Rating Rationale
February 03, 2021 | Mumbai
JSW Vallabh Tinplate Private Limited
Ratings upgraded to 'CRISIL A- / Positive / CRISIL A2+ '
 
Rating Action
Total Bank Loan Facilities RatedRs.154.35 Crore
Long Term RatingCRISIL A-/Positive (Upgraded from 'CRISIL BBB+ / Positive')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2 ')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of JSW Vallabh Tinplate Pvt Ltd (JVTPL) to ‘CRISIL A-/Positive/CRISIL A2+’ from ‘CRISIL BBB+/Positive/CRISIL A2’.

 

The upgrade reflects the signing of a binding agreement by JSW Steel Ltd (JSW Steel) to acquire the balance 26.45% stake in JVTPL by March 31, 2021, from the erstwhile promoters, thus gaining 100% ownership. As on January 31, 2021, JSW Steel has increased the stake to 92.68% from 73.55% as on March 31, 2020. The positive outlook reflects expectation of sustained improvement in the operating performance of JVTPL, resulting in easing of its liquidity position as measured in terms of unutilised bank lines and availability of unencumbered cash on the balance sheet.

 

Standalone liquidity remains modest with cash and bank balance of Rs 2.2 crore as on December 31, 2020, and fund-based working capital limit utilisation averaging 92% for the last 12 month ending December, 2020. Comfort is being drawn from the flexibility available to JVTPL being a subsidiary of JSW Steel. Overall liquidity is also supported by flexible credit terms from JSW Steel on the raw material supplied to JVTPL. CRISIL Ratings centrally factors in support to be extended by JSW Steel to JVTPL in full and in a timely manner to service debt obligation when required, besides operational and managerial support on an ongoing basis.

 

For first nine months of fiscal 2021 operating performance has been better than CRISIL Ratings’ expectations owing to faster-than-anticipated reversal to the pre-Covid-19 pandemic levels as the plant remained operational since it is a supplier of packaging material to food processing industries, which falls under the Essential Commodities Act. The earnings before interest, tax, depreciation and amortisation (Ebitda) margin was 7.9% on operating revenue of Rs 437 crore during this period. For fiscal 2021, absolute operating profits are expected to be not lower than that in fiscal 2020. Operating performance should improve in the medium term given the capacity expansion to match cold roll coil rolling capacity to that of tinplate capacity, thereby reducing cost of production.

 

The rating continue to reflect JVTPL’s established market position in the domestic tinplate industry and enhanced support from the parent on account of increased ownership. These strengths are partially offset by an average financial risk profile and tight liquidity.

 

The company had sought moratorium from its lenders in line with the relief measure announced by the Reserve Bank of India on payment of instalments against loans and interest and availed the relief for March to August 2020.

Analytical Approach

To arrive at the ratings CRISIL Ratings has applied the parent notch-up framework to centrally factor in JVTPL’s strategic importance to, and likely support from, JSW Steel, which owns around 93% stake in the company. JVTPL shares the brand of JSW, enjoys operational and management support, and meets 70-80% of its raw material requirement from JSW Steel.

Key Rating Drivers & Detailed Description

Strengths:

Established market position in the domestic tinplate industry: The company is one of the largest players in the domestic tinplate industry, with capacity of 100,000 tonne per annum (tpa; to increase to 120,000 tpa from fiscal 2022). Its established market position would continue to support the business risk profile.

 

Support from JSW Steel: The company receives financial (extended credit), operational (uninterrupted supply of hot-rolled coils [HRC], common procurement of tin, and sharing of technological knowledge), and managerial (deputation of senior professionals, common treasury) support from JSW Steel. The propensity of support from the parent is high given the strategic focus of the JSW group towards value-added products. The high moral obligation to support JVTPL is also underscored by the shared JSW brand.

 

Weakness:

Average financial risk profile: Debt protection metrics improved in fiscal 2020 but remained average. Interest coverage and net cash accrual to total debt (NCATD) ratios were 2.62 times and 0.23 times, respectively, against 1.47 times and 0.06 time, respectively, in the previous fiscal. During the first nine months of fiscal 2021, improvement continued with interest coverage and NCATD ratios rising to 3.1 times and 0.28 time due to a healthy operating performance. However, with the debt funded capex to increase its CR coil and tinplate capacity, the financial risk profile is expected to remain average in the medium term.

Liquidity : Adequate

Though standalone liquidity remains modest with cash and bank balance of Rs 2.2 crore as on December 31, 2020, and fund-based working capital limit utilisation averaging 92% for the last 12 months ending December, 2020, financial flexibility from being a subsidiary of JSW Steel benefits the company. Further, overall liquidity is supported by flexible credit terms from JSW Steel on raw material supplied.

