view the lender-wise details of bank facilities please click here

Note on the complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis
of complexity. Investors/market intermediaries/regulators or others are welcome to write to care@[Link] for any
clarifications.

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About us:
Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
and enable investors to make informed decisions. With an established track record of rating companies over almost three decades,
CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the
methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt
and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.

Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought
in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.

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please visit [Link]

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