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BLACK BOX LIMITED Capital/Financing Update 2024

May 7, 2024

61965_rns_2024-05-07_3e8327dc-f30d-46d5-b770-88161c1d446d.pdf

Capital/Financing Update

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Telephone: +91 22 6661 7272 | Email: [email protected]

BBOX/SD/SE/2024/24

May 7, 2024

To,

Corporate Relationship Department
Bombay Stock Exchange Limited
P.J. Towers, Dalal Street,
Fort, Mumbai 400001
Corporate Relationship Department
National Stock Exchange Limited
Exchange Plaza, Bandra Kurla Complex,
Bandra East, Mumbai 400051

Subject: Intimation under Regulation 30(2) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations") ‐ Credit Rating

Ref.: Scrip code BSE: 500463/NSE: BBOX

Dear Sir/Madam,

Pursuant to Regulation 30(2) read with Schedule III of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations"), we would like to inform you that ‘CRISIL Ratings’ has Reaffirmed Credit Rating of the Company and the outlook on Long Term Rating has been revised from Stable to “Positive”. In accordance with the Regulation, please find below the details of the rating action for the bank facilities of the Company:

Facility(s) Current Rating Action
Total Bank Loan Facilities Rated Rs. 25 Crores Reduced from Rs. 61.25 Crore
Long Term Rating CRISIL BBB/Positive Outlook revised from ‘Stable’; Rating
Reaffirmed
Short Term Rating CRISIL A3+ Reaffirmed

The rating on bank facilities worth Rs. 36.25 Crores has been withdrawn, since the facilities have been repaid .

Copy of the Rating letter along with detailed Rating Rationale issued by CRISIL dated May 7, 2024, is also enclosed herewith.

This is for your information, record and necessary dissemination to all the stakeholders.

For Black Box Limited

ADITYA Digitally signed by ADITYA GOSWAMI GOSWAMI Date: 2024.05.07 17:42:15 +05'30' Aditya Goswami Company Secretary & Compliance Officer

Encl.: A/a.

BLACK BOX LIMITED

Registered Office: 501, 5th Floor, Building No. 9, Airoli Knowledge Park, MIDC Industrial Area, Airoli, Navi Mumbai 400 708, India BLACKBOX.COM | CIN: L32200MH1986PLC040652 | Tel: +91 22 6661 7272

==> picture [556 x 76] intentionally omitted <==

Rating Rationale

May 07, 2024 | Mumbai

Black Box Limited

Rating outlook revised to ‘Positive’; Ratings Reaffirmed

Rating Action

Rating Action
Total Bank Loan Facilities Rated Rs.25 Crore(Reduced from Rs.61.25 Crore)
Long Term Rating CRISIL BBB/Positive (Outlook revised from ‘Stable’;
Rating Reaffirmed)
Short Term Rating CRISIL A3+(Reaffirmed)

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million

Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Black Box Ltd (BBL, erstwhile AGC Networks Ltd) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB’. The short term rating has been reaffirmed at ‘CRISIL A3+’ . The ratings on bank facilities of Rs.36.25 crore has been withdrawn , following a request from the company and on receipt of the withdrawal and revised sanction documents from the lenders. This is in line with the CRISIL Ratings policy on withdrawal of ratings.

The outlook reflects the expectation of improvement in the business and financial risk profiles of BBL, supported by its improved business operations over the years. Revenue is estimated to have grown at a compound annual growth rate (CAGR) of 5-6% over fiscals 2020-2024, post acquisition of Black Box Corporation, USA (BBX) in January 2019. The operating margin was around 7% over the period.

The ratings continue to reflect the established market position of BBL in the IT infrastructure solutions business and its healthy and diversified revenue profile, marked by diverse end-user industries and an established clientele. These strengths are partially offset by high geographical concentration in revenue and exposure to global competition.

Networth was impacted in the past due to losses of BBX carried forward when the business was taken over. The networth is expected to see further improvement from fiscal 2025, thereby improving the capital structure of BBL.

Revenue is estimated at Rs 6,300 crore in fiscal 2024 (Rs 6,286 crore in fiscal 2023). The revenue remained flat as key customers are based in the US (~75% of revenue) and Europe (~10% of revenue) and have deferred capital expenditure (capex) amid macroeconomic headwinds in these regions. In fiscal 2025, as the macroeconomic tensions ease, BBL is likely to record revenue growth of 8-10%, with operating margin improving to 7-8% from ~6.5% in fiscal 2024.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of BBL and its subsidiaries, given their significant managerial, operational and financial linkages.

