Rating Rationale
June 03, 2019 | Mumbai
Bansal High Carbons Private Limited
Rating upgraded to 'CRISIL A-/Stable'
 
Rating Action
Total Bank Loan Facilities Rated Rs.91 Crore
Long Term Rating CRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Positive')
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 Bansal High Carbons Private Limited (BHCPL; part of the Bansal Wire group) to 'CRISIL A-/Stable' from 'CRISIL BBB+/Positive'.
 
The rating upgrade reflects the Bansal Group's strong business risk profile and healthy financial risk profile backed by sales volume growth, efficient working capital cycle and net cash accruals having adequate cushion over repayments. The group continued to deliver strong performance reflected in operating income CAGR growth 27.15% per cent over the past three years despite rising steel prices. On provisional basis, in fiscal 2019, the group is expected to report sales growth of 38% y-o-y to record an operating income of Rs 1932 Crore. This is driven by 14% volume growth and 22% growth in average sales realization. The growth in sales volume is on the back of increase in direct sales to original equipment manufacturers (OEM) in the automobile and industrial segments, and the increasing competitiveness of the group against unorganized players post goods and services tax (GST) implementation.
 
The group's business model operates on raw material cost plus conversion margins. Hence, the operating margin of the Bansal Group moderated to 4.2% in fiscal 2019 owing to sharp and persistent increase in steel prices (from 4.7% per cent in fiscal 2018). However, earnings before interest, tax, depreciation and amortization (EBITDA) continued to grow over past three years. The group's EBITDA/metric ton has increased from Rs 3111/ton in fiscal 2018 to Rs 3394/ton in fiscal 2019 backed by addition of value added products and  continuous capex to improve operating efficiency (mostly balancing equipment to improve throughput rate and capacity utilization levels). The improvement in operating efficiency is reflected in continuous improvement in working capital cycle while scaling up operations, driven by gross current assets (GCAs) improving to 103 days in fiscal 2019 from 115 days in fiscal 2018 and 131 days in fiscal 2017.
 
Financial risk profile is healthy, reflected in gearing and total outside liabilities to tangible networth (TOLTNW) of 1.59 times and 1.88 times, respectively as on March 31, 2019, driven by networth of Rs 231.2 crore. Financial risk profile is partially constrained by moderate debt-protection metrics, with interest coverage and net cash accruals to adjusted debt ratios of 2.26 times and 0.09 time in fiscal 2019. Interest coverage ratio, however, improved from 2.02 times in fiscal 2018 on the back of lower utilization in bank lines and hence control on debt levels while ramping up of operating profitability.
 
The improvement in working capital cycle led to relatively lower utilization in bank lines which averaged at 83% over the 12 months through March 2019, against 88% over the 11 months through February 2018. Net cash accruals are expected at Rs 34 crore in fiscal 2019 which are adequate to cover repayment obligations of Rs 15 crore in the same fiscal. The gap between net cash accruals and repayment obligations is expected to widen further, as reflected in net cash accruals expected at over Rs. 40 crore against repayment obligations of Rs 11-12 Crore over the medium term. The surplus cash accruals and cushion in bank lines are expected to aid liquidity, and support working capital requirements and capital expenditure over the medium term.
 
The rating reflects established regional market position supported by diversified product and customer portfolio, moderate operating efficiency, and healthy capital structure. These rating strengths are partially offset by low operating margin and susceptibility to steel prices.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of BHCPL, Bansal Wire Industries Limited (BWIL), and Balaji Wires Private Limited (BWPL). All the companies, collectively referred to as the Bansal Wire group, have the same promoter, Mr. Arun Gupta, and a common management team; are in the same line of business of manufacturing wires; and have operational linkages and fungible cash flows. Mr. Arun Gupta controls the strategic functions, including procurement, marketing, and capacity expansion, of all these companies.
 
CRISIL has treated unsecured loans from promoters of Rs 48.19 Crore as on March 31, 2019, as 75% equity and 25% debt as the loans are subordinate to bank debt, will be maintained at the same level over at least the next five years, are interest-free, and are from the promoter and his family members and friends.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established regional market position supported by diversified product and customer portfolio - The group is one of the largest players in North India and has a well-entrenched presence on the back of large manufacturing capacities, established brand, and longstanding relationships with customers. It has a wide customer base of over 500 customers, including traders and manufacturers across different industries. The product portfolio comprises different varieties and sizes of galvanized iron (GI) wires, mild steel (MS) wires, high carbon (HC) wires, and stainless steel (SS) wires. The business risk profile is further supported by the promoter's extensive experience of three decades in the wire manufacturing industry.
 
