| Apollo Tricoat Tubes Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term bank facilities of Apollo Tricoat Tubes Limited (ATTL) at ‘CRISIL AA/Stable’.
The reaffirmation reflects the strong support to ATTL from its ultimate parent, APL Apollo Tubes Ltd (APL Apollo, 'CRISIL AA/Stable/CRISIL A1+'), which extends extensive support to ATTL and has guaranteed its entire debt. The rating continues to reflect the parent’s leadership position in the electric resistance-welded (ERW) pipes and structural products industry, and the diversity in geographical presence, product profile and end-user industries and ATTL’s comfortable financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and intense competition.
In the first half of fiscal 2022, ATTL revenue has more than doubled, primarily driven by average realisation rising by almost 82% year-on-year, supported by volumetric growth of almost 30% despite impact of pandemic in the first quarter. Earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne improved to Rs 9919 for first half of fiscal 2022 compared with Rs 6016 for the corresponding period of the previous fiscal. The profitability benefitted from economies of scale along inventory gain witnessed during first quarter of fiscal 2022.
Fiscal 2020 was the first year of operations after ATTL was acquired by APL Apollo (earlier operations were discontinued in fiscal 2019). Operations ramped up at a healthy pace, as indicated by revenue of Rs 1474 crore and a healthy operating margin of 11.23% for fiscal 2021. ATTL had initially set up capacity of 250,000 metric tonne per annum (MTPA) of steel pipes, flanges and allied products. The capacity was increased to 350,000 MTPA in fiscal 2021. No further capacity addition is planned over the medium term.
CRISIL Ratings has noted under process arrangement to amalgamate Shri Lakshmi Metal Udyog Limited (SLMUL – wholly owned subsidiary of APL Apollo) and ATTL (a step down subsidiary of APL Apollo - wherein SLMUL holds a 55.82% stake as on December 2021) with APL Apollo. Approvals from stock exchanges have been received while meeting with shareholders and creditors is scheduled on February 08, 2022. As per management the entire process of amalgamation is expected to be concluded by first quarter of fiscal 2023. The ratings on ATTL would be withdrawn post completion of the amalgamation as the entity would cease to exist. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has centrally factored in the strong operational, financial and technological support ATTL receives from its ultimate parent, APL Apollo. The latter has extended a corporate guarantee for the entire outstanding debt of ATTL. In fiscal 2020, Shri Lakshmi Metal Udyog Ltd (SLMUL; ‘CRISIL AA/Stable/CRISIL A1+’), a 100% subsidiary of APL Apollo, acquired 50.7% stake in ATTL (increased to 55.82% stake as of December 2021). |
Key Rating Drivers & Detailed Description Strengths Strong support from the parent: ATTL benefits from the operational, technological, and financial support it receives from APL Apollo. ATTL benefits from the strong distributer network and established brand of APL Apollo. All bank limits of ATTL are backed by a corporate guarantee from the parent. The strong moral obligation to provide parental support are underscored by board representation, shared name, technological support, majority ownership, and common bankers, along with economic incentive as ATTL’s products are an extension of APL Apollo’s portfolio and are high-margin products.
Quick ramp-up in operations: ATTL has capacity of 350,000 TPA for manufacturing products such as in-line galvanising pipes, scaffolding pipes, and electrical conduits, which fetch high margins and complement the portfolio of APL Apollo. Within the first year of being acquired by APL Apollo, ATTL has successfully ramped up business, reflected in revenue of Rs 1474 crore and healthy operating margin of 11.23% in fiscal 2021. The performance has improved in first half of fiscal 2022 despite the pandemic, with revenue at Rs 1182 crore and operating margin at around 10%.
Comfortable financial risk profile: Networth remained healthy at Rs 304 crore and gearing was comfortable at 0.2 time as on March 31, 2021. Debt protection metrics were healthy reflected in interest coverage and net cash accrual to total debt ratio of 18 times and 1.96 time respectively in fiscal 2021. The strategic shift to a cash and carry model at the group level has resulted in lower receivables and reduced ATTL’s dependence on working capital debt. The financial risk profile will remain comfortable in the absence of any major debt-funded capital expenditure (capex) plan over the medium term.
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, ATTL’s monthly pricing mechanism and improved inventory management policy will safeguard it from significant movements in raw material prices. Further the ERW industry is highly fragmented owing to low entry barriers. The segment also faces threat of substitutes and rivalry from regional players and imports. The consequent intense competition may continue to constrain scalability, pricing power and profitability. Low margin, however, insulates the industry from imports. |
Liquidity: Strong Liquidity will remain comfortable with cash accrual expected at Rs 140-160 crore over the medium term. The change in the working capital management policy by APL Apollo Group in fiscal 2021 has substantially reduced its working capital funding, wherein amongst the sanctioned fund-based limits of Rs 160 crore, an average of 11% was utilized during the past one year through November 2021. CRISIL Ratings expects the internal accruals and unutilized bank lines to be sufficient to meet debt obligation and working capital requirement over the medium term. |
Outlook: Stable CRISIL Ratings believes ATTL will maintain steady growth in its operating performance, while maintaining a comfortable financial risk profile. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company ATTL (formerly known as Best Steel Logistics) became a part of the APL Apollo group, India’s leading steel pipe and tube manufacturer, in fiscal 2019. The company's products have myriad applications from green house tubing to rooftop sheds and electrical conduits where triple coated technology is being used as a substitute for PVC pipes worldwide.
For the six months through September 2021, the company reported a profit after tax (PAT) of Rs 81 crore on an operating income of Rs 1182 crore, against a PAT of Rs 33 crore on an operating income of Rs 502 crore for the same period previous fiscal. |
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)
*Interchageable with Non-fund based limit |
| 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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Criteria Details
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