CRISIL has assigned its ‘B/Stable/P4’ ratings to Ottoman Steel Tubes Pvt Ltd’s (Ottoman’s) bank facilities. The ratings reflect Ottoman’s small net worth, average gearing, weak debt protection measures, large working capital requirements, small scale of operations, and exposure to intense competition in the steel tubes industry. These rating weaknesses are partially offset by the benefits that Ottoman derives from its promoters’ experience in the steel tubes industry.

Outlook: Stable
CRISIL believes that Ottoman will continue to benefit from its promoters’ industry experience; however, its financial risk profile will remain weak over the medium term, given its large working capital requirements. The outlook may be revised to ‘Positive’ if there is fresh large equity infusion into the company, or if the company reports more-than-expected increase in cash accruals, leading to improvement in its financial risk profile. Conversely, the outlook may be revised to ‘Negative’ in case of sustained pressure on the company’s profitability, leading to deterioration in its debt protection measures.

About the Company
Ottoman was set up by Mr. Hardeep Mahajan in 2006. The company manufactures electric resistance welded (ERW) tubes, cold-drawn welded (CDW) tubes, and stainless steel (SS) tubes, for use in the automotive industry. The company is an approved vendor for Hero Honda Motors Ltd (rated ‘AAA/FAAA/Stable/P1+’ by CRISIL) and Yamaha Motor Company Ltd. Ottoman also manufactures products for Tata Steel Ltd on job work basis. Ottoman’s facility has capacity to manufacture around 42,000 tonnes per annum (tpa) of ERW tubes, and 6000 tpa of CDW and SS tubes. The company is managed by Mr. Hardeep Mahajan and his sons Mr. Vishesh Mahajan and Mr. Vipul Mahajan.

Ottoman reported a profit after tax (PAT) of Rs.13.4 million on net sales of Rs.389 million for 2008-09 (refers to financial year, April 1 to March 31), against a PAT of Rs.8.1 million on net sales of Rs.202 million for 2007-08.