| Agrawal Metal Works Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A- / CRISIL A2+ '; outlook revised to 'Stable' | ||||||
| Rating Action | ||||||
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| 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 Agrawal Metal Works Pvt Ltd (AMWPL) to ‘Stable’ from ‘Negative’, while reaffirming the rating at ‘CRISIL A-‘. The short-term rating has been reaffirmed at ‘CRISIL A2+’.
The revision in outlook factors in AMWPL’s stable business performance during fiscal 2021, after witnessing subdued performance during the first half of the fiscal, amidst challenges caused by the Covid-19 pandemic. Driven by improvement of 6-7% year-on-year in volumetric sales and rally in copper prices, the revenue for fiscal 2021 is estimated to be around Rs 990 crore, which is an improvement of around 24% from the revenue reported in the previous fiscal. Furthermore, the operating profitability, which had seen a declining trend over the past few years, is estimated to have revived to 7.8% during April-December 2020, and shall remain at 7.4-7.5% for fiscal 2021 (5.6% in fiscal 2020). Sustainability of operating profitability at over 7%, along with sustained revenue profile, will continue to remain key monitorables over the medium term.
The rating action also factors in improvement in the company’s financial risk profile, particularly liquidity. Though operations continued to remain working capital intensive, improved realisations led to moderation in overall bank limit utilisation to around 84% (during October 2020 to February 2021) from around 90% previously. Moreover, liquidity is also supported by Rs 20.5 crore of unavailed guaranteed emergency credit lines (GECL) available as on March 31, 2021. Going forward, efficient working capital management that results in further moderation in the bank limit utilisation will continue to remain a key rating sensitivity factor.
The ratings continue to reflect the company’s established market position, strong track record in the copper and brass sheets and coils markets, diversified end-user profile and healthy financial risk profile. These strengths are partially offset by large working capital requirement and volatile operating profitability. |
Key Rating Drivers & Detailed Description Strengths: Established market position: AMWPL is one of the leading manufacturers of copper and copper alloy strips and sheets in India, with presence of over seven decades. The company has maintained strong relationships with customers and suppliers over these years and forayed into varied segments, including automotives, electrical works and sanitary fittings, thereby diversifying its revenue streams. Widespread reach mitigates the risk of slowdown in any particular industry and dependence on a single customer or set of customers. As a result, revenue grew around 24% in fiscal 2021 to around Rs 990 crore year-on-year after witnessing a dismal first half of the fiscal due to the slowdown in demand caused by the pandemic. CRISIL Ratings believes that the established market position of AMWPL will continue to support its business risk profile, going forward.
Healthy financial risk profile: Despite large working capital requirement, gearing shall remain comfortable, estimated at 0.85 time, backed by healthy networth of around Rs 210 crore as on March 31, 2021. Though the total outside liabilities to tangible networth ratio (TOLTNW) shall remain slightly higher at 1.2 times, it has improved consistently over the past few fiscals and should sustain further, aided by expected accretion to reserves and absence of any capital expenditure (capex). Debt protection metrics shall remain comfortable too with interest coverage and net cash accrual to total debt ratios estimated at 4.9 times and 0.25 time, respectively, during fiscal 2021.
Weaknesses: Large working capital requirement: Working capital requirement is predominantly driven by sizeable inventory to cater to demand of a large and diversified customer base. Moreover, the company offers up to 60 days of credit (on average) to its customers, against negligible credit from suppliers as payment is majorly made in advance. As a result, there is a higher reliance on bank debt, as reflected in higher utilisation of bank lines. Though bank limit utilisation over the past 5-6 months till February 2021 has moderated to around 84% (from 90% previously), sustained moderation in utilisation will remain a key rating sensitivity factor over the medium term.
Volatile operating margin: On account of volatility in raw material prices, operating profitability has remained low over the past few fiscals and declined to 5.6% in fiscal 2020, from 6.4% in the previous fiscal. Moreover, despite the company opting for the inventory replenishment model on a month-on-month basis, the operating margin has been impacted by high volatility seen in copper prices. Though profitability revived in fiscal 2021 to 7.4-7.5%, sustaining it at over 7% and maintaining stable revenue profile, will continue to remain a key monitorable. |
Liquidity: Adequate Liquidity should remain comfortable, backed by healthy cash accrual and negligible term debt repayment in fiscal 2022, though it will be partly constrained by high bank limit utilisation. Expected cash accrual of Rs 55-60 crore could be used to cover the working capital expenses, as repayment towards the GECL will commence from fiscal 2023, and shall remain low at Rs 7.5-8.0 crore per annum. The unutilised GECL of Rs 20.5 crore (as on March 31, 2021) shall further support the liquidity in the absence of any sizeable, debt-funded capex |
Outlook Stable CRISIL Ratings believes AMWPL’s credit risk profile will remain supported by the company’s established market position and strong networth. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company AMWPL, promoted by the Jain family of Rewari, Haryana, and the Gupta family of Mumbai, primarily converts copper cathodes into copper and brass plates and coils. The company has two manufacturing units in Rewari and Bhiwadi, Rajasthan, with combined production capacity of around 2,500 tonne per month |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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