Rating Rationale
February 28, 2022 | Mumbai
Dynamic Cables Limited
Rating reaffirmed at 'CRISIL BBB+ / Stable'; 'CRISIL A2 ' assigned to Bank Debt; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.230 Crore (Enhanced from Rs.50 Crore)
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB+/Stable’ rating on the long term bank facilities of Dynamic Cables Limited (DCL) and assigned its ‘CRISIL A2’ rating to the short term bank facilities.

 

The ratings continue reflect DCL's strong financial risk profile marked by healthy capital structure and moderate business risk profile marked by diversified product basket, geography, clientele, and risk management practices. These strengths are partially offset by working capital intensive nature of operations and exposure to intense competition.

 

CRISIL Ratings had revoked the suspension of its ratings on the bank facilities of DCL and has assigned its 'CRISIL BBB+/Stable’ rating to the long term bank facilities on February 17, 2022.

Key Rating Drivers & Detailed Description

Strengths:

  • Moderate business profile: DCL’s promoters have an extensive industry experience of over 2 decades in conductors, cable industry. DCL enjoys the necessary approvals and has continuously expanded its customer, product base. Over the years, promoters have developed keen understanding of market dynamics and healthy relations with customers, suppliers.

 

DCL’s customers include some of the well established players such as L&T, Adani group, BHEL, NTPC, Powergrid, Indian Railways among others. DCL caters to a wide number of clients with top 10 customers contributing around 60% in fiscal 2021. DCL also derives over 10-15% of its revenue from exports.

 

DCL has continuously moved up the value chain with rising revenue contribution from LV, HV cables; conductor segment revenue contribution is below 20% in current fiscal, as against 40-45%, 3 years back. Further, the newly developed product contribute around 20% to DCL’s topline. DCL has also lowered its reliance on direct government entities’ work to a quarter of its turnover as against 50-55%, 3 years back. Further, the company has widely spread out presence in domestic market. DCL also generates around 10-15 % revenue through exports.

 

In the first half of fiscal 2022 (H1FY22), DCL has clocked a turnover of Rs. 249 cr growing sharply from Rs. 122 cr achieved in same period last fiscal (H1FY21). The growth has been backed by healthy recovery in demand, higher average aluminum prices, better product mix and higher quantitative sales. This resulted in sharply improved margin with accruals rising two folds to Rs. 17 cr (H1FY22) as against Rs. 8 cr (H1FY21). Previously, DCL’s revenues had sequentially moderated from the peak of Rs. 527 cr in fiscal 2019, amidst COVID -19 related disruption and company’s focus to move up the value chain and enhance the share of higher margin revenue. The healthy order book of Rs. 454 cr as on November 2021 provides near term revenue visibility to the company.

 

  • Prudent risk management practices: DCL follows prudent risk management strategies to mitigate the risks associated with its business. Its inventory is totally against the orders in hand. Long term contracts carry price escalation clause to cover the fluctuation in raw material price. Except for large established players or government entities, DCL sells against LC only. The company also fully covers its forex through forward contracts.

 

  • Robust financial profile: DCL’s financial profile is marked by healthy net worth of Rs. 117 cr and controlled total outside liabilities to tangible networth (TOL/TNW) ratio of 1.53 as on March 31, 2021.The capital structure is likely to further improve in current fiscal on back of unprecedented profits; DCL had a net worth of Rs. 130 cr and gearing below 0.7 times as on September 30, 2021. DCL’s debt protection measures are estimated to sharply improve on the back of rebound in the topline and profitability in current fiscal. During fiscal 2021, the moderation in topline and margin had moderated the interest coverage and net cash accrual to total debt (NCATD) ratio to 2.35 times and 0.11 times. For current fiscal, the interest coverage and NCATD are estimated over 5 times and 0.4 times. DCL’s financial profile is expected to continuously consolidate supported by improved profitability and expected moderation in debt levels.

 

Weaknesses:

  • Working capital intensive operations: DCL’s operations are working capital intensive as reflected in usual gross current assets (GCA) of 5-6 months and is likely to be around similar levels. GCA had inflated to around 8 months as on March 31, 2021 on account of suppressed turnover, higher revenue booking in second half of fiscal and build up inventory levels to support the expected revenue booking. The working capital intensity is driven average debtors of around 3 months and inventory of around 2 months.

