| Gupta Power Infrastructure Limited | ||||||
| Ratings reaffirmed at 'CRISIL A- / Stable / CRISIL A2+ ' | ||||||
| Rating Action | ||||||
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| 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 Gupta Power Infrastructure Ltd (GPIL).
The ratings continue to reflect the strong business risk profile of GPIL, supported by its established presence in the conductors and cables business, leading to sizeable scale and diversified operations. The ratings also factor in the extensive experience of the promoters, the reputed clientele and moderate financial risk profile. These strengths are partially offset by moderately large working capital requirement and modest profitability amid intense competition. |
Key rating drivers and detailed description Strengths Established presence, sizeable scale and diversified operations: GPIL is one of the leading players in the domestic conductors/cables business, backed by over four decades of industry presence and steady growth in scale. Revenue has remained stable at Rs 3,000-3,500 crore over the four years through March 2021, driven by healthy demand from the power sector. Demand for power conductors is driven by capital expenditure (capex) undertaken by the Power Grid Corporation of India Ltd (PGCIL) and state transmission companies (transcos), while demand for power cables depends on the capex of state distribution companies (discoms) and other industry investments. The domestic power conductor market is expected grow by 5-6% over the next three years, backed by continued investments from state utilities and healthy growth in exports. Most of the current orders (worth about Rs 3,006 crore as of December 2021) need to be executed in the near term, while orders for new products will build revenue visibility over the medium term.
Operations are diversified in terms of geographic reach and clientele in the domestic and overseas markets, aided by regular addition of products and the company’s presence in the power infrastructure engineering, procurement and construction (EPC) business. Having three manufacturing facilities—one each in Odisha, Uttarakhand and Chennai—enables the company to cater to pan-India demand efficiently. Addition of products such as high-efficiency conductors or high-tension low-slag conductors and the recent foray into optical fibre cables (OFCs) and light-emitting diode (LED) lights should also improve scalability.
Experienced management and reputed clientele: The key promoter, Mr MK Gupta, has been associated with the power industry since the 1970s and, thus, has been instrumental in business expansion and building client relationships. He is assisted by his son, Mr Abhishek Gupta, and a team of professionals. GPIL deals with reputed customers, such as PGCIL, KEC International Ltd, Odisha Power Transmission Corporation, Tata Power, L&T Ltd and Kalptaru Power Transmission Ltd. Over the years, the company has reduced its reliance on PGCIL, while maintaining its revenue growth. A strong and reputed clientele reduces counterparty-related risks.
Moderate financial risk profile: Networth stood at around Rs 694 crore as on March 31, 2021 (Rs 639 crore a year earlier), while gearing and total outside liabilities to tangible networth ratio were comfortable at 1.3 times and 2.3 times, respectively. The capital structure has gradually improved over the past four years, aided by build-up in networth and absence of any significant capex. Debt protection metrics, however, have been average, as indicated by interest coverage and net cash accrual to total debt ratios of 1.85 times and 0.09 time, respectively, over the past three fiscals. Any further weakening of the metrics will remain a key rating sensitivity factor.
Weaknesses Large working capital requirement: The cables and conductors business is highly working capital intensive, driven by sizeable receivables and limited payables. End-users of power cables and conductors comprise state electricity boards (SEBs), public and private sector power utilities and industrial houses. Supply to large buyers, which exercise considerable bargaining power, entails a long credit period. Furthermore, the EPC business (contributing 12-15% to the revenue) is primarily for state discoms, wherein receivables are stretched.
The company does not receive any major credit on procurement. Aluminium, the primary raw material, is purchased on a cash basis or against letter of credit. However, the company purchases some of its raw materials (15-20%) from associates against limited credit. Large working capital requirement and limited payables have led to high reliance on short-term debt.
Modest operating margin and exposure to intense competition: The domestic cables and conductors segment is intensely competitive. Conductors and cables are used by power transcos, including SEBs, and the company has to procure orders by bidding for tenders. Conductor manufacturers are required to be cost-competitive but have limited pricing power, as a result of which the operating margin remains moderate (5.5-6.5% in the last three years). Operating profitability remains partly vulnerable to prices of open inventory, any adverse foreign exchange fluctuations and intensifying competition.
The cables market is more fragmented and commoditised, especially in the low- and medium-voltage segment, where GPIL has major presence. The unorganised segment accounts for 60% of the overall market. However, the extra-high voltage segment is more technology intensive and, hence, less competitive. Foray of GPIL into this sector, in addition to other product segments, should improve overall profitability in the longer run. |
Liquidity: Adequate Liquidity is adequate, driven by sufficient cash accrual and moderate bank limit utilisation. Net cash accrual, expected at Rs 100-120 crore per annum, will comfortably cover yearly debt obligation of Rs 35-40 crore over the medium term. Utilisation of the cash credit limit averaged 87% over the 12 months through November 2021. Absence of any large capex/investment plan, in addition to the regular replacement/maintenance capex, further aids liquidity. The company does not have sizeable unencumbered cash and equivalents. |
Outlook: Stable GPIL will maintain its established business risk profile over the medium term, supported by its healthy order pipeline and favourable demand prospects from the power transmission and distribution segment. |
Rating sensitivity factors Upward factors • Growth in scale and volume sales along with sustenance of margins • Efficient working capital management leading to improvement in GCA Days, lower-than-expected debt and improvement in interest coverage to above 2.5 times
Downward factors • Elongation in the working capital cycle leading to any further increase in debtors or creditors • Fall in the interest coverage ratio to below 1.7 times |
About the company GPIL was incorporated as Gupta Cables Pvt Ltd in 1961 to manufacture aluminium and alloy conductors and cables. Mr MK Gupta and his family members, based in Odisha, acquired the business in 1970 and renamed the company to GPIL in 2008. The company’s product portfolio comprises a variety of cables, conductors, housing wires and recently added LED lights and OFCs.
The company also has an EPC division, which undertakes turnkey power infrastructure projects. Wires are sold in the retail segment under the Rhino brand. GIPL has three manufacturing plants: in Khurda, Odisha; Kashipur, Uttarakhand; and Chennai. |
Key financial indicators
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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)
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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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Criteria Details
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