Centum Electronics Credit Ratings Upgraded to CARE BBB; Positive Outlook

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Centum Electronics (CENTUM.NS) Credit Rating Upgraded to CARE BBB; Outlook Positive. Care Ratings Limited has upgraded Centum Electronics Limited’s credit rating to CARE BBB with a Positive outlook, citing expectations of improved operating profitability driven by a growing order book, particularly within its Strategic Electronic Business Unit (SEBU).

The ratings agency revised the outlook from Stable to Positive due to the anticipated boost in operating profitability, stemming from a growing order book, specifically in the high-margin SEBU, which focuses on the Indian space and defense sectors. Liquidity is supported by funds raised via a qualified institutional placement (QIP).

Promoter Experience, Client Relationships Underpin Rating: The rating reflects the promoters' extensive industry experience and Centum's established relationships with a strong client base generating repeat orders. It also mirrors an above-average financial risk profile, characterized by increasing income, satisfactory debt coverage, and significantly improved capital structure at the consolidated level. These strengths are partially offset by working capital-intensive operations and losses from its French subsidiary, Centum T&S (CTS).

The upgrade also considers the material improvement in capital structure following the QIP issue in Q4 FY25. CareEdge Ratings anticipates the capital raise will enable Centum to scale operations profitably and undertake planned capital expenditures without incremental debt. The increasing proportion of higher-margin SEBU orders is expected to translate into improved profit before depreciation, interest, and taxes (PBDIT) margins.

Rating Sensitivities:

Upside Factors: Sustained increase in the scale of operations while maintaining a profit before interest, lease rentals, depreciation and taxation (PBILDT) margin above 9.5% could lead to further upgrades.

Downside Factors: A downgrade could occur if the interest coverage ratio (ICR) falls below 3x or total outside liabilities to tangible net worth (TOL/TNW) exceeds 3.5x.

Analytical Approach: Consolidated financial and operational performance of Centum Electronics and its foreign subsidiaries has been considered, reflecting strong financial and management linkages.

Outlook: Positive. CareEdge Ratings expects the increasing order book, especially in the SEBU division, and management decisions regarding subsidiaries will reduce the loss impact on Centum Electronics, improving its operating profitability on a consolidated basis. The outlook may revert to 'Stable' if operating profitability margin improvements are lower than anticipated.

Key Strengths Detailed:

Centum Electronics boasts a growing order book, with orders at ₹1,736 crore as of March 31, 2025, compared to ₹1,642 crore as of March 31, 2024, driven by its proven technical capabilities.

The company benefits from experienced promoters, including Apparao V Mallavarapu Rao, with over three decades of electronics industry experience. Centum Electronics has been designing and manufacturing high-end electronics modules since 1994.

Centum has strong relationships with a reputed clientele, delivering mission-critical electronics for ISRO and other key players.

The company successfully raised ₹210 crore through a QIP in March 2025, materially improving its capital structure. The TOL/TNW improved to 2.57x as of March 31, 2025, from 6.99x as of March 31, 2024. These funds will repay debts, fund capital expenditure, and for general corporate purposes.

Centum demonstrates an above-average financial profile, marked by satisfactory coverage indicators. PBILDT margins have improved from 8.06% in FY24 to 8.43% in FY25. Further improvements are expected in the near-to-medium term.

Key Weaknesses:

Centum's operations are working capital intensive, with a long gestation period from order to execution. Growing order book has led to near-full working capital utilization.

The company's subsidiary, CTS, has been loss-making. CEL infused ₹33 crore into CTS in FY24 and a further ₹45 crore in FY25. Management expects no further support will be required.

Liquidity: Adequate. Centum's liquidity is adequate, with expected improvements in cash accruals. The recent QIP is expected to maintain working capital utilization at manageable levels. Average WC utilization stands at 72% for the 12 months ending June 2025.

ESG Focus: The company remains committed to environmental, social, and governance (ESG) principles, focusing on reducing environmental footprint, fostering diversity, and ensuring employee well-being.

Applicable Criteria:

• Definition of Default
• Liquidity Analysis of Non-financial sector entities
• Rating Outlook and Rating Watch
• Manufacturing Companies
• Financial Ratios - Non financial Sector
• Short Term Instruments

Centum Electronics Limited (CEL) was founded in 1994 by Apparao V Mallavarapu. The company designs and manufactures electronic systems and high-end electronic modules used in the aerospace, defense, and industrial electronics sectors.