Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Inox India Limited (IIL) to ‘CRISIL AA-/Stable’ from ‘CRISIL A+/Positive’, while reaffirming its ‘CRISIL A1+’ rating on the short-term bank facilities of the entity.

 

The upgrade in ratings reflects IIL’s strong and improving business risk profile supported by a sizeable order book, strong market position in key product categories and good operating capabilities, even as the company sustains its healthy financial risk profile.

 

IIL’s business risk profile benefits from increasing demand for small scale liquefied natural gas (LNG) due to its varied applications such as industrial heating, captive power generation as well as for high horse-power applications like heavy duty trucks and buses, mining trucks and marine engines. Further, new applications like liquefied-compressed natural gas (LCNG), LNG Locomotives and Automotive Fuel Tank has also boosted the business profile. Besides, the company is also strengthening its presence in Crio-Bio & life sciences segment with new products developed for vaccines, stem cells, blood & bio specimen. IIL has also been steadily improving its global footprint and has secured high value supply contracts from South Korea, Japan & Europe. Further, Company is setting up a new plant to ramp up its Beverage KEG capacity. Beverage KEGs are widely used in Food & Beverage industry to store beer, syrups and other beverages, which remain unaltered during storage, regardless of its handling and climate conditions. The group expects high export demand from USA and Europe for Beverage KEG.

 

Revenues for fiscal 2023 is estimated at Rs. 969 crore, year-on-year growth of about 24% driven by increased demand from industrial gas segment and continued traction in the LNG segment. Exports accounted for 46% of revenues in fiscal 2023. The growth momentum is expected to continue supported by a healthy order book of around Rs. 966 crore as on March 31, 2023 which is expected to be executed over the next 10-12 months. Operating margin for the year stood at a healthy 21.4% in-spite of rising commodity prices and is expected to sustain at similar level over the medium term. Majority of the raw material (i.e., stainless steel) is procured within 1 month of getting an order and the price is determined basis raw material prices prevailing at that time. Hence, the company is shielded from fluctuations in underlying raw material prices resulting in stable margins.

 

The healthy financial risk profile is supported by nil debt and a strong net worth estimates at Rs. 551 crore as of March 31, 2023. Company’s intends to incur capex of ~Rs. 170 crore in fiscal 24 and Rs. 20-30 crore per annum thereafter to be funded entirely from internal accruals and liquid surplus. The liquidity position of the company is also strong supported by cash surplus of ~Rs. 310 crore as March 31, 2023. The announced special dividend of about Rs. 100 crore in fiscal 2023 and is expected to continue in fiscal 2024 in the absence of any large capex plans. However, the same is not expected to have any impact on the company’s strong liquidity profile and the company shall continue to remain debt-free. Working capital cycle is managed efficiently on account of increase in localization of raw material procurement and presence of healthy cash accruals. Interest coverage ratio is expected to remain comfortable at over 50 times.

 

IIL’s credit profile continues to reflect its leading market position in the domestic cryogenic storage industry, improving global footprint backed by a sizeable order book, healthy financial risk profile and strong parentage being part of the re-organized Inox group (Mr. Pavan Jain & Siddharth Jain faction) also comprising of Inox Air Products Private Limited (CRISIL AA+/Stable/CRISIL A1+) and having 16.85% stake in PVR Inox Pictures. These strengths are partially offset by exposure to intense competition in international markets and high susceptibility of revenue to the investment climate in its end-user industry i.e., oil & gas.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of IIL, and INOXCVA Comercio E Industria De Equipamentos Criogenicos Ltd (Inox Brazil), collectively referred to as IIL group. This is because all the companies have a common management and business interests.

 

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:

Strong market position in the cryogenic storage industry in India

IIL group is the largest manufacturer in the cryogenic tank segment in India, with a market share of around 70-75% as of fiscal 2023. It is a market leader in related products such as cryo containers (~50% share), vaporisers and disposable cryogenic cylinders as well. Its  client list consists of large engineering companies and companies engaged in business of manufacture and distribution of cryogenic gases, like, Air Liquide (France for its worldwide operations, Praxair, Linde, ITER, Inox Air Products, etc.