* Moderate operating efficiency - Though the operating margin has moderated in percentage terms owing to sharp and persistent increase in steel prices over the past 2-3 years, the group has been able to grow its operating profits in absolute terms as it works on a cost plus conversion margin basis. The same is reflected in 24.2% y-o-y growth in EBITDA to Rs 81.5 Crore in fiscal 2019. The group's EBITDA/metric ton has also increased from Rs 3111/ton in fiscal 2018 to Rs 3394/ton in fiscal 2019. The improvement in operating efficiency is reflected in continuous improvement in working capital cycle while scaling up operations. GCAs were 103 days as on March 31, 2019 (115 days as on March 31, 2018), driven by receivables and inventory 45 days and 42 days, respectively (55 days and 46 days, respectively as on March 31, 2018). This is driven by tight control on inventory levels (backed by order-backed procurement) and credit terms with customers. Return on Capital Employed was healthy at 13% in fiscal 2019, against 11.9% in fiscal 2018.
 
* Healthy capital structure ' Bansal group has a healthy capital structure, reflected in gearing and TOLTNW ratio of 1.59 times and 1.88 times, respectively as on March 31, 2019, driven by healthy networth of Rs 231.2 Crore. This is, however, partially constrained by moderate debt-protection metrics, with interest coverage and net cash accruals to adjusted debt ratios of 2.26 times and 0.09 time in fiscal 2019. Interest coverage ratio, however, improved from 2.02 times in fiscal 2018 on the back of lower utilization in bank lines and hence control on debt levels while ramping up of operating profitability.
 
Weaknesses
* Low operating margin - The operating margin has ranged between at 4-6% over the three fiscals through 2019, constrained by the conversion nature of the group's business and high price sensitivity of the products. The operating margin moderated to 4.2% in fiscal 2019. To support operating profitability margins, the group is focusing on increasing revenue from OEM segment, which has higher average realizations.
 
* Susceptibility to steel prices ' The operating margin and realizations are susceptible to volatility in steel prices. The increase in steel prices helped the group earn higher realizations and hence sales in fiscal 2018 and fiscal 2019. The impact of moderation in steel prices expected in fiscal 2020 on the group's financials is expected to be limited owing to the group's presence in diverse product segments which will support the growth over the medium term.
Liquidity

Bansal group is expected to generate net cash accruals of Rs 34 Crore that are largely adequate to cover repayment obligations of 15 Crore in fiscal 2019. The gap between net cash accruals and repayment obligations is expected to widen further, as reflected in net cash accruals expected at over Rs. 40 crore against repayment obligations of Rs 11-12 Crore over the medium term. Hence the surplus cash accruals are expected to support the working capital requirements and capital expenditure going forward. Current ratio is adequate at 1.44 times as on March 31, 2019. The improvement in working capital cycle led to relatively lower utilization in bank lines which averaged at 83% over the 12 months through March 2019, against 88% over the 11 months through February 2018. Cash and bank balance was moderate at Rs 6.07 Crore as on March 31, 2019.

Outlook: Stable

CRISIL believes that Bansal group will maintain its established market position in the wire manufacturing industry, and continue to benefit from the promoter's extensive experience over the medium term. The outlook may be revised to 'Positive' in case of substantial improvement in operating margin and scale of operations, with sustenance of working capital cycle, leading to better-than-expected cash accruals or infusion of equity, thus strengthening the financial risk profile. Conversely, the outlook may be revised to 'Negative' if the groups' EBITDA/MT declines significantly, considerably lowering cash accrual, or in case of sizeable debt-funded capex, or high bank limit utilization, weakening the financial risk profile.

About the Group

BWIL, the flagship company of the Bansal group, was set up in 1985 by Mr. Arun Gupta, who has also established the group's other three companies. The company manufactures stainless steel and MS wire. BWPL, set up in 1988, manufactures galvanized MS wires. BHCPL, set up in 1997, manufactures high-carbon MS wires. BSPL, established in 1997, manufactures MS strips.

Key Financial Indicators
As on/for the period ended March 31   2019* 2018
Revenue Rs crore 1932.38 1394.01
Profit after tax Rs crore 24.51 16.30
PAT margin % 1.3 1.2
Adjusted debt/adjusted networth Times 1.59 1.91
Interest coverage Times 2.26 2.02
 *Provisional 

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.Crore)		 Rating assigned with outlook
NA Cash Credit NA NA NA 75 CRISIL A-/Stable
NA Rupee Term Loan NA NA Jan-2024 16 CRISIL A-/Stable
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Bansal Wire Industries Limited, Balaji Wires Private Limited and Bansal High Carbons Private Limited Full All the companies, collectively referred to as the Bansal Wire group, have the same promoter, Mr. Arun Gupta, and a common management team; are in the same line of business of manufacturing wires; and have operational linkages and fungible cash flows.
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  91.00  CRISIL A-/Stable      20-08-18  CRISIL BBB+/Positive  10-08-17  CRISIL BBB+/Stable  04-07-16  CRISIL BBB+/Stable  CRISIL BBB+/Stable 
            03-04-18  CRISIL BBB+/Positive           
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
Cash Credit 75 CRISIL A-/Stable Cash Credit 75 CRISIL BBB+/Positive
Rupee Term Loan 16 CRISIL A-/Stable Rupee Term Loan 16 CRISIL BBB+/Positive
Total 91 -- Total 91 --
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
Rating Criteria for Steel Industry
CRISILs Criteria for Consolidation

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