Rating Rationale
February 21, 2024 | Mumbai
Gee Limited
Rating Reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.95 Crore
Long Term RatingCRISIL BB+/Stable (Rating Reaffirmed and Withdrawn)
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CRISIL Ratings has reaffirmed its rating on the bank facilities of Gee Ltd (GEL) and has subsequently withdrawn the rating at the company's request and on receipt of no objection certificate from the banker. The withdrawal is in-line with CRISIL's policy on withdrawal of bank loan ratings.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position and promoters' established presence in the welding electrodes industry: Promoters have been associated with the welding electrodes industry for around four decades, which has resulted in robust understanding of industry dynamics. This has helped GEL withstand business cycles, establish market position, and maintain strong relationships with customers and suppliers. The market position is also supported by the large distribution network, diverse end-user industries, reputed clientele, and product approvals from domestic and international agencies. The company reported revenue of Rs 394.75 crore in fiscal 2023 and Rs 192 crore in the first half of fiscal 2024.

 

  • Moderate financial risk profile: Healthy total outside liabilities to adjusted networth (TOLANW) ratio of 1.07 times on a networth base of Rs 118.36 crore as on March 31, 2023, represents comfortable capital structure. Debt protection metrics were moderate with interest coverage and net cash accrual to adjusted debt ratios of 2.78 times and 0.15 time, respectively, in fiscal 2023. Steady accruals, stable working capital cycle and the absence of large capital expenditure (capex) should ensure the financial risk profile remains above average in the medium term.

 

Weaknesses:

  • Volatile raw material prices: The price of the key raw material, steel, is highly volatile. The absence of long-term contract with suppliers regarding price and fully order backed inventory accentuates GEL's exposure to volatility in raw material prices. Because of the fragmented nature of the industry, GEL’s bargaining power is moderate. It restricts GEL from fully passing on the input cost increases to customers or retaining any benefit of lower prices. Operating margin has remained at 5.5-10.5% over the four fiscals through 2023 (6.3% in fiscal 2023) and was 8.6% in the first half of fiscal 2024.

 

  • Intense competition in the welding electrodes industry: The welding electrodes industry is highly competitive with significant presence of the unorganised sector. As orders from large projects and institutions are majorly through tenders, it constrains the profitability for players such as GEL. Further, the presence of large unorganised sector restricts penetration in the retail segment due to the highly competitive prices offered by these players. Intense competition and tender based nature of operations will continue to constrain the business

Liquidity:  Adequate

Expected cash accrual of Rs 13 crore should comfortably cover debt obligation of Rs 2 crore over the medium term and support liquidity. Bank limit utilisation averaged a moderate 78.26% over the 12 months through October 2023. The current ratio was healthy at 1.52 times on March 31, 2023.Low gearing and moderate networth support financial flexibility

Outlook: Stable

CRISIL Ratings believes GEL will continue to benefit from the extensive experience of its management and comfortable capital structure

Rating Sensitivity Factors

Upward factors:

  • Significant growth in revenue while maintaining operating margin above 10% over the medium term resulting in sizeable net cash accrual.
  • Sustained financial risk profile, with comfortable liquidity levels.
  • Improvement in working capital cycle.
  • Resolution of dispute and track record of timely filing of financial statements

 

Downward factors:

  • Sharp decline in revenue and operating margin below 7% resulting in significantly lower net cash accrual.
  • Stretch in working capital cycle or large debt funded capex or dividend payout or non-operative investments, resulting in weakening of financial risk profile

About the Company

Gee was incorporated in 1960 but started operations in 1969. It manufactures a variety of welding electrodes. The company is currently managed by Mr. S L Agarwal and his brother, Mr. S M Agarwal. Gee has three facilities, one each in Mumbai, Thane, and Kolkata. The company is listed on the Bombay Stock Exchange

Key Financial Indicators

As on/for the period ended March 31

Unit

2023

2022

Operating income

Rs.Crore

395.66

323.47

Reported profit after tax (PAT)

Rs.Crore

8.51

15.07

PAT margin

%

2.15

4.66

Adjusted debt/Adjusted networth

Times

0.74

0.71

Interest coverage

Times

2.80

5.00

 

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 the
instrument
Date of
Allotment
Coupon
Rate (%)
Maturity
Date
Issue size
(Rs.Crore)
Complexity
Level
Rating assigned with outlook
NA Cash Credit NA NA NA 95 NA CRISIL BB+/Stable (Rating Reaffirmed and Withdrawn)
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 95.0 CRISIL BB+/Stable (Rating Reaffirmed and Withdrawn) 13-02-24 CRISIL BB+/Stable 12-10-23 CRISIL BB+ /Stable(Issuer Not Cooperating)* 25-11-22 CRISIL BBB+/Stable 29-09-21 CRISIL BBB/Stable CRISIL BBB/Stable
      --   -- 11-09-23 CRISIL BBB+/Watch Developing 10-10-22 CRISIL BBB+/Stable   -- --
Non-Fund Based Facilities ST   --   --   --   -- 29-09-21 CRISIL A3+ CRISIL A3+
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 10.65 ICICI Bank Limited CRISIL BB+/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 5.65 YES Bank Limited CRISIL BB+/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 19.35 ICICI Bank Limited CRISIL BB+/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 30 HDFC Bank Limited CRISIL BB+/Stable (Rating Reaffirmed and Withdrawn)
Cash Credit 29.35 DBS Bank Limited CRISIL BB+/Stable (Rating Reaffirmed and Withdrawn)
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
Assessing Information Adequacy Risk
Rating Criteria for Engineering Sector
CRISILs Criteria for rating short term debt

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