Rating Rationale
March 24, 2023 | Mumbai
Hariom Pipe Industries Limited
Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.86.73 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2 ')
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 upgraded its ratings on the bank facilities of Hariom Pipe Industries Ltd (HPIL) to ‘CRISIL A-/Stable/CRISIL A2+’ from ‘CRISIL BBB+/Stable/CRISIL A2’.

 

The upgrade reflects the improvement in the business performance of the company in fiscal 2023, as indicated by the increase in revenue to Rs 392 crore till December 2022 from Rs 306 crore in the corresponding period of the previous fiscal. Operating margin has remained healthy at 13-14% and the revenue is expected to grow significantly from fiscal 2024 with the completion of capital expenditure (capex) and the new capacity coming onstream. The installed capacity for MS tubes will increase from 84000 MTPA (Metric Ton per Annum) to 1.32L MTPA in fiscal 2024 and the galvanized pipe unit (GP) with capacity of 3L MTPA will also be operational from fiscal 2024 which will drive the revenue growth ahead. The financial risk profile remains comfortable with networth strengthening after the company raised Rs 130 crore through an issue of public shares during the ongoing fiscal. Further the issue of shares and warrants (convertible to equity within 18 months) to the tune of Rs. 190.26 crores will further strengthen the financial risk profile. The capital structure and debt protection metrics remain healthy, and liquidity strong.

 

The ratings continue to reflect the established presence of HPIL in the steel industry and its integrated operations leading to healthy operating efficiency. These strengths are partially offset by exposure to intense competition and cyclicality in the steel industry, and susceptibility to volatility in input cost.

Key rating drivers and detailed description

Strengths:

  • Established presence in the steel industry: The promoters have been in the steel industry for over three decades. Their experience and understanding of market dynamics have helped diversify the product profile and integrate operations. Over the years, they have built healthy relationships with steel traders and manufacturers across Maharashtra, Kerala, Andhra Pradesh, Telangana and Tamil Nadu, resulting in healthy revenue growth. Revenue is expected to improve significantly on back of the incremental capacities getting operational in the ongoing fiscal as well as the upcoming fiscal.

 

  • Integrated operations leading to healthy operating efficiency: The company started with a furnace to manufacture mild steel (MS) billets, and has integrated forward over the years into hot-rolled (HR) strips, MS tubes and scaffoldings. The company has also integrated backward and started manufacturing MS sponge iron in fiscal 2021. The integrated operations have helped limit the impact of downcycles and sustain better profitability (operating margin of 11.0-13.4% in the past two fiscals) compared with other steel players. The savings in power cost because of the installed solar capacity and the new furnace will enhance operating efficiency in the years ahead.

 

  • Above-average financial risk profile: The financial risk profile is supported by moderate gearing and total outside liabilities to tangible networth ratio and adequate debt protection metrics. Despite ongoing debt-funded capex and increased working capital requirement, the gearing is expected to remain below 1 time over the medium term. The capital structure will likely improve over the medium term backed by higher accretion to reserves from fiscal 2024. Interest coverage is expected above 5 times over the medium term.

 

Weaknesses:

  • Exposure to intense competition and cyclicality in the steel industry: The Indian steel industry is highly competitive due to low entry barriers and limited product differentiation. Moreover, the industry is inherently cyclical and strongly correlated to the economic environment. Also, while large players benefit from economies of scale, high power costs and limited ability to control market prices constrain the profitability of small players. That said, HPIL is likely to mitigate these risks on account of its backward integrated operations.

 

  • Susceptibility to volatility in steel prices: The operating profitability is susceptible to volatility in input cost, such as sponge iron and steel scrap, as well as power costs and steel prices. The prices are market driven and individual players are price takers. Hence, any sharp fluctuation in steel price can impact the operating margin, as HPIL has no price contracts with suppliers or customers.

