Rating Rationale
August 28, 2020 | Mumbai
ITL Industries Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.24.35 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 ITL Industries Limited (ITLIL).
 
The ratings continues to reflect extensive industry experience of the promoters, stable market position and comfortable financial risk profile. These strengths are partially offset by susceptibility of the operating margin to volatility in commodity prices and intensive nature of working capital operations.

Key Rating Drivers & Detailed Description
Strengths: 
* Extensive industry experience of the promoters:
The company is promoted by Mr. Manohar Singh Jain, who has an industry experience of over 5 decades. He is assisted by his two sons, Mr. Rajendra Singh Jain and Mr. Mahendra Singh Jain (Joint MD'S), who look after the day to day business of the company. The promoters, along with the board of directors and the senior management have rich experience in the engineering industry, and has been instrumental in shaping the business risk profile. Supported by the long standing experience in the industry, the company has established strong relationships with the customers and suppliers.
 
* Stable Market Position:
The company has a long standing presence of close to 30 years in the industry. Over the years, the company has established strong relations with customers across various industries such as general engineering, auto components, forging, power, metals etc. Concentration risk is minimal as its customers are located across India, and top 5 customers contribute to less than 10% of overall revenue. The company has its own R&D center, which is engaged in development of new products and improvement of existing ones. Supported by the quality of products, the company has been receiving repeat orders from its customers. The company has outstanding orders of over Rs 29 crore to be executed over the next 3 - 4 months which provides near term revenue visibility.

* Comfortable Financial Risk Profile:
Financial risk profile is supported by healthy capital structure, as reflected in gearing of 0.36 time and adequate networth of Rs. 42.6 crores as on March 31, 2020. Debt protection metrics are comfortable with interest coverage ratio of 6.01 times and net cash accruals to adjusted debt ratio of 0.37 for fiscal 2020.
 
Weakness:
* Susceptibility of the operating margin to volatility in commodity prices:
Operating margins are exposed to volatility in raw material prices. Raw material costs accounts for 70% of the operating revenue. Any sharp deviation in raw material prices is likely to impact the operating margins of the company.
 
* Intensive nature of working capital operations:
Gross current assets (GCA) was at 294 days as on March 31, 2020. The GCA is mainly driven by high inventory and receivables. The company is required to maintain higher inventory in order to ensure smooth execution of orders during the subsequent 3-4 months. However inventory had increased to around 213 days as on March 31, 2020 on account of dispatches of finished goods held back due to the covid 19 pandemic. Going forward with normalcy in operations the inventory levels are expected to decline to previous levels.
Liquidity Adequate

Liquidity is adequate driven by expected cash accruals of more than Rs. 3.6 crores per annum in fiscal 2021 and Rs 6 crore in fiscal 2022 against repayment obligations of Rs 0.87 crore in fiscal 2021 and Rs 2 crore in fiscal 2022. ITLIL also has access to fund based limits of Rs.14 crores, utilized to the tune of 85% on an average over the 12 months ended May 2020. The liquidity is also supported coming from emergency credit lines of Rs 4 crore under the covid 19 assistance schemes.

Outlook: Stable

CRISIL believe ITLIL 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 25% and sustenance of operating margin
* Significant decline in GCA days
 
Downward factors
* Lower-than-expected top line and profitability, leading to net cash accrual lower than Rs 3 crore
* Higher-than-expected, debt-funded capital expenditure affecting the financial profile
About the Company

ITLIL, incorporated in 1989 at Indore, Madhya Pradesh. ITLIL is engaged in manufacturing of band saw and circular saw machinery (used in metal cutting), blade for band saw and circular saw, and pipe and tube manufacturing. ITL is also an authorized distributor for Eaton hydraulic systems (now Danfoss) in Madhya Pradesh and Chhattisgarh.

Key Financial Indicators
Particulars Unit 31-March-2020 31-March-2019
Revenue Rs crore 80.80 102.18
Profit after tax (PAT) Rs crore 4.68 6.65
PAT margin % 5.8 6.5
Adjusted debt/Adjusted networth Times 0.36 0.39
Interest coverage Times 6.01 10.17

Status of non cooperation with previous CRA:
ITLIL has not cooperated with Brickwork Ratings India Private Limited, which led to its classification as 'issuer not cooperative' vide release dated July 13, 2020. The reason provided by Brickwork Ratings India Private Limited 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 rate (%) Maturity date Issue size (Rs.Cr) Complexity
Levels		 Rating assigned with outlook
NA Bank Guarantee NA NA NA 3.5 NA CRISIL A3+
NA Cash Credit NA NA NA 14 NA CRISIL BBB/Stable
NA Letter of Credit NA NA NA 2 NA CRISIL A3+
NA Proposed Cash Credit Limit NA NA NA 0.1 NA CRISIL BBB/Stable
NA SME Care Loan NA NA NA 0.25 NA CRISIL BBB/Stable
NA Standby Line of Credit NA NA NA 1 NA CRISIL BBB/Stable
NA Term Loan NA NA Mar-2026 3.5 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  18.85  CRISIL BBB/Stable      09-05-19  CRISIL BBB/Stable          Suspended 
Non Fund-based Bank Facilities  LT/ST  5.50  CRISIL A3+      09-05-19  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 3.5 CRISIL A3+ Bank Guarantee 3.5 CRISIL A3+
Cash Credit 14 CRISIL BBB/Stable Cash Credit 14 CRISIL BBB/Stable
Letter of Credit 2 CRISIL A3+ Letter of Credit 2 CRISIL A3+
Proposed Cash Credit Limit .1 CRISIL BBB/Stable Proposed Cash Credit Limit .1 CRISIL BBB/Stable
SME Care Loan .25 CRISIL BBB/Stable SME Care Loan .25 CRISIL BBB/Stable
Standby Line of Credit 1 CRISIL BBB/Stable Standby Line of Contract 1 CRISIL A3+
Term Loan 3.5 CRISIL BBB/Stable Term Loan 3.5 CRISIL BBB/Stable
Total 24.35 -- Total 24.35 --
Links to related criteria
Assessing Information Adequacy Risk
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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