Rating Rationale
May 31, 2021 | Mumbai
Gujarat Infrapipes Private Limited
Suspension revoked; 'CRISIL BB+/Stable/CRISIL A4+' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.71.67 Crore
Long Term RatingCRISIL BB+/Stable (Assigned; Suspension Revoked)
Short Term RatingCRISIL A4+ (Assigned; Suspension Revoked)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revoked the suspension of its rating on the bank facilities of Gujarat Infrapipes Private Limited (GIPL) and has assigned its ‘CRISIL BB+/Stable/CRISIL A4+’ ratings to the bank facilities of GIPL. CRISIL had suspended the ratings on October 22, 2012 on account of non-cooperation by GIPL with CRISIL efforts to undertake are view of the ratings. GIPL has now shared the requisite information enabling CRISIL to assign its ratings.

 

The rating reflect GIPL's extensive industry experience of the promoters, well established customer base and moderate financial profile. These strengths are partially offset by its working capital intensive operations, susceptibility of its profitability to fluctuations in raw material prices and foreign exchange rates, exposure to intense competition and slowdown in end-user industries

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive industry experience of the promoters: The promoters have an experience of over 30 years in pipe fittings industry. This has given them a keen understanding of the dynamics of the market, and enabled them to establish relationships with suppliers and customers. Company also ventured in manufacturing of piping spools over 5 years back and the segment is now contributing around a third of revenue for company.

 

  • Well established customer base: GIPL has long-standing relationships with its customers and suppliers. Its customers include some of the well established players in various industries such as GE Power India Limited, Mitsubishi Hitachi Power System India Private Limited, Bharat Heavy Electrical Ltd, L&T, Tata among others. The nature of work entails compliance with stringent quality norms.

 

  • Moderate financial profile: GIPL had a healthy net worth of Rs. 53 cr and controlled leverage of 1.4 times as on March 31, 2021. Its interest coverage and net cash accruals to tangible net worth ratios were moderate at 2.4 times and 0.18 times for fiscal 2021.

 

Weaknesses

  • Working capital intensive operations: Gross current assets were at 286-300 days over the three fiscals ended March 31, 2021. Its intensive working capital management is reflected in its gross current assets (GCA) of 286 days as on March 31, 2021 as against over 170 days GCAs of some of its peers. Its large working capital requirements arise from its high inventory and debtors levels. The long execution cycle for the customized products means high inventory levels. The Debtors are also push up driven by payments terms built in contract involving milestones based payment, retention money, debtors payment on completion of work.

 

  • Susceptibility of its profitability to fluctuations in raw material prices and foreign exchange rates: The company is exposed to volatility in raw material prices as mostly the orders are fixed price in nature and execution duration is long. Company covers this risk partly through back to back inventory procurement arrangement with its wholesale suppliers. Further, with the company deriving around 20-25% of revenue from exports and not hedging the same, it is exposed to forex risk. GIPL intends to use currency cover forwards/derivatives to mitigate this risk in future.

 

  • Exposure to intense competition, and susceptibility to slowdown in end-user industries: The company has exposure to a few end use industries, which are also cyclical. Any severe slowdown in these industries may adversely impact GIPL. Further, at the lower end of work, the industry is marked by many unorganized players and high competition.

Liquidity: Stretched

Liquidity is marked by high working capital requirements, reliance on creditors,  and high bank limit utilization. The high GCA levels around 10 months have translated into high bank limit utilization around 90 percent for the past twelve months ended April 2021. While cash accrual are expected to be over Rs 7-8 crore and be sufficient against term debt obligation of Rs 2  crore, the high working capital intensity and part funding of planned Rs. 7 cr capex, may continue to constrain the liquidity. However, liquidity is partly supported by unsecured loan funding from promoters amounting to Rs. 9.3 cr currently.

Outlook: Stable

CRISIL Ratings believe GIPL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating Sensitivity factors

Upward factor

  • Sustained improvement in scale of operation by 20% and sustenance of operating margin, leading to higher cash accruals
  • Sharp and sustainable improvement in working capital cycle

Downward factor

  • Decline in margin to below 8 % on sustained basis
  • Decline in net cash accruals or stretch in working capital cycle

About the Company

GIPL was incorporated in 1991. It is engaged in manufacturing of stainless steel, alloy steel, and carbon steel based pipe fittings & piping spools including elbows, tees, reducers & caps, seamless fabricated spools etc for the requirements of oil and gas, petrochemicals, water and energy, and other process industries. It has two manufacturing units located in Manglez and Por in the Vadodara district of Gujarat and promoted by Mr. Shantilal Mehta & family.

Key Financial Indicators

As on / for the period ended March 31

Unit

2021

2020

Operating income

Rs crore

115.75

135.10

Reported profit after tax

Rs crore

3.33

2.42

PAT margins

%

2.94

2.15

Adjusted Debt/Adjusted Networth

Times

0.61

0.56

Interest coverage

Times

2.41

1.99

 

Status of noncooperation with previous CRA

GIPL has not cooperated with Brickwork Ratings India Pvt Ltd (Brickworks), which has classified it as issuer non-cooperative vide release dated April 19, 2021. The reason provided by Brickworks is non-furnishing of information for monitoring of ratings.

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)

ISIN

Name of instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size

(Rs.Cr)

Complexity

Levels

Rating Assigned

with Outlook

NA

Bank Guarantee

NA

NA

NA

35.75

NA

CRISIL A4+

NA

Cash Credit

NA

NA

NA

21

NA

CRISIL BB+/Stable

NA

Letter of Credit

NA

NA

NA

8

NA

CRISIL A4+

NA

Long Term Loan

NA

NA

Mar-2024

6.32

NA

CRISIL BB+/Stable

NA

Short Term Bank Facility

NA

NA

NA

0.6

NA

CRISIL A4+
Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 27.92 CRISIL BB+/Stable / CRISIL A4+   --   --   --   -- Suspended
Non-Fund Based Facilities ST 43.75 CRISIL A4+   --   --   --   -- Suspended
All amounts are in Rs.Cr.
 
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Bank Guarantee Axis Bank Limited 20.75 CRISIL A4+
Bank Guarantee HDFC Bank Limited 15 CRISIL A4+
Cash Credit Axis Bank Limited 11 CRISIL BB+/Stable
Cash Credit HDFC Bank Limited 10 CRISIL BB+/Stable
Letter of Credit Axis Bank Limited 4 CRISIL A4+
Letter of Credit HDFC Bank Limited 4 CRISIL A4+
Long Term Loan Axis Bank Limited 4.24 CRISIL BB+/Stable
Long Term Loan HDFC Bank Limited 2.08 CRISIL BB+/Stable
Short Term Bank Facility HDFC Bank Limited 0.6 CRISIL A4+

This Annexure has been updated on 2-Sep-2021 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.

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
CRISILs Criteria for rating short term debt
CRISILs Bank Loan Ratings

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