CRISIL Ratings has amortised goodwill on acquisition of BBX and COPC Holdings in fiscal 2019, amounting to around Rs 150 crore, over five years. It has also amortised the goodwill amounting to Rs 49 crore pertaining to the acquisition of Black Box Technologies LLC (Dubai), Fujisoft Security Solutions LLC (Dubai), Fuji Soft Technology LLC (Abu Dhabi), Pyrios Pty Ltd, Pyrios Ltd and Mobiquest Solutions Pte Ltd in fiscal 2021.

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description Strengths:

Healthy business risk profile, driven by established market position: BBL has an established market position in the IT infrastructure solutions business and a diversified reach across end-user industries such as banking, financial services and insurance (BFSI), healthcare, manufacturing, business services, retail, and distribution. The company provides a wide array of solutions, including unified communications, customer experience, borderless networks, data centers, clouds and data security solutions. The marquee client base includes Bank of America, Wells Fargo, Meta, Amazon, Cleveland Hospital. Client relationships are longstanding, with average relationship of over two decades with the top 10 clients. The company also has collaborations with various global technology leaders. BBL will continue to benefit from its established market position, driven by its diversified range of service offerings and end-user industries,

alliances with leading software vendors, and longstanding customer relationships. Orders of USD 200 million as of April 2024 provide revenue visibility for the medium term.

Large scale of operations and healthy accrual: In January 2019, BBL acquired BBX, a loss-making company at that time. BBL has successfully turned the around the operations of BBX, clocking around 7% operating margin in the first year of takeover itself. The revenue of BBL grew at a CAGR of 5-6% over fiscals 2020-2024, to Rs 6,300 crore in fiscal 2024. The operating margin was impacted in fiscals 2022 and 2023, largely due to supply chain challenges and higher manpower/freight cost. but improved to ~6.5% in fiscal 2024. The margin is expected to improve to 7-8% in fiscals 2025 and 2026.

Weaknesses:

Moderate capital structure and debt protection metrics: Post the leveraged buyout of BBX, BBL has focused on reducing its debt, and net debt is estimated at ~Rs 150 crore as on March 31, 2024, down from over Rs 468 crore as on March 31, 2019. This is despite incremental working capital limit availed in fiscals 2023 and 2024. With improved accrual and no significant debt-funded capital expenditure (capex) or acquisitions, debt is expected to reduce. The company mainly relies on off balance sheet non-recourse securitisation of BBX’s receivables to manage its working capital requirement. With improved profitability, interest coverage should remain above 3.0 times over the medium term. While BBL is part of the Essar group, no financial support is expected from the company to the group. Any such support will remain a key monitorable.

Networth was impacted in the past due to carried forward losses of BBX after its acquisition, but will see an improvement from fiscal 2025, thereby improving the capital structure of the company.

Exposure to intense competition in the IT solutions integration sector: With rapid evolution of the global ITenabled services sector, competition is intensifying as more companies vie for a share of the revenue pie. BBL competes with multiple players in most of the verticals. Availability of low-cost skilled talent is also a key variable in this industry. The company also faces the risk of economic slowdown in key markets such as the US and Europe, as well as regulatory changes.

Liquidity: Adequate

BBL had cash and equivalents of Rs 200 crore as on September 30, 2023. Utilisation of fund-based limits in India averaged around 40% over the 12 months through February 2024 (95% over the 12 months ended September 30, 2020). Expected healthy annual cash accrual of Rs 234-385 crore between fiscals 2024 to 2026 will support annual debt obligation of Rs 2022 crore in fiscals 2025 and 2026 and also cover any moderate capex/acquisition plans.

Outlook: Positive

CRISIL Ratings believes the credit risk profile of BBL will continue to benefit from the company’s cost optimisation measures, established market position and improving financial risk profile.

