Rating Rationale
December 02, 2021 | Mumbai
Apollo Pipes Limited
Rating upgraded to ‘CRISIL A/CRISIL A1’; outlook revised to ‘Stable’
 
Rating Action
Total Bank Loan Facilities RatedRs.180.2 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL A- / Positive' and outlook revised to 'Stable')
Short Term RatingCRISIL A1 (Upgraded from 'CRISIL A2+')
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 Apollo Pipes Ltd (APL) to ‘CRISIL A/CRISIL A1’ from ‘CRISIL A-/CRISIL A2+’, while revising the outlook to ‘Stable’ from ‘Positive’.

 

The upgrade reflects the expectation that the business risk profile of APL will strengthen further on account of the recently commissioned Raipur plant, thus enabling geographic diversification, increase in the scale of operations and widening of the product portfolio. Revenue is expected to register healthy compound annual growth rate of around 20% over the medium term, backed by healthy demand outlook and increased capacity, along with growing focus on advertisement and branding campaigns.

 

In the first half of fiscal 2022, APL registered around 60% revenue growth, primarily driven by average realisation rising by almost 47% year-on-year, supported by volumetric growth of almost 9%. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin stood at 12.5% for first half of fiscal 2022 compared with 10.1% for the corresponding period of the previous fiscal. The company is focusing on increasing revenue share from the building material segment, which has high-margin products. However some moderation in the operating profitability could be witnessed over the medium term, as the company is focusing on gaining market share. Nevertheless, the margin is expected to remain strong at 12-13% over the medium term.

 

Financial risk profile remains strong, backed by healthy gearing and robust debt protection metrics, which are supported by interest coverage ratio of above 25 times in the first half of fiscal 2022. Liquidity remains comfortable, as the company continues to be net-debt-free and is expected to remain so, backed by higher cash accrual and moderate capital expenditure (capex; primarily funded through internal accrual).

 

The ratings continue to reflect the established market position of APL in North India, increasing geographical diversity and a strong financial risk profile because of a healthy capital structure. These strengths are partially offset by exposure to intense competition and susceptibility of profitability to fluctuations in raw material prices and foreign exchange (forex) rates.

Key Rating Drivers & Detailed Description

Strengths

Established market position

The promoters have been in the polyvinyl chloride (PVC) pipes industry for around two decades and have withstood business cycles and established the APL Apollo brand, which is common to the APL Apollo group and is used by the flagship company, APL Apollo Tubes Ltd (CRISIL AA/Stable/CRISIL A1+). Distribution network of APL spreads across 450 retailers and over 150 distributors. Product portfolio is diverse and includes column pipes, unplasticised PVC and chlorinated PVC plumbing pipes and fittings, domestic and sewage pipes and water tanks.

 

Strong financial risk profile

Adjusted gearing was below 0.2 time as on March 31, 2021. Debt protection metrics are likely to remain comfortable, indicated by expected interest coverage and net cash accrual to total debt ratios of over 15 times and 0.6 time, respectively, in fiscal 2022.

 

Weaknesses

Susceptibility of profitability to fluctuations in raw material prices and forex rates

The company is exposed to volatility in forex rates because it imports part of its raw material requirement, while exports are minimal. Also, the prices of resin are volatile and susceptible to change in global prices and regional demand-supply dynamics. The company will remain exposed to cyclicality in the PVC industry.

 

Exposure to intense competition

The pipes and fittings industry is extremely fragmented and has low product differentiation and high price sensitivity.

Liquidity Strong

Cash accrual, expected at more than Rs 60 crore per fiscal, will sufficiently cover yearly debt obligation of Rs 5-10 crore in fiscals 2022 and 2023 each. Utilisation of fund-based limit of Rs 117.5 crore averaged 26% over the 12 months through September 2021. Cash and equivalents stood at Rs 40 crore as on September 30, 2021. Incremental capex is likely to be funded through internal accrual which, along with unutilised bank lines, will be adequate to meet the incremental working capital requirement.

Outlook Stable

CRISIL Ratings believes the business risk profile of APL will continue to benefit from increasing geographical presence and diversified product profile, while maintaining a healthy financial risk profile.

