Rating Rationale
January 08, 2019 | Mumbai
Apollo Pipes Limited
Ratings upgraded to 'CRISIL A-/Stable/CRISIL A2+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.180.2 Crore (Enhanced from Rs.100.2 Crore)
Long Term Rating CRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable')
Short Term Rating CRISIL A2+ (Upgraded from 'CRISIL A2')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long-term bank facilities of Apollo Pipes Limited (APL) to 'CRISIL A-/Stable/CRISIL A2+' from 'CRISIL BBB+/Stable/CRISIL A2'.
 
The upgrade reflects CRISIL's belief that APL's capital structure will remain comfortable due to the equity infusion drive undertaken by the promoters. In fiscal 2018, the promoters have infused Rs 142 crore in the form of unsecured loans, the loans will eventually be converted into equity through a step wise process. As a result, the promoter's stake will eventually increase to 52% by fiscal 2021. Financial risk profile has improved significantly driven by the equity infusion drive undertaken by the promoters.
 
Further, APL is expected to sustain a steady improvement in its operating performance over the medium term. The company's revenue grew 18% over the five years through fiscal 2018, driven by steady pick-up in volume and sustained realisation. Increasing demand from the construction and irrigation sectors will benefit the company's sales volume over the medium term. Its operating margin is also expected to sustain at around 13%.
 
The ratings continues to reflect APL's established market position in North India. The ratings also factor in its improving financial risk profile because of equity infusion by the promoters in fiscal 2018. 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.

Analytical Approach

CRISIL has treated the Rs 142 crore of unsecured loans as on March 31, 2018 as equity; as the loan will be compulsorily converted into equity by fiscal 2021. The conversion to equity is expected to happen in a stage-wise manner over a three year period; the first tranche was converted to equity by October 06, 2018.

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, Apollo Tubes Ltd. Net sales increased to Rs 287 crore in fiscal 2018 from Rs 241 crore in the previous years because of launch of new products and 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 improved significantly in fiscal 2018 to Rs 233 crore as the promoter infused fund of around Rs 140 crore to finance capex plan of the company. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 13.87 times and 0.30 times, respectively, in fiscal 2018.
 
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.
Outlook: Stable

CRISIL believes APL will maintain steady revenue growth and profitability over the medium term. The outlook may be revised to 'Positive' if there is a significant and sustainable improvement in its business risk profile, while its financial metrics remain stable. The outlook may be revised to 'Negative' if its capital structure or debt protection metrics weaken significantly on account of larger-than-expected debt-funded capex or substantial dividend outflow.
 
Liquidity
APL has adequate liquidity driven by expected cash accruals of more than Rs 40 crore per annum in fiscal 2019 and fiscal 2020 and cash and cash equivalents of Rs 142 crore as on September 30, 2018. APL also has access to fund based limits of Rs 96.50 crore utilized to the tune of 45% on an average over the 12 months ended November 2018. The company has long term repayment obligations around Rs 83 crore in fiscal 2019 and Rs 8 crore in fiscal 2020. Company also has a capex plan of Rs 260 crore overt the next three years. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet a large portion of its capex requirements, its repayment obligations as well as incremental working capital requirements.

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, APL remains a closely held company. 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 6 months ended September 2018, the company reported a PAT of Rs 13 crore on operating income of Rs 185 crore, as against a PAT of Rs 5 crore on operating income of Rs 136 crore for the same period of previous fiscal.

Key Financial Indicators
As on/for the period ended Dec 31 2018 2017
Revenue Rs Crore 283 240
Profit after tax Rs Crore 22 16
PAT Margins % 7.7 6.5
Adjusted Debt/Adjusted Net worth Times 0.41 0.29
Interest Coverage Times 13.87 9.09

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 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 2019 (History) 2018  2017  2016  Start of 2016
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      30-05-18  CRISIL BBB+/Stable  05-12-17  CRISIL BBB+/Stable  18-03-16  CRISIL BBB+/Stable  CRISIL BBB/Stable 
                25-07-17  CRISIL BBB+/Stable       
Non Fund-based Bank Facilities  LT/ST  106.00  CRISIL A2+      30-05-18  CRISIL A2  05-12-17  CRISIL A2  18-03-16  CRISIL A2  CRISIL A3+ 
                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 5 CRISIL A2
Cash Credit* 40 CRISIL A-/Stable Cash Credit@ 26 CRISIL BBB+/Stable
Letter of Credit^ 86 CRISIL A2+ Letter of Credit 30 CRISIL A2
Proposed Long Term Bank Loan Facility 8.35 CRISIL A-/Stable Proposed Fund-Based Bank Limits 2.7 CRISIL BBB+/Stable
Term Loan 25.85 CRISIL A-/Stable Cash Credit 36.5 CRISIL BBB+/Stable
Total 180.2 -- Total 100.2 --
*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
@ Interchangeable with Letter of Credit
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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