Liquidity: Strong

Liquidity should remain strong with accrual expected over Rs 150 crore against debt obligation of Rs 20-25 crore in fiscal 2024. Bank limit utilisation has been comfortable at 60% and the limits have already been enhanced to Rs 240 crore to meet incremental working capital requirement post completion of capex. Fund inflow through equity issues and warrants will also support liquidity.

Outlook: Stable

CRISIL Ratings believes HPIL will continue to benefit from its established presence and relationships with clients.

Rating sensitivity factors

Upward factors:

  • Stabilisation of operations post completion of capex leading to significant increase in revenue resulting in cash accrual of over Rs 175 crore and improvement in gross current asset days.
  • Strengthening of the financial risk profile with limited reliance on debt

 

Downward factors:

  • Debt-funded capex or stretch in the working capital cycle weakening the financial risk profile and resulting in gearing of over 1.5 times
  • Decline in revenue and profitability, leading to lower cash accrual

About the company

Incorporated in 2007 by Mr Rupesh Kumar Gupta and his family members, HPIL manufactures MS sponge, billets and tubes, HR strips and scaffolding systems. It sells its products under the Hariom Pipes brand. The company is listed on the National Stock Exchange and Bombay Stock Exchange.

 

For the nine months through December 2022, the company reported revenue and profit after tax of Rs 392.22 crore and Rs 28.96 crore, respectively, against Rs 306.4 crore and Rs 22.19 crore, respectively, for the corresponding period of the previous fiscal

Key financial indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

433.28

254.82

Reported profit after tax

Rs crore

31.96

15.13

PAT margin

%

7.38

5.94

Adjusted debt/adjusted networth

Times

0.87

1.13

Interest coverage

Times

6.86

4.56

Status of non-cooperation with previous CRA

HPIL has not cooperated with Brickwork Ratings India Pvt Ltd and Credit Analysis & Research Ltd, which has classified the company as non-cooperative through a release dated August 31, 2017, and July 16, 2019. The reason provided by Brickwork Ratings India Private Limited and Credit Analysis & Research Ltd is non-furnishing of information for monitoring the ratings.

Any other information: Not applicable

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

Name of

instrument

Date of allotment

Coupon

Rate (%)

Maturity

date

Issue size 

(Rs crore)

Complexity 

level

Rating assigned

with outlook

NA

Letter of credit & bank guarantee

NA

NA

NA

9.5

NA

CRISIL A2+

NA

Long-term loan

NA

NA

Mar-24

5.02

NA

CRISIL A-/Stable

NA

Long-term loan

NA

NA

Mar-24

8.31

NA

CRISIL A-/Stable

NA

Long-term loan

NA

NA

Mar-24

11.3

NA

CRISIL A-/Stable

NA

Proposed long-term bank loan facility

NA

NA

NA

46.43

NA

CRISIL A-/Stable

NA

Term loan

NA

NA

Mar-26

6.17

NA

CRISIL A-/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 77.23 CRISIL A-/Stable   -- 13-01-22 CRISIL BBB+/Stable / CRISIL A2   -- 08-10-20 CRISIL BBB/Stable CRISIL BBB/Stable
Non-Fund Based Facilities ST 9.5 CRISIL A2+   -- 13-01-22 CRISIL A2   -- 08-10-20 CRISIL A3+ CRISIL A3+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Letter of credit & Bank Guarantee 9.5 Canara Bank CRISIL A2+
Long Term Loan 5.02 Canara Bank CRISIL A-/Stable
Long Term Loan 8.31 Canara Bank CRISIL A-/Stable
Long Term Loan 11.3 Canara Bank CRISIL A-/Stable
Proposed Long Term Bank Loan Facility 46.43 Not Applicable CRISIL A-/Stable
Term Loan 6.17 Canara Bank CRISIL A-/Stable

This Annexure has been updated on 24-Mar-23 in line with the lender-wise facility details as on 10-Mar-23 received from the rated entity

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Steel Industry
Understanding CRISILs Ratings and Rating Scales

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