Rating Rationale
December 28, 2021 | Mumbai
D P Wires Limited
Ratings upgraded to 'CRISIL A- / Stable / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.45 Crore
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Stable')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank loan facilities of D P Wires Limited (DPWL) to ‘CRISIL A-/Stable/CRISIL A2+’ from 'CRISIL BBB+/Stable/CRISIL A2'.

 

The upgrade reflects the improvement in the company’s business risk profile and financial risk profile driven by the improvement in revenue on back of growth in volumes as well as better realization supported by increase in steel prices. Company has reported an operating income of Rs.465.62 crore in fiscal 2021 - a 64.3% y-o-y growth. The sales for wires and other traded steel products have grown by 72% in FY2021, backed by 53% volumetric growth and 13% realization growth. With continued healthy demand and favourable steel prices, company has achieved revenue of Rs.274.56 crore during H1 FY22 as against Rs.139.10 crore during H1 FY21. The working capital cycle remains controlled despite the revenue growth and this is reflected in Gross Current Asset (GCA) days of 97 days as on March 31, 2021, driven by debtors and inventory days of 49 days and 21 days respectively. Financial risk profile remains healthy, with a strong networth of Rs122.66 crore and low gearing of 0.06 time as on March 31, 2021. Debt protection metrics are healthy as reflected in interest cover and net cash accruals to adjusted debt (NCAAD) ratio of 32.58 times and 3.41 times in fiscal 2021.

 

The ratings reflect the extensive experience of the promoters in the steel industry resulting in strong relations with customers and suppliers, an established market position and a diversified end user industry & customer base, moderate working capital cycle, and healthy financial risk profile. These rating strengths are partially offset by susceptibility of profitability to steel prices, and exposure to intense competition and susceptibility to the performance of the end-user industry.

Key Rating Drivers & Detailed Description

Strengths:

  • Promoters' extensive industry experience, an established market position, and a diversified end-user industry base & customer base: Business risk profile is supported by promoters' extensive experience of over 2 decades in the steel industry, which has enabled them to develop a strong understanding of market dynamics, and establish healthy relations with customers and suppliers. DPWL has long-standing relationships with its customers and suppliers. It caters to a customer base of around 150-200 in a diversified end user industry base which includes oil & power industry, automotive industry, construction industry, infrastructure industry etc. A diversified end user industry base allows it in overcoming the risk of slowdown in a particular industry and achieving higher growth. Furthermore, LRPC/stranded wire is a specialized product with few players in the industry. This has also resulted in an established market position. DPWL's moderate scale provides it an operating flexibility in an intensely competitive industry.

 

  • Moderate working capital requirements: DPWL has a moderate working capital cycle as reflected in GCAs of 97 days as on March 31, 2021, driven by receivables and inventory of 49 days and 21 days, respectively. This is supported by bank lines and creditors which stood at 4 days as on March 31, 2021. Working capital cycle is supported by the internal accruals leading to low dependence on creditors and bank lines.

 

  • Healthy financial risk profile: Company has a strong networth of Rs 122.66 crore as on March 31, 2021 owing to healthy revenue growth and comfortable operating profitability. DPWL has limited reliance on external debt leading to lower debt level and hence healthy capital structure, reflected in gearing and TOLTNW of 0.06 time and 0.25 time, respectively as on March 31, 2021. A healthy operating profitability and limited reliance on external debt has resulted in comfortable debt protection metrics, reflected in interest cover and NCAAD of 32.58 times and 3.41 times, respectively in FY 2021.

 

Weaknesses:

  • Susceptibility to volatility in steel prices: The operating margin and realizations are susceptible to volatility in steel prices. Operating margin has ranged between 7.1%-8.2% over the four fiscals ended 2021. Though, the impact of volatility in steel prices is limited owing to the company's presence in diverse segments, company's profitability will remain susceptible to steel prices.

