| Indian Explosives Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
| ||||||
| 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 AA-/Stable/CRISIL A1+' ratings on the bank facilities of Indian Explosives Pvt Ltd (IEPL).
The company’s revenue increased by ~28% in fiscal 2023 driven by higher realisation. Operating margins moderated back after increasing in fiscal 2022. The financial risk profile remains strong on account of nil debt and healthy liquidity in the form of cash and equivalents.
The ratings continue to reflect the support IEPL receives from its parent Orica Ltd (Orica; BBB/Stable/A-2), and its strong financial risk profile driven by debt-free status and strong liquidity. These strengths are partially offset by subdued operating performance and intense competitive pressure. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in support from Orica to IEPL due to 100% ownership. |
Key Rating Drivers & Detailed Description Strengths
Orica, a global leader in commercial explosives and explosives-related services, provides operational, financial, and technological support to IEPL. Owing to its worldwide presence, Orica helps IEPL procure part of its raw material requirement from other group companies. IEPL also receives technological support from Orica for developing new products, such as electronic detonators, underground bulk formulations, and seismic prospecting products. IEPL will continue to receive need-based operational, financial and technological support from its parent. IEPL has also received equity funding from Orica in fiscal 2023.
IEPL has been debt-free since September 2009. Networth is at Rs 325 crore and total outside liabilities to tangible networth comfortable at 0.42 time as on March 31, 2023. Utilisation of fund based bank limit over the 12 months through May 2023 was negligible. With capital expenditure (capex) planned over the medium term with no debt, the financial risk profile is expected to remain strong. The capex is expected to be incurred via equity funding and internal accruals.
Weaknesses
IEPL’s operating performance has weakened over the past few years. The revenue increased to Rs 461 crore in fiscal 2023 from Rs 360 crore in fiscal 2022 largely driven by realisation growth owing to increase in raw material prices. However, operating margin has remained low at 2-3% owing to high raw material prices, intense competition and technical fees paid to Orica. Though the parent has presence in over 100 countries, IEPL has limited potential in the high-margin overseas markets on account of its no-compete clause with Orica. In addition, due to Orica’s philosophy of not supplying to the defence sector, IEPL has limited scope for sectoral diversification. IEPL is now looking at expansion plan to increase scale as well as to make operations more efficient. The capex plans and its impact on scale and operating profitability will be a key monitorable.
The explosives industry has a high entry barrier as players require industrial licenses and various clearances from government, Chief Controller of Explosives and Directorate General of Mines Safety. Sale of explosives is regulated by the Petroleum and Explosives Safety Organisation and the Joint Chief Controller of Explosives to prevent misuse. Though the company takes precautions at all stages from manufacturing to delivering, it remains susceptible to regulatory risks and intervention. |
Liquidity: Strong Liquidity will be supported by expected cash accrual of Rs 15-25 crore per annum over the medium annum against nil debt obligation. While the company will undertake significant capex over the medium term, it is expected to be funded by equity infusion and internal accruals. As per management, no debt is expected to be availed. IEPL is also expected to maintain liquid investments (including cash and equivalents) of Rs 30-40 crore over the medium term. In addition, negligible utilisation of fund based bank limit enhances financial flexibility. |
Outlook: Stable IEPL will continue to benefit from the support extended by Orica; it should also remain supported by comfortable financial and liquidity risk profiles, backed by its debt-free status. The business risk profile will, however, be constrained by modest operating performance amid intense competition. |
Rating Sensitivity factors Upward factor
Downward factor
|
About the Company IEPL manufactures small- and large-diameter cartridges, bulk explosives, and electric and non-electric detonators. It has manufacturing facilities in Gomia (Jharkhand), Rourkela (Odisha), and Chandrapur (Maharashtra). IEPL is a 100% owned subsidiary of Orica. |
About Orica Orica is the world's largest supplier of commercial explosives and explosives-related mining services and employs 13,000+ people. It supplies general chemicals to a diverse range of industries, including agriculture, building and construction, food and beverage, pharmaceutical and personal care, plastics, pulp and paper, and water treatment. For the year through September 2022, Orica reported sales of AUD 7.1 billion against AUD 0.85 billion in the previous year. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
|
Criteria Details
|