| Isgec Titan Metal Fabricators Private Limited | ||||||
| Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has reaffirmed its 'CRISIL AA (CE) /Stable/CRISIL A1+ (CE)’ ratings on the guaranteed bank facilities of Isgec Titan Metal Fabricators Pvt Ltd (ITMFPL). The facilities are backed by an unconditional and irrevocable guarantee, and additional undertaking provided by parent, Isgec Heavy Engineering Ltd (IHEL).
The ratings continue to reflect the operational and financial support of IHEL, which has an established position in the heavy engineering capital goods industry; and a robust financial risk profile, with unencumbered cash and liquid investments of Rs 209.3 crore as on March 31, 2020.
The ratings also factor in the expected improvement in the business risk profile of ITMFPL, backed by the fabrication and designing technology obtained from the joint venture partner, Titan Metal Fabricators, Inc (Titan). These strengths are partially offset by the initial stage of operations, high dependency on guarantor's performance, and exposure to intense competition in the domestic and international markets. |
Analytical Approach The ratings on the bank facilities guaranteed by IHEL are based on CRISIL’s criteria on rating instruments backed by guarantees. |
Key Rating Drivers & Detailed Description Strengths: * Unconditional and irrevocable corporate guarantee IHEL has provided an unconditional and irrevocable guarantee to ITMFPL's bank facilities. The guarantee covers the entire principal and interest obligations. The company is also likely to receive operational support from IHEL.
* Established market position of parent IHEL is an engineering procurement contractor (EPC)/manufacturer for various machinery in the capital goods sector, both in India and abroad. Divisions such as boilers, presses, sugar plant machinery, process equipment, and air pollution control equipment are aided by long-term technical tie-ups with a number of recognised global heavy engineering companies as well as IHEL’s in-house design and manufacturing capability. The parent has geographically diversified operations and has been providing engineering solutions to customers around the world for the past 80 years.
* Parent’s healthy financial risk profile IHEL had a strong networth of over Rs 1,800 crore as on March 31, 2020, driven by a large scale of operations and hence, steady accretion to reserves. Gearing was comfortable at 0.5 time, but weakened marginally from 0.2 time as on March 31, 2019, because of debt of Rs 265 crore contracted to acquire Cavite Biofuels Producers Inc, Philippines, repayment of which will begin only from January 2022. Management expects the assets to be sold by the time repayments begin and hence should not impact the financial risk profile (especially liquidity) of IHEL over the medium term. Any delay in sale of assets will, however, be a key monitorable over the medium term.
Debt protection metrics were strong, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 17.5 times and 0.2 time, respectively, for fiscal 2020. Large unencumbered cash and bank balance and liquid investments of more than Rs 200 crore as on March 31, 2020, also support liquidity.
Weaknesses: * Modest scale of operations Revenue declined in fiscal 2020 to Rs 25.4 crore from Rs 29.1 crore in fiscal 2019 because some orders could not be dispatched in March owing to the lockdown imposed following Covid-19. This is reflected in high work-in-progress (WIP) inventory of Rs 10.7 crore as on March 31, 2020, against Rs 0.75 crore in the previous fiscal.
With outstanding order book of Rs 43.5 crore (as on Sep 30, 2020), revenue is expected to remain subdued over the medium term.
* High dependence on guarantor's performance The rating primarily reflects the credit strength of the guarantor. Hence, any adverse movement in the performance of the guarantor may affect the ratings on ITMFPL's facilities.
* Exposure to intense competition in the domestic and international markets Intense competition and the overall weak market scenario restrict inflow of orders. However, IHEL has a healthy track record of booking orders despite a difficult external environment. |
Liquidity: Strong Liquidity is underpinned by the strong financial support of IHEL, backed by an unconditional and irrevocable guarantee. IHEL had unencumbered cash and bank balances of Rs 127.35 crore and investments in various financial instruments worth Rs 81.99 crore as on March 31, 2020, which are adequate to support any exigency over the medium term.
Bank limit utilisation of ITMFPL was moderate at 76% for the 12 months through October 2020. Though cash accrual is expected to remain modest, absence of any term debt will enabled the company to use the accrual to meet working capital requirement. |
Outlook Stable CRISIL believes ITMFPL will continue to benefit from the experience of its promoters and the support of the parent. |
Rating Sensitivity factors Upward factors * Better-than-expected cash accrual of more than 20% due to improved scale of operations and operating profitability
* Lower-than-expected business performance due to revenue declining by 15% on a sustained basis |
Adequacy of credit enhancement structure The ratings continue to be based upon the strength of an unconditional, continuing and irrevocable guarantee extended for the loans by the parent to ensure full and timely payment of all amounts due to the lender on the due dates, and an unconditional undertaking securing the principal repayment and interest payment related to the entire debt. The structure is designed to ensure full and timely payment to the lender.
According to the payment mechanism, the guarantor, IHEL, will pay, not later than seven business days from the due date, any amount due and payable by ITMFPL in relation to these instruments in case of any default on, or shortfall in, payment. The guarantee and the undertaking together cover the principal, interest, and other monies payable under the loan. |
Unsupported ratings: CRISIL A CRISIL has introduced 'CE' suffix for instruments having explicit ‘credit enhancement’ feature in compliance with the Securities and Exchange Board of India circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported rating, CRISIL has considered the standalone business and financial risk profiles of ITMFPL and has applied its parent notch-up framework to factor in the extent of support available to ITMFPL from IHEL. The rating factors in the strategic importance of ITMFPL to its parent, given the synergies to its operations and criticality of niche products manufactured by ITMFPL to IHEL’s product portfolio. |
About the Company Incorporated in 2015, ITMFPL is a joint venture (JV) of IHEL (51%) and Titan (49%) and was formed to manufacture corrosion-resistant process equipment and provide the next generation of reactive alloy equipment to global customers in the chemical, petrochemical, oil and gas, fertiliser, mining, power generation, pharmaceutical, and steel manufacturing industries.
IHEL (formerly, Saraswati Industrial Syndicate Ltd), a public company under the ISGEC group, is listed on the Bombay Stock Exchange. It was established in 1946 by Puri family. Initially, it manufactured spares for sugar mills but later diversified into a range of engineering products. In 1964, it established a JV with the UK-based John Thompson to form Isgec John Thompson to manufacture boilers. In 1981, it acquired majority shares in UP Steels. Both these entities were subsequently merged with IHEL.
IHEL currently manufactures heavy engineering equipment and provides related EPC/turnkey services. Product portfolio comprises pressure vessels, heat exchangers, mechanical and hydraulic presses, iron and alloy steel castings, boilers, power plant, sugar plants and machinery and air pollution control equipment.
Titan is a US-based company that has fabrication and designing technology to manufacture corrosion-resistant process equipment made from reactive metals and high nickel alloys. |
Key Financial Indicators
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List of covenants There are no material covenants |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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