Rating Rationale
October 08, 2020 | Mumbai
Hariom Pipe Industries Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.86.73 Crore (Enhanced from Rs.64 Crore)
Long Term Rating CRISIL BBB/Stable (Reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB/Stable/CRISIL A3+' ratings on the bank facilities of Hariom Pipe Industries Limited (HPIL).

The ratings continue to reflect the extensive experience of the promoters in the steel industry, integrated operations leading to healthy operating efficiency, and aboveaverage financial risk profile. These strengths are partially offset by exposure to intense competition and susceptibility to volatility in input cost and cyclicality in the steel industry.

Key Rating Drivers & Detailed Description
Strengths:
* Extensive experience of promoters: The promoters have been in the steel industry for over three decades. Their experience and understanding of market dynamics has helped diversify the product profile and integrate operations. Over the years, they have established healthy relationships with steel traders and manufacturers spread across Maharashtra, Kerala, Andhra Pradesh and Tamil Nadu. Consequently, revenue grew at a healthy compound annual rate of 23% over the three fiscals through 2020.
 
* Integrated operations support operating efficiency: The company started with a furnace unit to manufacture mild steel (MS) billets and over the years, has forward integrated into hot-rolled (HR) strips, MS tubes and scaffoldings. Integrated operations led to high operating margin of 12-13% in the past two fiscals. Furthermore, the company has started manufacturing MS sponge iron in fiscal 2021, which is expected to support further improvement in the operating margin over the medium term.
 
* Above-average financial risk profile:  
HPIL's has healthy financial risk profile marked by moderate gearing and TOL/ TNW and adequate debt protection metrics. Despite debt-funded capital expenditure (capex), capital structure remains comfortable with networth at Rs 42.07 crore and gearing at 1.62 times as on March 31, 2020. With accretion to reserve and repayment of debt obligation, gearing is expected to improve over the medium term. Debt protection metrics are adequate, with interest coverage and net cash accrual to total debt ratios at 3.44 times and 0.19 time, respectively, in fiscal 2020.
  
Weaknesses:  
* Exposure to intense competition and cyclicality in the steel industry:  The Indian steel industry is highly competitive due to low entry barriers and limited product differentiation. Moreover, the industry is inherently cyclical and strongly correlated to the economic environment.
 
* Susceptibility to volatility in steel prices: Operating profitability is susceptible to volatility in input cost, such as sponge iron, steel scrap and power costs and steel prices. The prices are market driven and individual players are price takers. Hence, any sharp fluctuation in steel price can impact the operating margin, as HPIL has no price contracts with suppliers or customers.
Liquidity Adequate

Liquidity is healthy, supported by moderate bank limit utilisation and sufficient cash accrual against debt obligation. Cash accrual, expected over Rs 14 crore each in fiscals 2020 and 2021, will comfortably cover yearly debt obligation of Rs 5-6.5 crore. Bank lines were moderately utilised 74% on average over the 12 months through August 2020. Internal accrual, cash and equivalent, unutilised bank lines and unsecured loans from promoters will be sufficient to meet debt obligation and incremental working capital requirement.

Outlook: Stable

CRISIL believes HPIL will continue to benefit from the extensive experience of its promoters and established relationships with clients.
 
Rating sensitivity factors
Upward factors

* Increase in revenue and stable operating margin, leading to cash accrual above Rs 20 crore
* Strengthening of the financial risk profile driven by better working capital management

Downward factors
* Debt-funded capex or stretch in the working capital cycle, weakening the financial risk profile resulting in gearing of over 1.5 times
* Decline in revenue and profitability, leading to cash accrual 

About the Company

Incorporated in 2007 by Mr Rupesh Kumar Gupta and family members, HPIL manufactures MS sponge, MS billets, HR strips, MS tubes and scaffolding systems. It sells its products under the brand Hariom Pipes. The manufacturing unit is located in Mahbubnagar, Telangana.

Key Financial Indicators
Particulars Unit 2020* 2019
Revenue Rs crore 160.8 133.6
Profit after tax (PAT) Rs crore 8.32 8.22
PAT margin % 5.17 6.15
Adjusted debt / adjusted networth Times 1.62 1.54
Interest coverage Times 3.44 5.21
*Provisional

Status of non cooperation with previous CRA
HPIL has not cooperated with Brickwork Ratings India Private Limited which has classified it as non-cooperative vide release dated September 25, 2020. The reason provided by Brickwork is non-furnishing of information for monitoring of ratings.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name    of instrument Date of
allotment
Coupon % Maturity date Issue Size
(Rs Crore)
Complexity Rating assigned with outlook
NA Bank Guarantee NA NA NA 0.5 NA CRISIL A3+
NA Cash Credit/ Overdraft facility NA NA NA 40 NA CRISIL BBB/Stable
NA Letter of Credit NA NA NA 9 NA CRISIL A3+
NA Long Term Loan NA NA Mar-28 6.73 NA CRISIL BBB/Stable
NA Term Loan NA NA Jun-24 30.5 NA CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  77.23  CRISIL BBB/Stable      30-09-19  CRISIL BBB/Stable          Suspended 
Non Fund-based Bank Facilities  LT/ST  9.50  CRISIL A3+      30-09-19  CRISIL A3+          Suspended 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee .5 CRISIL A3+ Bank Guarantee .5 CRISIL A3+
Cash Credit/ Overdraft facility 40 CRISIL BBB/Stable Cash Credit/ Overdraft facility 25 CRISIL BBB/Stable
Letter of Credit 9 CRISIL A3+ Letter of Credit 8 CRISIL A3+
Long Term Loan 6.73 CRISIL BBB/Stable Term Loan 30.5 CRISIL BBB/Stable
Term Loan 30.5 CRISIL BBB/Stable -- 0 --
Total 86.73 -- Total 64 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Steel Industry
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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