| Hariom Pipe Industries Limited | ||||||
| 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 Hariom Pipe Industries Limited (HPIL).
The ratings continue to reflect the improvement in the business performance of HPIL in fiscal 2024, with incremental capacities being operational. Though revenue is estimated at Rs 826 crore for the first nine months of fiscal 2024 (against Rs 644 crore in fiscal 2023), it is likely to remain below expectation due to moderation in sales realisation and delays in commencement of operations in the enhanced capacities; revenue is expected to be in line for the upcoming fiscals as well. The operating margin has been steady at 11.0-13.4% for the past three fiscals.
The ratings also consider established presence of HPIL in the steel industry, integrated operations leading to healthy operating efficiency and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition, cyclicality in the industry and volatility in input cost. |
Key Rating Drivers & Detailed Description Strengths: Established presence in the steel industry The promoters have more than three decades of experience in the steel industry; their strong understanding of market dynamics helped diversify the product profile and integrate operations; they also built healthy relationships with steel traders and manufacturers across Maharashtra, Kerala, Andhra Pradesh, Telangana and Tamil Nadu. Revenue is expected to improve significantly, led by the incremental capacities getting operational in the ongoing and upcoming fiscals.
Integrated operations leading to healthy operating efficiency The company started with a furnace to manufacture mild steel (MS) billets and has integrated forward over the years into hot-rolled (HR) strips, MS tubes, galvanised pipes and galvanised iron pipes and scaffolding. The company has also integrated backward and started manufacturing MS sponge iron in fiscal 2021. The integrated operations helped limit the impact of downcycles and sustain better profitability (operating margin stood at 11.0-13.4% for the past three fiscals), when compared with other steel players. Further, savings in power cost -- owing to availability of the solar power capacity and the new furnace unit -- aids the operating margin despite moderation in sales realisations. The margin is likely to further improve over the medium term, with steady addition of value-added steel products to the product portfolio.
Comfortable financial risk profile The financial risk profile should remain supported by the absence of any large, debt-funded capital expenditure (capex) over the medium term. Despite a recent capex and increased working capital requirement, gearing is expected below 1 time, supported by incremental cash accrual and fund infusion (in the form of equity and warrants). Around Rs 135 crore has been received via issue of warrants and shares on preferential basis; the balance (around Rs 55 crore) will likely be received within the first half of fiscal 2025. Debt protection metrics will continue at healthy levels, with interest coverage ratio projected above 4 times over the medium term.
Weaknesses: Exposure to intense competition and cyclicality in the steel industry The Indian steel industry is highly fragmented due to low entry barriers; the consequent intense competition along with limited product differentiation may continue to constrain scalability, pricing power and profitability. Moreover, the industry is inherently strongly correlated to the economic environment. Also, while large players benefit from economies of scale, high power costs and limited ability to control market prices restrict the profitability of small players. However, these risks are partially offset by the benefits derived from backward integrated operations.
Exposure to volatility in steel prices Operating profitability is susceptible to volatility in input cost, such as sponge iron and steel scrap, along with power and steel prices. The rates are market driven and individual players are price takers. Hence, any sharp fluctuation in steel price will significantly impact the operating margin, as HPIL does not have price contracts with suppliers or customers. |
Liquidity: Strong Cash accrual is expected at more than Rs 80 crore in fiscal 2024, against debt obligation of Rs 20-25 crore. Bank limit utilisation has been comfortable below 50%; further, the limit has been enhanced to Rs 240 crore to meet incremental working capital requirement post completion of the capex. Remaining fund inflow from warrants will also support liquidity. |
Outlook: Stable HPIL will continue to benefit from its established presence and relationship with clients. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Incorporated in 2007 by Mr Rupesh Kumar Gupta and his family members, HPIL manufactures MS sponge, billets and tubes, HR strips and scaffolding systems. It sells its products under the Hariom Pipes brand. The company is listed on the National Stock Exchange and Bombay Stock Exchange.
Revenue stood at Rs 826.31 crore and profit after tax (PAT) at Rs 40.03 crore for the nine months through December 2023, against Rs 392.83 crore and Rs 28.95 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Status of non-cooperation with previous CRA HPIL did not cooperate with Brickwork Ratings India Pvt Ltd and Credit Analysis & Research Ltd, which classified the company as non-cooperative through releases dated August 31, 2017, and July 16, 2019, respectively. The reason provided by Brickwork Ratings India Pvt Ltd and Credit Analysis & Research Ltd was non-furnishing of information for monitoring the ratings. |
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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Criteria Details
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