Rating Rationale
August 26, 2022 | Mumbai
Jindal Industries Private Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.300 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
 
Rs.25 Crore Commercial PaperCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities and commercial paper programme of Jindal Industries Private Limited (JIPL).

 

In fiscal 2022, JIPL registered revenue growth of around 52%, primarily driven by average realisation rising almost 27% year-on-year, supported by volumetric growth of almost 13% despite impact of the Covid-19 pandemic in the first quarter. Earnings before interest, tax, depreciation, and amortisation (EBITDA) per tonne improved to Rs 3,715 in fiscal 2022, compared to Rs 3,096 in fiscal 2021. The improved profitability was driven by inventory gains during the first quarter of fiscal 2022 and increasing share of value-added products. Profitability is expected to moderate from the peak of fiscal 2022, due to volatile commodity prices. However, increasing share of value-added products is expected to keep EBITDA per tonne above historical levels.

 

The company will be undergoing capital expenditure (capex) of 3 lakh metric tonne (MT) plant in Bellary, Karnataka, to expand its geographical reach and cater to the southern and western markets in a cost-efficient manner. The capital outlay for the project is expected to be around Rs 250 crore, which will be funded through a mix of debt and internal accrual in the ratio of 70:30. The plan is in the initial stages and is likely to achieve commercial operations date (COD) by end of fiscal 2024. The financial risk profile is expected to remain strong, despite the proposed debt-funded capex, supported by expected steady cash accrual and healthy liquidity. Any significant delay in commissioning or higher-than-expected capex or delayed benefits expected from the ongoing capex will remain key monitorables.


The ratings continue to reflect JIPL’s established position in the electric resistance welded (ERW) pipes segment and its healthy financial risk profile, as reflected by low gearing and strong debt protection metrics. These rating strengths are partially offset by exposure to execution and offtake risks and susceptibility of its operating margin to volatility in steel prices and intense industry competition.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has taken a standalone approach.

Key Rating Drivers & Detailed Description

Strengths:

  • Established position in the ERW pipe segment: JIPL has an established position in the ERW pipes segment with its brand, Jindal Hissar. It is among the top five players in the segment in India and has a wide distribution network with more than 100 dealers. The company’s promoters have extensive experience in the steel and steel pipe industries.

 

  • Healthy financial risk profile: JIPL has healthy financial risk profile, as indicated by comfortable capital structure and healthy debt protection metrics. Gearing remained low at 0.16 time as on March 31, 2022. Furthermore, with interest coverage ratio of 17.6 times in fiscal 2022, the debt protection metrics continued to be above average. The leverage is expected to increase because of planned debt-funded capex. However, it remains at comfortable levels.

 

Weaknesses

  • Exposure to execution and offtake risks: The planned capex to set up a 3 lakh MT greenfield plant in Karnataka is around Rs 250 crore, resulting in exposure to execution and offtake risks.

 

  • Susceptibility of operating margin to volatility in raw material prices and intense industry competition: Raw material cost accounts for around 88% of the total revenue in fiscal 2022. Sharp movement in raw material prices have impacted the operating margin in the past. Intense competition, coupled with low value addition leads to modest operating margin of 4-6%. The segment also faces competition from polyvinyl chloride (PVC) pipes in the household segment. The company will remain exposed to fluctuations in raw material prices and high competition.

Liquidity: Strong

Annual cash accrual is expected to be Rs 60-75 crore over the medium term. The working capital facilities of Rs 130 crore were utilised at 50% on average over the last 12 months. The capex of Rs 250 crore per annum is estimated to be funded by mix of debt and internal accrual. Annual cash accrual would be sufficient to repay annual debt of Rs 10-30 crore per annum over the medium term.

Outlook: Stable

CRISIL Ratings believes JIPL will be able to maintain its healthy financial risk profile over the medium term, driven by growth in volumes.

Rating Sensitivity Factors

Upward Factors

  • Significant increase in scale of operations measured in terms of growth in volumes.
  • Sustained improvement in EBITDA (earnings before interest, tax, depreciation, and amortisation) margins of above 6% while maintaining its healthy financial risk profile

 

Downward Factors

  • Sustained contraction in business driven by a sharp fall in sales volumes or increased competition leading to EBITDA margins of less than 3% on sustained basis.
  • Larger than expected debt-funded capital expenditure (capex) or any significant cash outflows towards disputed matters weakens the financial risk profile.