 

Improvement in IIL's performance is driven by revival of capex in the industrial gas and LNG segment coupled with increased traction from new segments like Crio-Bio & life sciences. Company’ order book as on March 31, 2023 stood at around Rs. 966 crore. Industrial gas segment comprised ~58% of the order book while LNG  comprised ~42% . This large order book provides healthy revenue visibility over the medium term.

 

Healthy and improving financial risk profile

IIL prepaid all its outstanding long-term debt in April 2020 leading to improvement in debt protection metrics. Over last three fiscals through March 31, 2023, IIL has been reducing its total debt through receipt of cash inflows from sale of assets of overseas subsidiary CVA and healthy cash accruals. Company remained debt free as of March 2023 from peak debt levels of Rs. 419 crores as on March 31, 2018. Further, debt debt free balance sheet is expected to sustain due to modest capex plans of Rs. 169 in fiscal 2024 and Rs. 20-30 crore per annum thereafter which is expected to be funded entirely from internal accruals and liquid surplus. Interest coverage ratio is expected to remain comfortable at over ~50 times over the medium term.

 

Benefits of being part of Inox group

IIL benefits from part of the diverse Inox group, which has presence in air gases and cyrogenic tanks. Leading companies in the group are among the top two in their respective sectors in the country, and also financially strong. Besides, the promoters have also supported IIL in the past through infusion of funds to offset losses in overseas subsidiary and to retire debt. Promoter support is expected to be forthcoming in the event of any exigencies.

 

Weaknesses:

Exposure to intense competition in international markets

IIL group faces stiff competition in the international cryogenic products market. Although the group has a strong market position in India, where it commands a dominant market share, its scale of operation is modest in the international market (accounted for 46% of the consolidated revenues in fiscal 2023). However, company has been gradually increasing its footprint in the global market and share from revenues from exports is expected to go up-to ~50% over the medium term.

Revenues susceptible to slowdown in end-user segment

IIL group primarily operates in the capital goods sector, which is cyclical in nature, and susceptible to international policies governing end-user industries, such as oil and gas and industrial gases. The group's revenues are closely linked to the investment climate in its end-user segment. The group's performance will be susceptible to any slowdown in the end-user segment.

Liquidity: Strong

IIL has a strong liquidity profile with cash surplus of over Rs 310 crore as on March 31, 2023. Modest capex plans of ~Rs. 169 crore for fiscal 24 and Rs. 20-30 crore per annum thereafter is expected to be funded entirely from internal accruals expected at over Rs. 200-220 crore per annum (ex-dividend).  Hence despite a special dividend of Rs. 100 crore expected to be paid in fiscal 2024, liquidity profile is expected to remain strong. Further, IIL India has cushion in the form of fund-based bank limits of Rs.105 crore with almost nil utilization over past 12 months.

Outlook: Stable

CRISIL Ratings believes that IIL will continue to benefit over the medium term from its improving business risk profile led by strong operating performance. CRISIL Ratings believes healthy operating performance should improve the capital structure supported by good cash flow. CRISIL also expects the promoters to provide necessary support in case of exigencies.

Rating Sensitivity factors

Upward factors

* Sizeable increase in scale of operations driven by increasing product and geographical diversification while maintaining operating margin at over 20%

* Sustenance of financial risk profile, including through prudent management of working capital and capex spend

* Maintenance of healthy liquidity in normal course of business

 

Downward factors

* Sluggish business performance impacting operating margins below 17% on a sustained basis

* Significant rise in debt levels due to sizeable expansion or acquisitions or elongation of working capital levels, impacting key debt metrics

About the Company

IIL started commercial operations in 1993 as a manufacturer of cryogenic tanks. The company later diversified into manufacturing atmospheric vaporizers, cryoseal containers, and disposable gas cylinders. It mainly operates in 3 product segments: Industrial Gas, LNG and Cryo-Scientific. It currently manufactures cryogenic tanks for liquefied gases, cold convertor systems, disposable gas cylinders, cryoseal containers, atmospheric vaporizers, liquid cylinders, beverage kegs and cryogenic containers. Group also manufactures cryogenic transportation vessels and pumpers used in exploration of oil & gas.