Rating Sensitivity Factors

Upward factors

Steady and sustained growth in revenue with operating margin maintained at ~7%

Improvement in capital structure, backed by healthy accretion to reserve, progressive debt reduction or equity infusion

Downward factors

Sustained pressure on profitability, leading to interest cover below 2.20 times

  • Significant increase in debt due to dividend, buyback, acquisitions, or indirect or direct support to Essar group companies

About the Company

BBL is a global information and communication (ICT) solutions provider and integrator in business communication systems, applications and services. The company provides a server-based converged networking platform for voice, data and video, including IP telephony, multimedia call center and customer relationship management (CRM) solutions, unified communications, and customer service. To expand its presence globally, the company acquired BBX on January 7, 2019. BBX provides technology solutions by partnering with leading technology vendors and offers need-based value-added services through its key technology alliance partners, aiming to extend end-to-end solutions.

BBL has scaled up revenue to nearly Rs 6,300 crore post-acquisition of BBC and caters to over 8,000 customers in multiple geographies such as the Middle East, Africa, North America, Australia, New Zealand, Singapore, Philippines, and the UK.

BBL was incorporated by Tata Telecom Pvt Ltd in 1986, to manufacture telecommunication equipment, and was acquired by US-based Avaya Inc in 2004. In August 2010, the Essar group took over the company and now holds 71.14% stake in BBL.

For the first nine months of fiscal 2023, BBL reported revenue of Rs 4801 with a profit after tax of 96.77 crore, compared to Rs 4,606 crore and loss after tax of Rs 0.60 crore.

Key Financial Indicators (CRISIL Ratings-adjusted consolidated financials):

Particulars

Unit
2023 2022
Operating income Rs crore 6288 5370
Profit after tax(PAT) Rs crore 24 73
Adjusted PAT margin % 0.4 1.4

Any other information: Not Applicable

Adjusted debt/adjusted networth Times NM NM
Adjusted interest coverage Times 2.75 3.31

Note on complexity levels of the rated instrument:

CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Type of instrument Date of
allotment
Coupon
rate
Maturity
date
Issue size
(Rs.Crore)
Complexity
level
Rating assigned
with outlook
NA Cash credit NA NA NA 12.28 NA CRISIL BBB/Positive
NA Letter of credit & bank
guarantee
NA NA NA 8.3 NA CRISIL A3+
NA Letter of credit & bank
guarantee
NA NA NA 16.53 NA Withdrawn
NA Cash credit NA NA NA 19.72 NA Withdrawn
NA Proposed long-term
bank loan facility
NA NA NA 4.42 NA CRISIL BBB/Positive

