| Apollo Metalex Private Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 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 reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of Apollo Metalex Private Limited (AMPL).
Despite the impact of the Covid-19 pandemic in the first half of fiscal 2022, AMPL achieved growth of 66% in operating revenue and healthy operating margin of 7.9% during the fiscal due to the parent’s wide distribution network. The margin is expected to be healthy over the medium term because of higher profitability across product categories and shift towards value-added products.
The ratings continue to reflect the strong support AMPL receives from APL Apollo Tubes Ltd (APL Apollo; ‘CRISIL AA/Stable/CRISIL A1+’). The parent has guaranteed the entire debt of AMPL and has a leadership position in the electric resistance welded (ERW) pipes and structural products industry and diversity in terms of geographical presence, product profile and end-user industries. The ratings also factor in AMPL’s comfortable financial risk profile. These strengths are partially offset by exposure to intense competition and susceptibility to volatility in the prices of raw materials and finished goods. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has centrally factored in the strong operational, financial, and technological support AMPL receives from its parent, APL Apollo. The latter has extended a corporate guarantee for the entire outstanding debt of AMPL. |
Key Rating Drivers & Detailed Description Strengths Strong support from the parent AMPL receives operational, technological and financial support from APL Apollo, which will continue to maintain majority shareholding in and management control over the subsidiary. Bank lines of AMPL are backed by a corporate guarantee from APL Apollo. The strong moral obligation to provide parental support is underscored by board representation, shared name, technological support, 100% ownership and common bankers.
Established market position in the ERW pipe industry AMPL has significant market presence in north India. It is a part of the APL Apollo group, which is the market leader in the ERW pipes industry, with total production capacity of 2.65 million tonne per annum. AMPL has substantial cost advantage, as reflected in its higher-than-industry average operating margin.
Diversified customer base AMPL caters to multiple construction sectors such as residential, commercial, infrastructure and industrial. Over the years, it has reduced its dependence on traditional sectors (such as irrigation) and increased focus on new sectors (construction), which have better profit margins.
Comfortable financial risk profile The financial risk profile is likely to remain supported by low working capital debt and the strategic shift to the cash-and-carry model at the group level, which keeps receivables low. Networth was Rs 466 crore as on March 31, 2022, with gearing improving to 0.01 time from 0.39 in fiscal 2020. Debt protection metrics were healthy, with net cash accrual to total debt ratio at 39.33 time in fiscal 2022.
Weakness Susceptibility to volatility in raw material prices and exposure to intense competition ERW pipe manufacturers are 'steel convertors' and fluctuations in raw material prices are passed on to consumers, but with a lag. Accordingly, profitability is susceptible to fluctuations in the prices of steel (hot rolled coil). However, monthly pricing mechanism and improved inventory management policy will safeguard AMPL from significant movements in raw material prices.
The ERW industry is highly fragmented because of low entry barriers and is vulnerable to the threat of substitutes and competition from regional players and imports. The consequent intense competition may continue to constrain scalability, pricing power and profitability of players. Low margin, however, insulates the industry from imports. |
Liquidity: Strong Liquidity should remain comfortable backed by expected annual cash accrual of more than Rs 100 over the medium term. The change in the working capital policy at the group level in fiscal 2021 has substantially reduced working capital debt—the sanctioned fund-based limit of Rs 115 crore was utilised 30% on average during the 12 months through June 2022. Internal accrual and unutilised bank lines will be sufficient to meet debt obligation and working capital requirement over the medium term. |
Outlook: Stable CRISIL Ratings believes AMPL will sustain steady improvement in operating performance, while maintaining its comfortable financial risk profile. |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Company AMPL, a 100% subsidiary of APL Apollo, was incorporated in 2006. The company, based in Sikandrabad (Uttar Pradesh), manufactures steel pipes and tubes and has capacity of 225,000 tonne per annum. It was acquired by APL Apollo in 2007. Its product portfolio includes ERW pipes, galvanised and pre-galvanised tubes and hollow sections |
Key Financial Indicators
#Based on provisional financials | ||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Sublimits working capital demand loan of Rs 60 crore, packing credit in foreign currency and inland letter of credit of Rs 40 crore, foreign bills discounted and purchase invoice discounting of Rs 25 crore. **Sublimit bank guarantee of Rs 3 crore ^Sublimits working capital demand loan, export packing credit, packing credit in foreign currency of Rs 20 crore ^^Sublimit bank guarantee of Rs 2 crore |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit^ | 20 | Axis Bank Limited | CRISIL AA/Stable |
| Letter of Credit** | 10 | HDFC Bank Limited | CRISIL A1+ |
| Cash Credit* | 60 | HDFC Bank Limited | CRISIL AA/Stable |
| Letter of Credit^^ | 10 | Axis Bank Limited | CRISIL A1+ |
This Annexure has been updated on 13-Mar-23 in line with the lender-wise facility details as on 02-Mar-23 received from the rated entity.
*Sublimits working capital demand loan of Rs 60 crore, packing credit in foreign currency and inland letter of credit of Rs 40 crore, foreign bills discounted and purchase invoice discounting of Rs 25 crore.
**Sublimit bank guarantee of Rs 3 crore
^Sublimits working capital demand loan, export packing credit, packing credit in foreign currency of Rs 20 crore
^^Sublimit bank guarantee of Rs 2 crore
Criteria Details
|