 

  • Exposure to intense competition and susceptibility to the performance of the end-user industry: The steel wires manufacturing industry is highly fragmented with the presence of many small, medium, and large players. This is due to limited entry barriers such as low capex and technology requirements. While most of the players in the unorganised sector have marginal capacities and do not meet any stringent quality standards, they continue to cater to small regional buyers in price sensitive markets. Therefore, the ability to command a premium for products is restricted for organised players such as DPWL. Also, with major demand coming from the construction and infrastructure sectors, sales remain exposed to any slowdown in demand from these sectors.

Liquidity: Adequate

Liquidity is adequate supported by low utilization in bank lines: Fund based BLU averaged at 34% over the 12 months ended October 2021, while Non-fund based BLU averaged at 19% over the 12 months ended October 2021. Net cash accruals are expected in the range of Rs 27-32 crore which will be more than adequate against repayments of Rs 0.10-0.20 crore over the medium term. Cash and bank balance was Rs 3.51 crore as on March 31, 2021. Unsecured loan of Rs 2.31 crore (as on March 31, 2021) from friends and family also supports the liquidity. Current ratio was healthy at 4.64 times as on March 31, 2021. Company does not have any significant dividend pay-out plans over medium term.

Outlook: Stable

CRISIL Ratings believes DPWL will continue to benefit from the extensive experience of its promoters, its established market position and healthy financial risk profile.

Rating Sensitivity factors

Upward Factors:

  • Significant and sustained growth in revenue and an operating margin over 9%, resulting in net cash accruals above Rs 32 crore on a sustained basis
  • Sustenance of financial risk profile and working capital management

 

Downward Factors:

  • Steep decline in revenue or an operating margin below 5% leading to lower-than-expected net cash accruals
  • Stretch in working capital cycle or Large debt-funded capital expenditure weakening the capital structure

About the Company

Incorporated as a private limited company in February 1998, DPWL is engaged in manufacturing of steel wire and plastic products such as LRPC strands, steel wires, geomembrane sheets, PE coated and greased strand, plastic film sheets. Subsequently in 2017, the company got converted into a public limited company. DPWL's manufacturing facility is located in Ratlam (Madhya Pradesh) with an installed capacity of 50000 tons per annum. DPWL is also engaged in power generation through 2 wind farms of 0.80 MW each in District Jamnagar. DPWL is promoted by Mr. Praveen Kataria and his family.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs cr

465.62

283.44

Profit after tax

Rs cr

24.08

16.69

PAT margin

%

5.17

5.89

Adjusted debt/adjusted networth

Times

0.06

0.03

Interest coverage

Times

32.58

18.99

 

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 Levels Rating assigned with outlook
NA Cash Credit NA NA NA 29 NA CRISIL A-/Stable
NA Letter of Credit NA NA NA 13.7 NA CRISIL A2+
NA Bank Guarantee NA NA NA 1.5 NA CRISIL A2+
NA Foreign Exchange Forward NA NA NA 0.8 NA CRISIL A2+

 

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 ST/LT 29.8 CRISIL A2+ / CRISIL A-/Stable   -- 29-09-20 CRISIL BBB+/Stable / CRISIL A2   --   -- --
Non-Fund Based Facilities ST 15.2 CRISIL A2+   -- 29-09-20 CRISIL A2   --   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1.5 Axis Bank Limited CRISIL A2+
Cash Credit 19 Axis Bank Limited CRISIL A-/Stable
Cash Credit 10 ICICI Bank Limited CRISIL A-/Stable
Foreign Exchange Forward 0.8 ICICI Bank Limited CRISIL A2+
Letter of Credit 4.5 Axis Bank Limited CRISIL A2+
Letter of Credit 9.2 ICICI Bank Limited CRISIL A2+

This Annexure has been updated on 27-Feb-23 in line with the lender-wise facility details as on 14-Feb-23 received from the rated entity.

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
Rating Criteria for Steel Industry
CRISILs Criteria for rating short term debt

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