Outlook Positive

JVTPL's credit risk profile is expected to improve driven by sustained improvement in its operating performance, resulting in easing of its liquidity position as measured in terms of unutilised bank lines and availability of unencumbered cash on the balance sheet.

Rating Sensitivity factors

Upward factors

  • Improved standalone liquidity, reflected in average utilisation of working capital lines below 85% for six months, or maintenance of a healthy cash and bank balance
  • Improvement in JSW Steel’s credit risk profile and increasing criticality of JVTPL to the parent.

 
Downward factors

  • Deterioration in the financial performance on account of a decline in profitability, leading to sustained reduction in the interest coverage ratio to below 2 times
  • Weakening of the capital structure or liquidity because of a stretch in the working capital cycle
  • Weakening of JSW Steel’s credit risk profile or diminution in its support philosophy towards JVTPL.

About the Company

JVTPL has an integrated facility to manufacture tinplate at Rajpura, Punjab, with total tinning capacity of 100,000 tpa (expected to be increased to 120,000 tpa by September 30, 2021). As on January 31, 2021, JSW Steel held 92.68% stake in JVTPL (69.13% directly and 23.55% through Vardhman Industries Ltd); JVTPL is expected to become a wholly owned subsidiary of JSW Steel by March 31, 2021.

Key Financial Indicators

As on/for the period ended March 31

Unit

2020

2019

Operating income

Rs crore

537

626

Profit after tax (PAT)

Rs crore

12

(3.8)

PAT margin

%

2.3

(0.6)

Adjusted debt/adjusted networth

Times

1.54

2.05

Interest coverage

Times

2.62

1.47

 

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)

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

1.00

NA

CRISIL A2+

NA

Cash credit &

NA

NA

NA

39.00

NA

CRISIL A-/Positive

NA

Long-term loan

NA

NA

Sep-22

37.47

NA

CRISIL A-/Positive

NA

Long-term loan

NA

NA

Dec-22

3.30

NA

CRISIL A-/Positive

NA

Working Capital term loan

NA

NA

NA

21.2

NA

CRISIL A-/Positive

NA

Proposed long-term bank loan facility

NA

NA

NA

52.38

NA

CRISIL A-/Positive

& Non-fund letter of credit facility of Rs 3 crore

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 153.35 CRISIL A-/Positive   -- 19-05-20 CRISIL BBB+/Positive 12-12-19 CRISIL BBB+/Positive 22-11-18 CRISIL BBB/Watch Developing CRISIL BBB/Negative
      --   --   -- 07-11-19 CRISIL BBB/Watch Developing 29-08-18 CRISIL BBB/Watch Developing --
      --   --   -- 20-08-19 CRISIL BBB/Watch Developing   -- --
      --   --   -- 21-05-19 CRISIL BBB/Watch Developing   -- --
      --   --   -- 20-02-19 CRISIL BBB/Watch Developing   -- --
Non-Fund Based Facilities ST 1.0 CRISIL A2+   -- 19-05-20 CRISIL A2 12-12-19 CRISIL A2 22-11-18 CRISIL A3+/Watch Developing CRISIL A3+
      --   --   -- 07-11-19 CRISIL A3+/Watch Developing 29-08-18 CRISIL A3+/Watch Developing --
      --   --   -- 20-08-19 CRISIL A3+/Watch Developing   -- --
      --   --   -- 21-05-19 CRISIL A3+/Watch Developing   -- --
      --   --   -- 20-02-19 CRISIL A3+/Watch Developing   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Bank Guarantee Bank of India 1 CRISIL A2+
Cash Credit& Bank of India 16 CRISIL A-/Positive
Cash Credit& IDBI Bank Limited 23 CRISIL A-/Positive
Long Term Loan Bank of India 11.31 CRISIL A-/Positive
Long Term Loan IDBI Bank Limited 26.16 CRISIL A-/Positive
Long Term Loan IDBI Bank Limited 3.3 CRISIL A-/Positive
Proposed Long Term Bank Loan Facility Not Applicable 52.38 CRISIL A-/Positive
Working Capital Term Loan Bank of India 10.65 CRISIL A-/Positive
Working Capital Term Loan IDBI Bank Limited 10.55 CRISIL A-/Positive
& - Non-fund letter of credit facility of Rs 3 crore
This Annexure has been updated on 26-Sep-2021 in line with the lender-wise facility details as on 01-Aug-2021 received from the rated entity.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Steel Industry
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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