About the Company

Established in 1972, JIPL manufactures galvanised and black ERW pipes in the range of 15 millimetres (mm) to 300 mm as specified by the Bureau of Indian Standards, American Petroleum Institute Standard and ASTM International. The pipes are used for housing, agriculture, oil refinery, irrigation, structural and firefighting purposes. JIPL has total production capacity of 5 lakh tonne per annum in Hisar, Haryana, and is among the top five manufacturers of ERW pipes in India.

 

For the first three months of fiscal 2023, JIPL reported profit after tax (PAT) and revenue of Rs 19 crore and Rs 669 crore, respectively, against PAT and revenue of Rs 38 crore and Rs 532 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators

As on/for the period ended March 31

2022

2021

Revenue

Rs.Crore

2373

1561

Profit After Tax (PAT)

Rs.Crore

82

(44)

PAT Margin

%

3.5

(2.8)

Adjusted debt/adjusted networth

Times

0.16

0.25

Interest coverage

Times

17.67

15.36

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

Commercial paper

NA

NA

7-365 days

25

Simple

CRISIL A1

NA

Cash credit**##

NA

NA

NA

40

NA

CRISIL A/Stable

NA

Cash credit**##

NA

NA

NA

55

NA

CRISIL A/Stable

NA

Cash credit**##

NA

NA

NA

15

NA

CRISIL A/Stable

NA

Cash credit**##

NA

NA

NA

20

NA

CRISIL A/Stable

NA

Letter of credit and bank guarantee@#

NA

NA

NA

20

NA

CRISIL A/Stable

NA

Letter of credit and bank guarantee@

NA

NA

NA

80

NA

CRISIL A1

NA

Letter of credit and bank guarantee@

NA

NA

NA

45

NA

CRISIL A1

NA

Letter of credit and bank guarantee@

NA

NA

NA

25

NA

CRISIL A1

    #Non-fund-based to fund-based interchangeability allowed

    ##Fund-based to non-fund-based interchangeability allowed

    **Includes bill discount, buyer credit, packing credit, short-term working capital demand loan

    @Includes bank guarantee, letter of credit & letter of undertakings

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 130.0 CRISIL A/Stable   -- 24-09-21 CRISIL A/Stable 22-09-20 CRISIL A/Stable 25-09-19 CRISIL A/Stable CRISIL A/Stable
      --   --   --   --   -- CRISIL A/Stable
Non-Fund Based Facilities ST/LT 170.0 CRISIL A1 / CRISIL A/Stable   -- 24-09-21 CRISIL A1 / CRISIL A/Stable 22-09-20 CRISIL A1 / CRISIL A/Stable 25-09-19 CRISIL A1 / CRISIL A/Stable CRISIL A1
Commercial Paper ST 25.0 CRISIL A1   -- 24-09-21 CRISIL A1 22-09-20 CRISIL A1 25-09-19 CRISIL A1 CRISIL A1
All amounts are in Rs.Cr.
 
 
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit**## 15 ICICI Bank Limited CRISIL A/Stable
Cash Credit**## 20 YES Bank Limited CRISIL A/Stable
Cash Credit**## 40 State Bank of India CRISIL A/Stable
Cash Credit**## 55 Punjab National Bank CRISIL A/Stable
Letter of credit & Bank Guarantee@ 25 YES Bank Limited CRISIL A1
Letter of credit & Bank Guarantee@ 80 Punjab National Bank CRISIL A1
Letter of credit & Bank Guarantee@ 45 ICICI Bank Limited CRISIL A1
Letter of credit & Bank Guarantee@# 20 State Bank of India CRISIL A/Stable
This Annexure has been updated on 26-Aug-2022 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity

 #Non-fund-based to fund-based interchangeability allowed

 ##Fund-based to non-fund-based interchangeability allowed

 **Includes bill discount, buyer credit, packing credit, short-term working capital demand loan

 @Includes bank guarantee, letter of credit & letter of undertakings

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
CRISILs Criteria for rating short term debt

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