| Gee Limited | ||||
| Rating placed on 'Watch Developing' | ||||
| Rating Action | ||||
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| 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 placed its rating on the bank loan facilities of Gee Limited (GEE) on ‘Rating Watch with Developing Implications’.
The rating action follows announcement by GEE indicating resignation of Independent Director. He has also cited in his resignation non-submission of audited accounts for Q4 FY 23 and FY 23 even up-to August 20, 2023. CRISIL Ratings is currently in discussions with GEE’s management regarding FY 23 results and other operational information to ascertain the impact on GEE's credit risk profile. CRISIL Ratings will remove the ratings from watch and take a final rating action once it has clarity on the issue.
The rating continues to reflect the GEEs established market position, extensive experience of its promoters in the welding electrodes industry and comfortable capital structure. These strengths are partially offset by large working capital requirement, modest operating profitability and stabilization of capex. |
Key Rating Drivers & Detailed Description Strengths: Established market position and promoters' established presence in welding electrodes industry: Promoters have been associated with the welding electrode industry for around four decades which has resulted in deep understanding of the industry dynamics. This has helped Gee withstand business cycles, establish market position, and maintain strong relationships with customers and suppliers. The market position is also supported by large distribution network, diverse end-user industries, reputed clientele and product approvals from domestic and international agencies. In 9MFY23 company have done sales of Rs.296 Crores
Satisfactory financial risk profile: Moderate Total Outside Liabilities to Adjusted Net Worth (TOLANW) 1.03 times on a net worth base of Rs 196 crore as on Sept 30, 2022 represents comfortable capital structure. Debt protection metrics were comfortable with interest coverage and net cash accruals to adjusted debt ratio of 4.8 times and 0.10 times on Sept 30, 2022. Steady accruals, stable working capital cycle and the absence of large capital expenditure should ensure the financial risk profile remains above average in the medium term.
Weakness: 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 absence of fully order backed inventory accentuates Gee's exposure to volatility in raw material prices. Because of fragmented nature of industry, Gee's bargaining power is moderate. It restricts Gee from fully passing on the input cost increases to customers or retaining any benefit of lower input cost. Operating margin has remained in range of 5.5% to 10.5% for over past 4 years through fiscal 2022. During 9M FY 23 operating margins were at 8.4%
Intense competition in the welding electrode industry: Welding electrode industry is highly competitive with significant unorganized sector. As orders from large projects and institutions are majorly through tenders and this may constrain profitability for players like Gee. Further, presence of large unorganized sector restricts penetration in the retail segment due to highly competitive prices offered by the unorganized sector. CRISIL Ratings believes that the intense competition and tender based nature of business will constrain Gee's business risk profile over the medium term. |
Liquidity: Adequate Bank limit utilization is moderate at around 76 percent for the past twelve months ended July 2022. Cash accruals are expected to be over Rs 18 Crore which are sufficient against term debt obligation of Rs 1-2 crore over the medium term. In addition, it will act as cushion to the liquidity of the company. In addition, it will act as cushion to the liquidity of the company.
Current ratio was healthy at 1.53 times on March 31, 2022. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
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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
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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