| Agarwal Industrial Corporation Limited | ||||
| 'CRISIL BBB+/Positive' assigned to Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL BBB+/Positive’ rating to the long term bank facilities of Agarwal Industrial Corporation Limited (AICL, part of the AICL group).
The rating reflects extensive experience of the AICL’s promoters and established market position in the bitumen products business, diversified revenue profile, prudent risk management strategies and strong financial risk profile. These strengths are partially offset by exposure to cyclicality in end user industry and susceptibility of the operating margin to volatility in raw material prices and forex rates. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of AICL, Bituminex Cochin Private Limited and AICL Overseas FZ LLC. This is because all the three companies, together referred to as the AICL group, are managed by the same promoters, have significant operational synergies with sizeable intercompany transactions. Also, Bituminex Cochin Private Limited and AICL Overseas FZ LLC are wholly owned subsidiaries of AICL.
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: Established market position in the bitumen industry: AICL group benefits from the extensive business experience of the promoters of over four decades, their understanding of the dynamics of the local and global bitumen market, and established relationships with suppliers and customers. The group’s strategically located manufacturing facilities and storage units has helped in reduction of transportation cost. A combination of steady demand and strong realisations has led to revenues increasing to Rs. 904 crores in fiscal 2021 from Rs.414 crores in fiscal 2018. CRISIL Ratings believes that the AICL group would maintain its established presence aided by extensive experience of promoters in the industry.
Diversified revenue profile: Apart from being a manufacturer and trader of bituminous products, AICL group provides integrated solution to its customers in terms of transportation. AICL group is also engaged in transportation of LPG cylinders, power generation through windmill and ship chartering business. The parent company - AICL’s freight expenses are expected to be moderated to the extent of 60-70% in the form of freight revenue from this ship chartering business. Strong profitability in the ship chartering business has led to better profitability in fiscal 2021.
Strong financial risk profile: With continuous accretion to reserves AICL group has built a net worth of Rs. 193.8 crores as on March 31, 2021. The gearing and total outside liabilities and adjusted networth (TOLANW) is 0.67 time and 1.02 time, respectively, as on March 31, 2021. With repayment of debt and steady accretion to reserves, the capital structure is expected to remain comfortable over the medium term. AICL group's debt protection metrics is adequate with interest coverage of 7.4 times and net cash accruals to total debt (NCATD) of 0.4 time respectively, for fiscal 2021. The debt protection metrics are expected to remain at similar levels over the medium term.
Prudent risk management strategies: AICL group has prudent risk management strategies marked by moderate credit extended to customers and low inventory holding. The average inventory maintained over the past 3 years is around 15-20 days. Majority of the purchases are order backed while certain inventories are maintained in order to cater to urgent demand from its customers. Low inventory levels provides some cushion against price fluctuations on margins. Counterparty risk is mitigated to some extent by a large and diversified clientele, and established long relationship of 3-4 decades with major clients. It is also able to pass on its foreign exchange exposure to customers. Also the management has been averse to external long term debt funding, as also depicted by low levels of debt contracted for the recently created fleet of ship. The AICL management remains committed to its policy towards external debt.
Weaknesses: Susceptibility of the operating margin to volatility in raw material prices and forex rates: The price of the main raw material, bitumen has been extremely volatile in the past as it is derivative product of crude. Thus, any sudden sharp increase or decrease in the price of bitumen, can impact the operating margin. Also, since majority of procurement is imported from the international market, any sharp fluctuation in forex rates affects inventory. Although, company is able to pass on this increase to customers, inability to do so fully or lag in passing on, has led to some volatility in operating margins that have ranged from 6.3% to 9.1% in the past five fiscals, through fiscal 2021.
Exposure to cyclicality in end user industry: The entity caters to the infrastructure, industrial gases, and power industries. The end-user industries are cyclical, and are strongly correlated to economic cycles. In the past, because of economic recession, the construction sector faced a slowdown, impacting credit profiles of players. This also leads to stretch in debtors from small clients, reflected in sizeable debtors more than 6 months of Rs.46 crores as on March 31, 2021 which are long overdue. |
Liquidity: Adequate AICL group has adequate liquidity driven by expected cash accruals of Rs. 50-55 crores annually in fiscal 2022 and fiscal 2023, against repayment obligations of around Rs.7.7 crores and Rs. 13.4 crores, respectively. Cash and cash equivalents were high at Rs 42 crores as on March 31, 2021, due to disbursement of the loan contracted in the year end for the purchase of a vessel. On an average the group maintains Rs.10-15 crore of cash and equivalents. Fund based limits have been highly utilized, 88% on an average over the 12 months ended July 2021. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations and incremental working capital requirements. |
Outlook: Positive CRISIL Ratings believes AICL group will benefit from the extensive experience of the promoters, diversified businesses and low debt levels. |
Rating Sensitivity Factors Upward factor
Downward factor
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About the Group AICL, formerly known as Bombay Baroda Roadways India Limited, was incorporated in 1995. AICPL is primarily engaged in manufacturing of bitumen and bitumen products. It also transports Liquified Petroleum Gas (LPG) and bituminous product. AICPL also forayed into ship operating and chartering business through its subsidiary in UAE.
The company is headquartered in Mumbai (Maharashtra) and is promoted by Mr. Jaiprakash Agarwal, Mr. Lalit Agarwal, Mr. Ramchandra Agarwal and Mr. Mahendra Agarwal. The manufacturing units are located at Belgaum, Hyderabad, Taloja and Baroda. The company is listed on Bombay and National Stock Exchanges. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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This Annexure has been updated on 23-Sep-2021 in line with the lender-wise facility details as on 22-Sep-2021 received from the rated entity
Criteria Details
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