| Inox India Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Inox India Limited (IIL; formerly known as Inox India Private Limited) to ‘Positive’ from 'Stable' while reaffirming the rating at ‘CRISIL A+’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1+’.
The revision in outlook factors in expectation of continued healthy improvement in IIL’s business performance over the near to medium term, backed by a sizeable order book, its leading 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 is expected to benefit from gaining momentum for small scale liquefied natural gas (LNG) for various applications such as industrial heating, captive power generation, and feed stock 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 is also expected to further boost business profile in this segment. IIL is a preferred vendor for most City Gas Distribution (CGD) companies for setting up LCNG stations in the country. 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 S. Korea, Japan & Europe.
Revenues for fiscal 2022 grew by 31% year on year to Rs. 784 crore driven by increased demand from industrial gas segment and continued traction in the LNG segment. Exports accounted for 34% of revenues in fiscal 2022. The growth momentum is expected to continue supported by a healthy order book of more than Rs. 1,000 crore as on July 31, 2022 which is expected to be executed over the next 10-12 months. Export orders account for more than 50% of the current order book signifying improving geographic diversification. Operating margin for the year stood at a healthy 21.4% in-spite of rising commodity prices and is expected to sustain at ~20-22% over the medium term. Majority of the raw material (i.e., stainless steel) is procured within 1 month of getting an order and order price is determined basis stainless steel prices prevailing at the 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 low debt on the balance sheet (working capital only) and a strong net worth of Rs. 500 crore. Company’s modest capex plans of ~Rs. 100-120 crore this fiscal and Rs. 20-30 crore per annum thereafter is expected to be funded entirely from internal accruals expected at over Rs. 150-160 crore per annum. The liquidity position of the company is also strong supported by cash surplus of ~Rs. 320 crore as March 31, 2022. In-spite of a one-time special dividend of Rs. 100 crore paid out during the first quarter of fiscal 2023, liquidity position is expected to remain strong. 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 and net cash accrual/ adjusted debt (NCA/AD) are expected to remain comfortable at over 40 times and 0.8 times, respectively.
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. Pawan Jain & Siddharth Jain faction) comprising other group entities Inox Air Products Private Limited (CRISIL AA+/Stable/CRISIL A1+) and Inox Leisure Limited (CRISIL AA-/Watch Positive/CRISIL A1+). 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 IIPL, and INOXCVA Comercio E Industria De Equipamentos Criogenicos Ltd (Inox Brazil), collectively referred to as IIPL 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:
IIL group is the largest manufacturer in the cryogenic tank segment in India, with a market share of around 70-75% as of fiscal 2022. 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 July 31, 2022 was at an all time high of more than Rs. 1,000 crore including more than 50% from export markets. Industrial gas segment comprised ~55% of the order book while LNG and medical/bio segment comprised ~35% and ~10% respectively. This large order book provides healthy revenue visibility over the medium term.
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, 2022, IIL has been reducing its total debt through receipt of cash inflows from sale of assets of overseas subsidiary CVA and healthy cash accruals. Total debt reduced to Rs. 43 crores as of March 2022 from peak debt levels of Rs. 419 crores as on March 31, 2018. Further, debt levels are expected to remain low due to modest capex plans of Rs. 100-120 in fiscal 2023 and Rs. 20-30 crore per annum therafter which is expected to be funded entirely from internal accruals. Interest coverage ratio and net cash accrual/ adjusted debt (NCA/AD) are expected to remain comfortable at over ~40 times and ~0.8-2 times, respectively over the medium term.
IIL benefits from part of the diverse Inox group, which has presence in multiplexes, 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:
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 35% of the consolidated revenues in fiscal 2022). 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.
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 320 crore as on March 31, 2022. Modest capex plans of ~Rs. 100-120 crore this fiscal and Rs. 20-30 crore per annum thereafter is expected to be funded entirely from internal accruals expected at over Rs. 150-160 crore per annum. Hence despite a one time special dividend of Rs. 100 crore paid out during quarter 1 of fiscal 2023, liquidity position is expected to remain strong. Further, IIL India has cushion in the form of un-utilized fund based bank limits of Rs.105 crore with almost nil utilization over past 12 months. |
Outlook: Positive CRISIL Ratings believes Inox will benefit from improving business risk profile led by strong operating performance. Its healthy financial risk profile is also expected to be sustained, supported by good cash flow and low debt levels, in the absence of material capex spend CRISIL also expects the promoters to provide necessary support in case of exigencies. |
Rating Sensitivity factors Upward factors
Downward factors
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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. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*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 ** Interchageable with Pre/post shipment credit of Rs 25 Cr. @ 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 |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 27-Sep-22 in line with the lender-wise facility details as on 19-Aug-21 received from the rated entity.
*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
** Interchageable with Pre/post shipment credit of Rs 25 Cr.
@ 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
Criteria Details
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