| Electrosteel Castings Limited | ||||||
| Rating outlook revised to 'Positive'; Short-term rating upgraded to 'CRISIL A1+'; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook to ‘Positive’ from ‘Stable’ on long term bank facilities of of Electrosteel Castings Limited (ECL) and has reaffirmed rating at ‘CRISIL A+‘. CRISIL Ratings has upgraded its short-term bank facilities to ‘CRISIL A1+’ from ‘CRISIL A1’.
The upgrade of short-term rating is driven by the healthy liquidity position of the company on the back of large, unencumbered cash and bank balance and healthy cash accrual against maturing term debt obligation. Furthermore, the ‘Positive’ outlook reflects improvement expected in the financial risk profile because of expected improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) leading to overall improvement in net cash accruals; hence debt protection metrics. With increased capacity and production of value-added products i.e. DI Pipes and better synergies of enhanced capacity, EBITDA and accruals is expected to improve, leading to better NCA/AD and interest coverage. On account of reset of interest rates by banker in FY 2022, average cost of debt has reduced from 10.34% in FY 2021 to 7.75% in FY 2022 leading to an improvement in overall interest coverage. Sustenance of this improvement in financial risk profile, particularly Net Debt/EBITDA at below 2 times and gearing below 0.75 times will be key moniterable for any rating movement.
The ratings reflect market leadership in the domestic ductile iron pipes industry and robust operating efficiency parameters driven by backward integration. The ratings also factor in healthy cash generating ability. These strengths are partially offset by exposure of profitability to volatility in raw material prices. |
Analytical Approach CRISIL Ratings has considered the business and financial profiles (for FY 2021) of ECL with its associate, Srikalahasthi Pipes Ltd (SPL). This is because these entities, together referred to as the Electrosteel group, are in the same business and have common promoters and management. Now, SPL got merged with ECL with effect from December 31, 2021.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The plants of ECL are in eastern and southern India, which aides in tapping two different markets. Also, a sizeable portion of revenue is derived from exports.
Additionally, both the companies have high level of backward integration in terms of a sinter plant, sponge iron unit, coke oven plant, power plant, ferroalloy plant and cement plant. This high level of backward integration has aided the group in maintaining the high quality of its products, leading to better profitability.
Weakness:
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Liquidity: Strong Cash accrual is expected to be Rs 450-550 crore, against debt obligation of around Rs 200 crore per fiscal over the medium term. The surplus should support working capital requirement as the additional capacity becomes operational. ECL’s fund-based working capital limit was utilised at 68% on average during the 12 months through February 2022. The liquidity is over Rs 800 crore, out of which the management plans to conserve minimum Rs 400 crore of liquid funds to meet any short-term exigencies in the future. The current ratio was adequate at 1.6 times as on March 31, 2022.
ECL is in the process of implementing capital expenditure (capex) of around Rs 450 crore to be primarily funded by internal accrual. Considering the comfortable cash flow expected, the capex should not impact the company’s financial flexibility and liquidity. |
Outlook: Positive ECL is expected to maintain a stable business risk profile over the medium term, backed by established market position, healthy operating efficiency and diversified manufacturing base catering to various customers. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company ECL primarily manufactures ductile iron pipes with installed capacity of 6.8 lakh tpa. As a back-ward integration, it also operates a blast furnace, coke oven and waste heat recovery-based power plant. The plants of the company are located in Khardah, West Bengal (DI pipes), Elavur, Tamil Nadu (CI Pipes), Haldia, West Bengal (coke over battery) and Rachagunneri, Andhra Pradesh (DI Pipes).
Srikalahasthi Pipes Limited (SPL) got merged with ECL effective from 31st December 2021 and got de listed from BSE and NSE. |
Key Financial indicators (Consolidated Financials)
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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)
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Annexure – List of entities consolidated
* Consolidated financials for FY 2021. Now, SPL has got merged with ECL effective from 31st December 2021. |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 07-Jul-2022 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.
Criteria Details
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