Annexure - List of Entities Consolidated

Annexure - List of Entities Consolidated
Names of entities consolidated Extent of
consolidation
Rationale for consolidation
Black Box Technologies Pte Ltd Full Managerial, operational, and
financial linkages
AGC Networks Philippines, Inc Full Managerial, operational, and
financial linkages
AGC Networks & Cyber Solutions Ltd Full Managerial, operational, and
financial linkages
AGC Networks LLC, Dubai Equity method Managerial, operational, and
financial linkages
AGC Networks LLC, Abu Dhabi Full Managerial, operational, and
financial linkages
AGCN Solutions Pte Ltd Full Managerial, operational, and
financial linkages
BBX Main Inc Full Managerial, operational, and
financial linkages
AGC Networks LLC, USA Full Managerial, operational, and
financial linkages
Black Box Corporation Full Managerial, operational, and
financial linkages
ACS Dataline, LP Full Managerial, operational, and
financial linkages
ACS Investors, LLC Full Managerial, operational, and
financial linkages
BB Technologies, LLC Full Managerial, operational, and
financial linkages
BBOX Holdings Mexico LLC Full Managerial, operational, and
financial linkages
BBOX Holdings Puebla LLC Full Managerial, operational, and
financial linkages
Black Box A/S Full Managerial, operational, and
financial linkages
Black Box Canada Corporation Full Managerial, operational, and
financial linkages
Black Box Chile SA Full Managerial, operational, and
financial linkages
Black Box Comunicaciones, SA Full Managerial, operational, and
financial linkages
Black Box Corporation of Pennsylvania Full Managerial, operational, and
financial linkages
Black Box de Mexico, S. de R.L. de C.V. Full Managerial, operational, and
financial linkages
Black Box Deutschland GmbH Full Managerial, operational, and
financial linkages
Black Box do Brasil Industria e Comercio Ltda. Full Managerial, operational, and
financial linkages
Black Box E-Commerce (Shanghai) Co., Ltd. Full Managerial, operational, and
financial linkages
Black Box Finland OY Full Managerial, operational, and
financial linkages
Black Box France Full Managerial, operational, and
financial linkages
Black Box Gmbh Full Managerial, operational, and
financial linkages
Black Box Holdings Ltd. Full Managerial, operational, and
financial linkages
Black Box International B.V. Full Managerial, operational, and
financial linkages
Black Box International Holdings B.V. Full Managerial, operational, and
financial linkages
Black Box Network Services Corporation (& Its
Subsidiaries)
Full Managerial, operational, and
financial linkages
Black Box Norge AS Full Managerial, operational, and
financial linkages
Black Box P.R. Corp. Full Managerial, operational, and
financial linkages
Black Box Services LLC (formerly known as Black Box
Services Company)
Full Managerial, operational, and
financial linkages
Black Box Software Development Services Limited Full Managerial, operational, and
financial linkages
Delaney Telecom, Inc Full Managerial, operational, and
financial linkages
Norstan Canada, Ltd / Norstan Canada, Ltée Full Managerial, operational, and
financial linkages
Norstan Communications, Inc Full Managerial, operational, and
financial linkages
Nu-Vision Technologies, LLC Full Managerial, operational, and
financial linkages
Black Box Network Services Philippines, Inc Full Managerial, operational, and
financial linkages
Black Box Technologies Australia Pty Ltd Full Managerial, operational, and
financial linkages
COPC Holdings Inc ( & Its Subsidiaries) Full Managerial, operational, and
financial linkages
Black Box Technologies LLC, Abu Dhabi Equity method Managerial, operational, and
financial linkages
Fujisoft Security Solutions LLC Equity method Managerial, operational, and
financial linkages
BBX Inc Full Managerial, operational, and
financial linkages
Black Box Network Services Hong Kong Ltd Full Managerial, operational, and
financial linkages
Black Box Technologies LLC, Dubai Full Managerial, operational, and
financial linkages
Service Journey Strategies Inc Full Managerial, operational, and
financial linkages
Servicios Black Box S.A. de CV Full Managerial, operational, and
financial linkages
Black Box Technologies Group BV Full Managerial, operational, and
financial linkages
Black Box Bangladesh Technologies Pvt Ltd Full Managerial, operational, and
financial linkages
Black Box Costa Rica SRL Full Managerial, operational, and
financial linkages
Black Box Network Services Colombia S.A.S. Full Managerial, operational, and
financial linkages
Dragonfly Technologies Pty Ltd Full Managerial, operational, and
financial linkages
Cybalt LLC Full Managerial, operational, and
financial linkages
Black Box Products FZE Full Managerial, operational, and
financial linkages
Global Speech Networks Pty Ltd Full Managerial, operational, and
financial linkages
Global Speech Networks Ltd Full Managerial, operational, and
financial linkages
Black Box DMCC (Associate) Equity method Managerial, operational, and
financial linkages

Annexure - Rating History for last 3 Years

Current Current Current 2024 (History) 2024 (History) 2023 2023 2022 2022 2021 2021 Start of
2021
Instrument Type Outstanding
Amount
Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based
Facilities
LT 36.42 CRISIL
BBB/Positive
-- 07-02-23 CRISIL
BBB/Stable
-- 11-11-21 CRISIL
BBB/Stable
--
-- -- -- -- 06-01-21 CRISIL
BBB-/Stable
--
Non-Fund
Based Facilities
ST 24.83 CRISIL A3+ -- 07-02-23 CRISIL
A3+
-- 11-11-21 CRISIL A3+ --
-- -- -- -- 06-01-21 CRISIL A3 --

All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 10 IDBI Bank Limited CRISIL BBB/Positive
Cash Credit 9.72 Bank of India Withdrawn
Cash Credit 10 IDBI Bank Limited Withdrawn
Cash Credit 2.28 Bank of India CRISIL BBB/Positive
Letter of credit & Bank
Guarantee
2.3 YES Bank Limited CRISIL A3+
Letter of credit & Bank
Guarantee
6 IDBI Bank Limited CRISIL A3+
Letter of credit & Bank
Guarantee
0.95 YES Bank Limited Withdrawn
Letter of credit & Bank
Guarantee
15.58 Bank of India Withdrawn
Proposed Long Term Bank
Loan Facility
4.42 Not Applicable CRISIL BBB/Positive

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios

Rating criteria for manufaturing and service sector companies CRISILs Criteria for Consolidation

Understanding CRISILs Ratings and Rating Scales

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