 

  • Exposure to intense competition: The industry is marked by presence of many organized and unorganized players with intense completion. This restrains the ability of players command pricing and grow rapidly as also constraining the profitability. Also, profitability remains vulnerable to any sharp and sudden commodity price fluctuations.

Liquidity: Adequate

Company is expected to generate annual accruals of Rs. 40-45 cr against its annual repayment obligation of Rs. 7-9 cr.  Company has moderate bank limit utilization below 40% against the sanctioned working capital limits. The well capitalized balance sheet and steady cash flows have ensured that limit utilization remains under control, despite the working capital intensity. DCL is also supported by promoters in form of unsecured loans (treated debt) of Rs. 15.5 cr. Current ratio is healthy at 1.52 times on March 31, 2021. DCL’s liquidity is likely to remain adequate backed by healthy accruals and absence of any capex plans.

Outlook: Stable

CRISIL Ratings believe DCL will continue to benefit from the extensive experience of its promoter and established relationships with clients.

Rating Sensitivity factors

Upward factors:

  • Sustained improvement in scale of operation by 25% and steady operating margin around 12%, leading to higher cash accruals
  • Sharp and sustained improvement in working capital cycle

 

Downward factors:

  • Decline in the margin below 10% or pressure on topline indicating deterioration in business profile
  • Stretch in working capital cycle or large capex adversely affecting the financial, particularly liquidity profile

About the Company

DCL was established as partnership firm in 1986 as Dynamic Engineers by the Mangal family, and later in 2007 the firm was converted into a private limited. Further in 2017, it became public limited with the current name. The company engaged in manufacturing of conductors and cables which include manufacturing of LV, MV and HV power cables, aerial bunches cables, aluminum conductors (steel reinforced, and all aluminum alloy conductors), railway signaling cables. It has 3 manufacturing facility located in Jaipur- Rajashtan and managed by Mr. Rahul Mangal and his brother Mr. Ashish Mangal.

Key Financial Indicators

As on / for the period ended March 31

 

2021

2020

Operating income

Rs crore

343

429

Reported profit after tax

Rs crore

10

18

PAT margins

%

2.87

4.25

Adjusted Debt/Adjusted Net worth

Times

1.43

1.50

Interest coverage

Times

2.35

3.01

For the period ending September 30, 2021, DCL has clocked a revenue of Rs 249 cr and profit after tax of Rs. 13.5 cr.

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)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs. Cr) Complexity Level Rating assigned With outlook
NA Bank Guarantee NA NA NA 85 NA CRISIL A2
NA Cash Credit & NA NA NA 50 NA CRISIL BBB+/Stable
NA Credit Limit Under Gold Card NA NA NA 4 NA CRISIL BBB+/Stable
NA Letter of Credit^ NA NA NA 70 NA CRISIL A2
NA Long Term Loan NA NA Mar-2025 18.88 NA CRISIL BBB+/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 2.12 NA CRISIL BBB+/Stable

& - Rs. 10 cr sub limit of FCNR (B)/ PC/PCFC/FBP/ FBD/FCBD/FCBP. Rs. 10 cr sub limit of ILC/FLC/BC

^ - Interchangeable with buyers credit, FLC, ILC

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 75.0 CRISIL BBB+/Stable 17-02-22 CRISIL BBB+/Stable   --   --   -- Suspended
Non-Fund Based Facilities ST 155.0 CRISIL A2   --   --   --   -- Suspended
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 85 Bank of Baroda CRISIL A2
Cash Credit& 50 Bank of Baroda CRISIL BBB+/Stable
Credit Limit Under Gold Card 4 Bank of Baroda CRISIL BBB+/Stable
Letter of Credit^ 70 Bank of Baroda CRISIL A2
Long Term Loan 18.88 Small Industries Development Bank of India CRISIL BBB+/Stable
Proposed Long Term Bank Loan Facility 2.12 Not Applicable CRISIL BBB+/Stable

This Annexure has been updated on 28-Feb-2022 in line with the lender-wise facility details as on 17-Feb-2022 received from the rated entity.

& - Rs. 10 cr sub limit of FCNR (B)/ PC/PCFC/FBP/ FBD/FCBD/FCBP. Rs. 10 cr sub limit of ILC/FLC/BC
^ - Interchangeable with buyers credit, FLC, ILC
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios
Understanding CRISILs Ratings and Rating Scales

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