 

IIL has 4 plant locations in India. It has two subsidiaries: (i) INOXCVA Comercio E Industria De Equipamentos Criogenicos Ltda, a service unit started in 2012 at Sao Paolo in Brazil. (ii) INOXCVA Europe B.V, a trading set up started in 2014 in Netherlands.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity  levels	Rating assigned with outlook
NA	Bank Guarantee	NA	NA	NA	30	NA	CRISIL A1+
NA	Bank Guarantee	NA	NA	NA	20	NA	CRISIL A1+
NA	Bank Guarantee##	NA	NA	NA	150	NA	CRISIL AA-/Stable
NA	Cash Credit*	NA	NA	NA	25	NA	CRISIL AA-/Stable
NA	Cash Credit@	NA	NA	NA	80	NA	CRISIL AA-/Stable
NA	Letter of credit & Bank Guarantee!	NA	NA	NA	85	NA	CRISIL A1+
NA	Letter of credit & Bank Guarantee@@	NA	NA	NA	40	NA	CRISIL A1+
NA	Letter of Credit#	NA	NA	NA	200	NA	CRISIL A1+

*Cash credit of Rs 5 Cr.,WCDL of Rs 7.5 Cr. Pre/post shipment Packing Credit of Rs 12.5 Cr.. Fully Interchageable with Letter of Credit/Bank Guarantee

@ Fully interchangeable with Cash Credit, WCDL, Pre shipment/Export Packing Credit (EPC) in INR/USD,Post Shipment/Foreign Usance Bills Discounted/Foreign Bills purchased in INR/USD. Interchangeable with sales bill discounting of Rs 50 Cr.

@@ Fully interchangeable with Bank Guarantees towards bid bond,security deposit,earnest money deposit,performance, advance payment, and retention money purpose or Customs,Central excise,Sales Tax,electricity,insurance,contract performance purpose.

!Interchangeable with Cash Credit of Rs 5 Cr.,WCDL of Rs 20 Cr.,Export Packing Crdit/PCFC of Rs 20 Cr. Fully interchangeable with Letter of Credit -domestic/import/SBLC and performance Bank Guarantees. Interchangeable with financial Bank guarantees of Rs 50 Cr..

# Interchangeable with WCDL of Rs 12 Cr.,Foreign Bill Negotiated (FBN)/Foreign Bill Purchase/Post Shipment Credit In FCY/Post Shipment Credit In INR/ foreign Bill Discounting/Pre Shipment (INR/FCY)/Post Shipment (INR/FCY) of Rs 40 Cr., Cash Credit of Rs 8 Cr. Interchangeable with Financial Bank Gurantees/SBLC for Import of Rs 50 Cr.Interchangeable with performance Bank Gurantee of Rs 100 Cr.Interchangeable with Financial Bank Gurantees for the purpose of advance payment, mobilization payment,security deposit,Margin Money,payment obligations,regulatory payments of Rs 60 Cr.Interchangeable with Stand by Letter of Credit of Rs 50 Cr. for the purpose of procurement of Steel.

## Interchangeable with overdraft facility of Rs 7.5 Cr.,Short term loan facility of Rs 22.5 Cr.,overdraft facility of Rs 3 Cr for payment to Micro Small and Medium Enterprise vendors, Export Invoice financing facility of Rs 75 Cr. For the purpose of purchase/discounting of Domestic/Export Sales Bill/Invoices with/without Letter of Credit,Preshipment financing Under Export Order Facility of Rs 75 Cr.,Shipping Guarantee Facility of Rs 30 Cr, Import Letter of Credit of Rs 75 Cr. for the purpose of purchase of Raw Material