Rating Sensitivity factors

Upward factors

  • Improved business risk profile with sustained revenue growth of above 20% aided by additional capacity, better geographical diversity and increased capacity utilisation levels, while maintaining healthy profitability margin
  • Further strengthening of the financial risk profile

 

Downward factors

  • Operating margin declining below 10% on a sustained basis
  • Weakening of the financial risk profile because of debt-funded capex, significant acquisition or stretch in the working capital cycle

About the Company

Incorporated in 2000 as Apollo Poly Pipes Pvt Ltd by Mr Sameer Gupta and his brother, Mr Vinay Gupta, APL was reconstituted as a public limited company with the current name in April 2009. It manufactures pressure pipes (PVC, ring-fit and self-fit pipes), column pipes, casing pipes, plumbing pipes, soil-waste-rainwater pipes and fittings and water tanks. The company is a part of the Sudesh group. Through a reverse merger with its holding company in November 2017, APL got listed on the Bombay Stock Exchange and the National Stock Exchange.

 

For the six months through fiscal 2022, the company reported a profit after tax of Rs 23 crore on an operating income of Rs 346 crore compared to Rs. 12 crore and Rs 216 crore respectively for the corresponding period in the previous fiscal.

Key Financial Indicators

As on/for the period ended March 31

2021

2020

Revenue

Rs Crore

518

408

Profit after tax

Rs Crore

44

29

PAT margin

%

8.6

7.0

Adjusted debt/adjusted networth

Times

0.19

0.32

Interest coverage

Times

18.22

8.94

 

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)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs Cr) Complexity level) Rating assigned with outlook
NA Cash credit NA NA NA 20 NA CRISIL A/Stable
NA Cash credit* NA NA NA 31 NA CRISIL A/Stable
NA Term loan NA NA Mar-23 15 NA CRISIL A/Stable
NA Term loan NA NA Jun-22 19.2 NA CRISIL A/Stable
NA Term loan NA NA Feb-25 8.5 NA CRISIL A/Stable
NA Proposed long term facility NA NA NA 1.5 NA CRISIL A/Stable
NA Letter of credit NA NA NA 30 NA CRISIL A1
NA Letter of credit^ NA NA NA 35 NA CRISIL A1
NA Bank guarantee# NA NA NA 20 NA CRISIL A1

*Interchangeable with non-fund-based facilities to the extent of 31 crore

^ Interchangeable with fund-based facility to the extent of Rs 21 crore

#Interchangeable with fund-based facility to the extent of Rs 18.0 crore

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 95.2 CRISIL A/Stable 26-03-21 CRISIL A-/Positive 21-04-20 CRISIL A-/Stable 08-01-19 CRISIL A-/Stable 30-05-18 CRISIL BBB+/Stable CRISIL BBB+/Stable
Non-Fund Based Facilities ST 85.0 CRISIL A1 26-03-21 CRISIL A2+ 21-04-20 CRISIL A2+ 08-01-19 CRISIL A2+ 30-05-18 CRISIL A2 CRISIL A2
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee& 20 Kotak Mahindra Bank Limited CRISIL A1
Cash Credit 20 HDFC Bank Limited CRISIL A/Stable
Cash Credit^ 31 Axis Bank Limited CRISIL A/Stable
Letter of Credit 30 HDFC Bank Limited CRISIL A1
Letter of Credit% 35 DBS Bank Limited CRISIL A1
Proposed Long Term Bank Loan Facility 1.5 - CRISIL A/Stable
Term Loan 15 HDFC Bank Limited CRISIL A/Stable
Term Loan 8.5 Axis Bank Limited CRISIL A/Stable
Term Loan 19.2 Citibank N. A. CRISIL A/Stable

This Annexure has been updated on 02-Dec-2021 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.

& - Interchangeable with Fund based facility to the extent of Rs 18.0 crore
^ - Fully Interchangeable with Non Fund based facility to the extent of Rs 31 crores
% - Interchangeable with Fund based facility to the extent of Rs 21 crore
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

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