Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A-/Stable/Crisil A2+’ ratings on the bank facilities of Hariom Pipe Industries Limited (HPIL; a part of the Hariom group).

 

The ratings continue to reflect the extensive experience of the promoters in the steel industry along with the group’s integrated operations leading to healthy operating efficiency, improving contribution from value-added products and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition, cyclicality in the industry, volatility in input cost and project risk associated with the solar capacity project.

Analytical Approach

Crisil Ratings has evaluated the consolidated view on HPIL and its newly formed subsidiary, Hariom Power and Energy Pvt Ltd (HPEL), while arriving at the ratings on account of the expected support for the subsidiary towards the execution of the project and the potential cash flow fungibility between the entities. Both the companies are together referred to herein as the Hariom group.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters: 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: HPIL 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 from fiscal 2021. The integrated operations helped limit the impact of downcycles and sustain better profitability (operating margin slightly improved close to 13% during the first nine months of fiscal 2025 despite fall in sales realisations), when compared with other steel players. Further, savings in power cost -- owing to availability of the solar power capacity and the new furnace unit -- aid the operating margin. Thus, power cost also came down significantly to 5% (of revenue) during the first nine months of fiscal 2025 from 10.5% (of revenue) in fiscal 2023, which helped maintain healthy earnings before interest, taxes, depreciation and amortisation (Ebitda) per tonne.

 

Improving contribution from value added products: The share of value-added products such as galvanised pipes and coils have consistently increased to above 56% in the first nine months of fiscal 2025 from 14% in fiscal 2023 and 52% in fiscal 2024. This partially helped the company to balance the sharp drop in realisations in the segment. The galvanised iron/galvanised pipes segment has additional capacities available, which is expected to achieve higher levels of capacity utilisations and thereby drive revenue growth over the medium term. This also will help maintain Ebitda margin above 13%.

 

Comfortable financial risk profile: Despite the proposed term debt availment of Rs 180 crore in the subsidiary, towards the development of solar project, the capital structure continues to be healthy with gearing less than 1 time. Networth has further strengthened in fiscal 2025 on account of receipt of outstanding amount pertaining to issue of warrants (around Rs 55 crore). Networth will continue to grow with healthy accretion to reserve over the medium term. Debt protection metrics may remain healthy, with interest coverage ratio projected above 3 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 the cost of raw materials, 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 prices will significantly impact the operating margin, more so, as HPIL does not have price contracts with suppliers or customers.

 

Project risk associated with the solar capex: HPIL received the letter of acceptance for a solar power generating station, with total capacity of 60 megawatt (MW) from Maharashtra State Electricity Distribution Company Ltd, which will be executed through the newly formed subsidiary (HPEL). The capital commitment for the solar project development is Rs 60 crore, which will be infused by HPIL and the proposed term debt is Rs 180 crore. The timeline for completion is 18 months as per the agreement. Ability of the company to achieve financial closure and execute the project within the scheduled timelines without any cost overrun will remain monitorable.

Liquidity: Strong

Cash accrual is expected at more than Rs 125 crore for fiscal 2026, against debt obligation of Rs 30 crore. The cash credit limit utilisation was comfortable, at below 25% for the 12 months through February 2025. The company also availed a vendor bill discounting facility, which will ease cash flow. Further, free cash position of Rs 23 crore as on Sept 30, 2024, supports liquidity.

Outlook: Stable

The Hariom group will continue to benefit from its established presence and experience of the management.

Rating sensitivity factors

Upward factors

• Increased utilisation in the newly added capacities and better demand, resulting in heathy revenue and net cash accrual more than Rs 140 crore
• Limited reliance on debt and sustenance of strong liquidity

 

Downward factors

• Any large, debt-funded capital expenditure (capex) or a sizeable stretch in the working capital cycle, leading to gearing above 1.5 times
• Decline in revenue and profitability, resulting in lower-than-expected cash accrual
• Any delays in completion of the solar project, resulting in cost overrun or substantial increase in debt levels

About the Group

Incorporated in 2007 by Mr Rupesh Kumar Gupta and his family members, HPIL manufactures MS sponge, billets and tubes, HR strips and scaffolding systems. The products are sold under the Hariom Pipes brand. The company is listed on the National Stock Exchange and Bombay Stock Exchange.

 

HPEL was established on March 19, 2025, to undertake the development of a 60-MW solar power generating station. HPEL is a wholly owned subsidiary of HPIL.

Status of non cooperation with previous CRA

HPIL has not cooperated with Brickwork Ratings India Pvt Ltd and Credit Analysis & Research Ltd, which has classified the company as non-cooperative through a release dated August 31, 2017, and July 16, 2019. The reason provided by Brickwork Ratings India Private Limited and Credit Analysis & Research Ltd is non-furnishing of information for monitoring the ratings.

Any other information: Not Applicable