| Goodluck India Limited | ||||||
| Ratings reaffirmed at 'CRISIL A-/Stable/CRISIL A2+'; Rated amount enhanced for Bank Debt | ||||||
| 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 reaffirmed its 'CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Goodluck India Limited (GIL).
The ratings continue to reflect significant improvement in the business and financial risk profiles of GIL. Business risk profile should remain supported by steady increase in scale of operations, healthy order book and sustained operating margin. Operating income grew to Rs 2535.2 crore in fiscal 2022 from Rs 1516.0 crore in fiscal 2021; it stood at Rs 1601.0 crore in the first half of fiscal 2023 and is expected at Rs 3,000-3,200 crore for the full year. Healthy growth is driven by increase in volume and higher realisation. Increase in volume is led by steady demand from multiple end-user industries such as automotive sector, construction, power, oil & gas sector, which supports the business risk profile. Moreover, the company has customers across domestic and overseas markets, which leads to geographical diversification in the sales profile. The company is continuously focusing on increasing exports as the margin is higher in exports and payment realisation is also faster
Operating margin remained stable at 7-8% for the three fiscals through 2022, but the focus of the management is to improve the earnings before interest, taxes, depreciation, and amortisation (EBITDA)/tonne, which increased in fiscal 2022. In the first half of fiscal 2023, there was a slight dip in the margin to 6.12%, also leading to decline in the EBITDA/tonne; this was due to the increase in raw material cost and drop in exports sales. However, the company is able to pass on the increase in the prices with a lag of a quarter.
Liquidity also strengthened, with improvement in the working capital cycle backed by an efficient collection period and inventory management system. This in turn should reduce high working capital utilisation and improve gross current assets.
Networth increased to Rs 466 crore as on March 31, 2022, from Rs 383 crore a year earlier, owing to equity infusion and accretion to reserve. Leverage (total outside liabilities to tangible networth ratio) is expected at below 2 times in line with past trends. Financial risk profile should remain stable, supported by the absence of any major capital expenditure (capex) over the medium term.
The ratings also factor in established presence of GIL in the steel processing industry, its diversified product profile, and healthy scale of operations. These strengths are partially offset by large working capital requirement, exposure to volatility in raw material prices and intense competition, and average financial risk profile. |
Key rating drivers and detailed description: Strengths: Established presence in the steel processing industry: GIL has leveraged the three-decade experience of its promoters in the steel processing industry for expanding its capacity and product portfolio. The company caters through diverse product range with high level of customisation. GIL has strong presence in the domestic and export markets. Export has gone up to more than 41% in fiscal 2022 from 30% in fiscal 2021. With strong market presence across various geographies, revenue is expected to grow further over the medium term.
Diversified product profile: GIL has a diversified product profile, divided into four major categories – engineering structures; precision fabrication; forgings, precision pipes and automotive tubes; and cold rolled coil pipe and hollow sections. The company is specialised in stainless steel, duplex, carbon, alloy steel forgings and flanges that are applied in more than 100 products. The company caters through various and wide industries such as automotive and truck, heavy commercial vehicle, agriculture machinery, equipment, valves, fittings, petrochemical applications, hardware, off-road, railway equipment, general industrial equipment, aerospace and defense. Due to presence in various end-user industries, GIL is able to absorb downturns in any specific industry.
Healthy scale of operations: Operating income was Rs 2,535 crore in fiscal 2022 and stood at Rs 1,601 crore till September 2022 of the ongoing fiscal. Rising scale is supported by increase in cost of steel products and strong quantitative growth. Of the operating income in fiscal 2022, Rs 1475 crore was generated from the domestic market and the rest from the export market. Revenue is expected to grow further over the medium term, with a strong order book of Rs 650 crore and an additional bullet train project of Rs 198 crore for which letter of intent has been signed.
Weaknesses: Average financial risk profile: Gearing was 1.38 times and total outside liabilities to tangible networth ratio at 1.69 times as on March 31, 2022. Debt protection metrics were subdued, with interest coverage ratio of 3.24 times and net cash accrual to adjusted debt ratio of 0.16 time for fiscal 2022, owing to modest operating profitability and sizeable working capital debt. The company is undergoing capex of Rs 32 crore for enhancement of the current capacity, which will be funded through term debt of Rs 25 crore from IDFC and the balance (Rs 7-8 crore) via cash accrual. This capex is expected to become operational by April 2023 and benefits of the same will start reflecting from fiscal 2024 onwards. On September 30, 2022, the company has issued 12,90,000 convertible warrants at Rs 305 each including premium of Rs 303 each). The company already received Rs 9.83 crore (25% of the issue size) and is expected to receive the balance (Rs 29.5 crore) by March 31, 2023. The funds are raised for meeting the working capital requirement and general corporate purpose. Financial risk profile may improve over the medium term, driven by infusion of funds by the promoters and steady accretion of reserve.
Large working capital requirement: Gross current assets were 118 days as on March 31, 2022 (against 171 days a year ago), driven by receivables of 48 days and inventory of 65 days. Large working capital requirement led to high bank limit utilisation. Bank limit utilisation levels have partially come down due to increase in export sales, which resulted in early payment realisation. Working capital management and bank limit utilisation will remain key rating sensitive factors.
Exposure to volatility in raw material prices and intense competition: GIL is susceptible to volatility in the price of key raw material, hot-rolled coils, which accounts for 70% of the total raw material cost, as the company is unable to pass on the impact of increase in raw material prices to customers in short-term contacts. In the long-term contracts, change in price is passed on only after 1-2 months. |
Liquidity: Strong Cash accrual is projected at more than Rs 100-120 crore per annum, sufficient to cover repayment of Rs 30-50 crore over the medium term. Fund-based limit was utilised at 83% on average for the 12 months through October 2022. Current ratio was 1.34 times as on March 31, 2021 and is expected to remain moderate going ahead as well. Cash and bank balance stood at Rs 13 crore on March 31, 2022. |
Outlook: Stable GIL will continue to benefit from its healthy order book and diversified product profile. |
Rating sensitivity factors Upward factors
Downward factors
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About the company Incorporated in 1986, GIL (formerly, Goodluck Steel Tubes Ltd) manufactures sheets, pipes, engineering structures, fabricated structures, forgings, and automobile tubes. It has five manufacturing facilities in Sikanderabad (Uttar Pradesh) and one recently operational in Kutch (Gujarat), with total installed capacity of more than 300,000 tonne per annum. The company is listed on Bombay Stock Exchange Ltd and National Stock Exchange Ltd |
Key financials
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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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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 19-Dec-2022 in line with the lender-wise facility details as on 05-May-2022 received from the rated entity.
Criteria Details
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