Rating Rationale
April 21, 2020 | Mumbai
Apollo Pipes Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.180.2 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Apollo Pipes Limited (APL) at 'CRISIL A-/Stable/CRISIL A2+'.
 
The ratings continues to reflect APL's established market position in North India. The ratings also factor in its healthy financial risk profile driven by strong capital structure. These strengths are partially offset by its exposure to intense competition. The ratings are also constrained by the susceptibility of its profitability to fluctuations in raw material prices and foreign exchange rates.
 
Operating performance in fiscal 2021 is likely to be impacted following measures taken by various state governments as well as central government towards containment of COVID-19 which includes temporary closure of non-critical establishments, inter-state transportation etc. Since these measures are imposed at a broader level and across sectors, they are expected to impact the business profile of the company in terms of temporary closure of production facility and closure of establishments of dealer-distributors-retailers. Accordingly, working capital is also expected to be elongated temporarily as a result of the lockdowns leading to pile up of inventory and slower realization of debtors. However, the same is expected to retract to normal levels once the economic activity resumes normalcy later in fiscal 2021. The ability of the business to revert back to operational stability and any relief measures given by the government will be a key monitorable, and CRISIL will continue monitoring these events.

Any disruption in operations, however, will be supported by the company's healthy financial risk profile. Liquidity is also healthy with cash and cash equivalents of Rs 125 crore and sufficient cushion available on fund based limits of Rs 96.5 crore.

For 9 months ending December 2019, operating income increased by over 15% driven by increasing sales in Rajasthan and UP.

Key Rating Drivers & Detailed Description
Strengths
*Established Market Position
The company's promoters have been in the polyvinyl chloride (PVC) pipes industry for 17 years, during which they have withstood business cycles and established the Apollo brand in North India. This is complemented by the Apollo brand, which is common to the group and is used by the flagship company, Apl Apollo Tubes Ltd. Net sales increased to ~Rs 400 crore in fiscal 2020 from Rs 360 crore in the previous years because of geographical expansion. The product portfolio is diverse and includes column pipes, plumbing pipes and fittings, and domestic and sewage pipes.
 
*Strong financial risk profile
Networth in fiscal 2020 is healthy at Rs 287 crore with adjusted gearing of less than 0.3 times. Debt protection metrics are robust, with interest coverage and net cash accrual to total debt ratios of over 9 times and 0.60 times, estimated respectively for fiscal 2020.
 
Weakness
*Susceptibility of its profitability to fluctuations in raw material prices and foreign exchange rates
The company is exposed to risk of fluctuations in foreign exchange (forex) rates as it imports its raw material requirements, while exports are minimal. Also, the prices of resin are volatile, and susceptible to change in global prices and regional demand supply dynamics. CRISIL believes that the company will remain exposed to cyclicality in the PVC industry in the medium-term.
 
*Exposure to intense competition
Intense competition in the pipes and fittings industry, low product differentiation and high price sensitivity prevent the prompt pass-through of any increase in input costs to customers.
Liquidity Strong

Apollo pipes has strong liquidity driven by expected cash accruals of more than Rs 35 crore per annum in fiscal 21 and fiscal 22 as against term debt obligations of around Rs 5-6 crore per annum. Apollo Pipes also has access to fund based limits of Rs 96.5 crore, which were moderately utilized at 43% over the past year along with cash and equivalents of Rs 125 crore as on September 30, 2019. Apollo Pipes also has capex plan of Rs 50-60 crore per annum to be funded through internal accruals. CRISIL expects internal accruals, and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Stable

CRISIL believes that the company will be able to maintain its business risk profile despite the short term impact of COVID 19 along with maintaining healthy financial risk profile.
 
Rating Sensitivity Factors
Upward Factors
*Significant improvement in market share while maintaining financial risk profile.
*Significant improvement in RoCE to over 15% on a sustainable basis.
 
Downward Factors
*Higher than expected debt-funded capex leading to weakening financial risk profile.
*Increased competition probably due to imports leading to decline in margins to below 10% on a sustainable basis.

About the Company

Incorporated in 2000 as Apollo Poly Pipes Pvt Ltd by Mr. Sameer Gupta and his brother, Mr. Vinay Gupta, and reconstituted as a public limited company with the current name in April 2009. Through reverse merger with its Holding Company in Nov 2017, the company got listed on BSE and subsequently on NSE. It manufactures pressure pipes (PVC, ring-fit, and self-fit pipes), column pipes, casing pipes, plumbing pipes, and soil-waste-rainwater pipes and fittings. The company is a part of the Sudesh group.
 
For the 9 months ended December 2019, the company reported a PAT of Rs 22 crore on operating income of Rs 314 crore, as against a PAT of Rs 19 crore on operating income of Rs 272 crore for the same period of previous fiscal.

Key Financial Indicators
As on/for the period ended March 31 2019 2018
Revenue Rs.Crore 362 287
Profit After Tax (PAT) Rs.Crore 24 22
PAT Margins % 6.6 7.7
Adjusted Debt/Adjusted Networth Times 0.24 0.41
Interest Coverage Times 8.07 13.87

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Rating Assigned with Outlook
NA Cash Credit* NA NA NA 40 CRISIL A-/Stable
NA Term Loan NA NA Mar-2022 25.85 CRISIL A-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 8.35 CRISIL A-/Stable
NA Letter of Credit^ NA NA NA 86 CRISIL A2+
NA Bank Guarantee# NA NA NA 20 CRISIL A2+
*Interchangeable with non fund based facilities to the extent of 26 crore
^Interchangeable with Fund based facility to the extent of Rs 38.5 crore
#Interchangeable with Fund based facility to the extent of Rs 18.0 crore
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  74.20  CRISIL A-/Stable      08-01-19  CRISIL A-/Stable  30-05-18  CRISIL BBB+/Stable  05-12-17  CRISIL BBB+/Stable  CRISIL BBB+/Stable 
                    25-07-17  CRISIL BBB+/Stable   
Non Fund-based Bank Facilities  LT/ST  106.00  CRISIL A2+      08-01-19  CRISIL A2+  30-05-18  CRISIL A2  05-12-17  CRISIL A2  CRISIL A2 
                    25-07-17  CRISIL A2   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee# 20 CRISIL A2+ Bank Guarantee# 20 CRISIL A2+
Cash Credit* 40 CRISIL A-/Stable Cash Credit* 40 CRISIL A-/Stable
Letter of Credit^ 86 CRISIL A2+ Letter of Credit^ 86 CRISIL A2+
Proposed Long Term Bank Loan Facility 8.35 CRISIL A-/Stable Proposed Long Term Bank Loan Facility 8.35 CRISIL A-/Stable
Term Loan 25.85 CRISIL A-/Stable Term Loan 25.85 CRISIL A-/Stable
Total 180.2 -- Total 180.2 --
*Interchangeable with non fund based facilities to the extent of 26 crore
^Interchangeable with Fund based facility to the extent of Rs 38.5 crore
#Interchangeable with Fund based facility to the extent of Rs 18.0 crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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