Rating Rationale
February 07, 2018 | Mumbai
G. K. Winding Wires Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.56 Crore (Enhanced from Rs.25 Crore)
Long Term Rating CRISIL BBB+/Positive (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of G. K. Winding Wires Limited (GKWL) at 'CRISIL BBB+/Positive/CRISIL A2'.

The business risk profile is likely to get better owing to expected maintenance of improvement in revenue growth, along with a healthy operating margin and a sustained working capital cycle, over the medium term.

Estimated Revenue is expected to be grow by 25% fiscal-on-fiscal in 2018 due to an increase in sales volumes and price realisation. Price realisation has improved because of higher sales of value-added products (aluminium winding wires) and better copper prices. Revenue growth is expected to remain healthy at 20-25% per fiscal owing to proposed capacity addition at the new manufacturing unit in Chennai and expansion at the current units in Greater Noida, Uttar Pradesh. Sales risk for the new unit is low due to an established customer base and diversified end-user Industries. Furthermore, the proposed expansion will lead to increase in geographical coverage (North India currently accounts for 85% of total sales) and help maintain competitive pricing due to reduction in freight cost.

Also, the operating margin sustained at improved level of 8% (higher than the industry average) for the nine months through December 2017. This was driven by higher sales in the automotive (auto) sector (50% of total turnover) as well as in value-added products. In the medium term, the margin is expected to be sustained, but will remain susceptible to volatility in commodity prices. Working capital management is efficient (gross current assets [GCAs] are estimated at 84 days as on March 31, 2018) due to low inventory of 10-15 days and moderate receivables of 50-60 days, despite limited bargaining power with customers.
The improved scale and healthy operating margin should lead to strong net cash accrual, expected at Rs 17-20 crore per fiscal over the medium term. This would support the incremental working capital requirement, due to the expected rise in scale, and moderate capital expenditure (capex) of Rs 28 crore. Hence, the current ratio is expected to remain healthy at around 2.0 times. 

The ratings continue to reflect an established market position in the copper winding wires business, a strong relationship with key customers, and extensive industry experience of the promoters. The ratings also factor in a robust financial risk profile, efficient working capital management, and a stable operating margin. These strengths are partially offset by susceptibility to the performance of end-user industries, and to intense competition from imports and from other established players in the industry.

Key Rating Drivers & Detailed Description
Strengths
* Extensive industry experience of the promoters
The promoters have been manufacturing copper winding wires and cables for over four decades. Over this period, they have consolidated their market presence and established a strong brand and longstanding relationship with suppliers and customers.

* Comfortable financial risk profile
The total outside liabilities to tangible networth (TOLANW) ratio is estimated to be healthy at 0.8 time as on March 31, 2018, while the interest coverage ratio is expected to remain strong at 13.5 times in fiscal 2018. Despite moderate capex for regular capacity addition, the financial risk profile should remain stable due to healthy cash accrual.

* Efficient working capital management
GCAs are expected at 84 days, because of moderate receivables of 50-60 days and low inventory of 15 days, as on March 31, 2018. Against this, copper is purchased from Hindalco Industries Ltd on a cash basis, against 90-day letters of credit, or through the channel finance facility. Hence, a substantial portion of working capital requirement is funded through trade credit, thereby reducing dependence on the bank limit.

Weaknesses
* Susceptibility of the operating margin to volatility in commodity prices and to the fragmented nature of the industry:
Although the operating margin is higher than the industry average, it is also exposed to volatility in copper prices. Raw material cost accounts for 90% of the operating revenue. Furthermore, due to limited value addition and low entry barrier, the industry is fragmented in nature.

The higher proportion of sales in the auto sector (50% of total turnover) has led to better price realisation due to value addition. Hence, the operating margin is expected to remain healthy over the medium term.
Outlook: Positive

CRISIL believes GKWL will benefit over the medium term from its established market position in the domestic copper winding wires business, strong relationship with key customers, and the extensive industry experience of the promoters. The ratings may be upgraded if revenue growth is as expected, and the operating margin and working capital cycle are sustained, leading to a better business risk profile. The outlook may be revised to 'Stable' in case of a decline in operating income and profitability, a longer-than-expected working capital cycle, or investment in unrelated activities.

About the Company

GKWL was set up in 1975 as a proprietorship concern (GK Engineering Industries) by Mr Sudhir Agarwal; the firm was reconstituted as a private limited company in 1985, and subsequently as a closely held public limited company with the current name in 1994. The company manufactures various types of copper and aluminium winding wires. Clientele includes original equipment manufacturers or Tier-I suppliers in the auto, electrical appliances, and lighting industries. Operations are managed by Mr Sudhir Agarwal and his son, Mr Sameer Agarwal. The unit is in Surajpur, Noida. The company sells under its own brand, GeeKay. 

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs cr 207.94 193.21
Profit after tax (PAT) Rs cr 8.07 5.48
PAT margin % 3.88 2.83
Adjusted debt/adjusted networth Times 0.27 0.13
Interest coverage Times 15.6 11.4

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 8.5 CRISIL BBB+/Positive
NA Cash Credit & Working Capital demand loan NA NA NA 5 CRISIL BBB+/Positive
NA Inventory Funding Facility NA NA NA 10 CRISIL A2
NA Letter of Credit$ NA NA NA 9 CRISIL A2
NA Long Term Loan NA 9.40 31-Mar-2023 18.5 CRISIL BBB+/Positive
NA Letter of credit & Bank Guarantee NA NA NA 5 CRISIL A2
%Sublimit is Working capital demand loan of Rs 6.00 Crore
$Sublimits are Buyer's Credit of Rs 9.00 Crore, Bank Guarantee of Rs 3.0 Crore
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  42  CRISIL BBB+/Positive/ CRISIL A2    No Rating Change  19-07-17  CRISIL BBB+/Positive  19-04-16  CRISIL BBB+/Stable  26-02-15  CRISIL BBB/Stable  -- 
Non Fund-based Bank Facilities  LT/ST  14  CRISIL A2    No Rating Change    No Rating Change  19-04-16  CRISIL A2  26-02-15  CRISIL A3+  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit% 8.5 CRISIL BBB+/Positive Bank Guarantee 1 CRISIL A2
Cash Credit & Working Capital demand loan 5 CRISIL BBB+/Positive Cash Credit 6 CRISIL BBB+/Positive
Inventory Funding Facility 10 CRISIL A2 Channel Financing 7 CRISIL BBB+/Positive
Letter of Credit$ 9 CRISIL A2 Letter of Credit 11 CRISIL A2
Long Term Loan 18.5 CRISIL BBB+/Positive -- 0 --
Letter of credit & Bank Guarantee 5 CRISIL A2 -- 0 --
Total 56 -- Total 25 --
%Sublimit is Working capital demand loan of Rs 6.00 Crore
$Sublimits are Buyer's Credit of Rs 9.00 Crore, Bank Guarantee of Rs 3.0 Crore
Links to related criteria
Rating criteria for manufaturing and service sector companies
Rating Criteria for Aluminium Industry
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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