Rating Rationale
March 29, 2023 | Mumbai
Jindal Industries Private Limited
Rating outlook revised to 'Positive'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.300 Crore
Long Term RatingCRISIL A/Positive (Outlook revised from ‘Stable’; Ratings reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
 
Rs.25 Crore Commercial PaperCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
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 Jindal Industries Private Limited (JIPL) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL A’. The short-term rating and commercial paper has been reaffirmed at ‘CRISIL A1’.

 

The outlook revision factors in the improvement in profitability of JIPL as reflected in EBITDA (earnings before interest, tax, depreciation, and amortisation) per tonne of over Rs 3,600 per tonne in 9M fiscal 2023 against Rs 3,000 per tonne in fiscal 2021 and Rs 1800 per tonne in fiscal 2020, due to addition of value added and high margin products like API grade pipes, powder coated pipes and PVC (Polyvinyl chloride) pipes in the portfolio in addition to the usual mix of black and GI (Galvanised Iron) pipes. The company’s revenue grew by ~18% in 9M fiscal 2023 driven by volume growth supported by healthy demand with realizations remaining flat.

 

The company is also increasing its geographical diversification in new markets (East and South India) for GI and black pipes. Along with this, JIPL has ventured into product diversification with its new line of powder coated pipes in the Hisar plant and PVC pipes segment in Gujarat, addition of these products will improve the company’s product mix.

 

JIPL is undertaking capital expenditure in Bellary, Karnataka of Rs 250 crore, to add a capacity of 2.4 lakhs tonne by fiscal 2025. CRISIL Ratings believes that the company profitability will be maintained at a healthy level with the ramp up of the operations in the new plant. The company plans to fund the capex at a comfortable debt to equity ratio of 50:50. However, the timely completion of the project will remain a key monitorable.

 

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 is expected to remain low below 0.2 time in fiscal 2023. Furthermore, with interest coverage ratio of more than 10 times expected in the medium term, the debt protection metrics will continue to be above average. The leverage is expected to increase because of planned debt-funded capex but remain at comfortable levels.

 

Weaknesses

  • Exposure to execution and offtake risks: The planned capex to set up a 2.4 lakh MT greenfield plant in Karnataka with a project cost of ~Rs 250 crore, exposes the company to execution and offtake risks. The new plant will support higher volume growth and stable profitability in JIPL, hence execution and ramp up of project in a timely manner will remain a key monitorable.

 

  • Susceptibility of operating margin to volatility in raw material prices and intense industry competition: Raw material cost accounts for around 87-88% of the total revenue. 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 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 70-100 crore over the medium term. The working capital facilities of Rs 130 crore were utilised at 50% on average over the last 6 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: Positive

CRISIL Ratings believes JIPL 's business risk profile will continue to improve with focus on improving its product mix and company’s plan to enter new markets and planned capex to be completed by fiscal 2025. The financial risk profile is expected to remain strong despite debt-funded capital expenditure (capex) going forward

Rating Sensitivity factors

Upward factors

* Improvement in scale of operations backed by growth in volumes and revenue on a sustained basis

* Improvement in EBITDA with the company sustaining EBITDA per tonne of Rs 3500 – 3700 while maintaining its healthy financial risk profile

* Timely execution of capex and ramp up of project

 

Downward factors

* Sustained contraction in business driven by a sharp fall in sales volumes or increased competition leading to EBITDA per tonne of less than Rs 2000 crore

* 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.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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/Positive
NA Cash credit**## NA NA NA 55 NA CRISIL A/Positive
NA Cash credit**## NA NA NA 15 NA CRISIL A/Positive
NA Cash credit**## NA NA NA 20 NA CRISIL A/Positive
NA Letter of credit and bank guarantee@# NA NA NA 20 NA CRISIL A/Positive
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

 ## 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 

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

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 130.0 CRISIL A/Positive   -- 26-08-22 CRISIL A/Stable 24-09-21 CRISIL A/Stable 22-09-20 CRISIL A/Stable CRISIL A/Stable
Non-Fund Based Facilities ST/LT 170.0 CRISIL A/Positive / CRISIL A1   -- 26-08-22 CRISIL A1 / CRISIL A/Stable 24-09-21 CRISIL A1 / CRISIL A/Stable 22-09-20 CRISIL A1 / CRISIL A/Stable CRISIL A1
Commercial Paper ST 25.0 CRISIL A1   -- 26-08-22 CRISIL A1 24-09-21 CRISIL A1 22-09-20 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/Positive
Cash Credit**## 20 YES Bank Limited CRISIL A/Positive
Cash Credit**## 55 Punjab National Bank CRISIL A/Positive
Cash Credit**## 40 State Bank of India CRISIL A/Positive
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/Positive
This Annexure has been updated on 29-Mar-2023 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity.
 ## 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 
# Non-fund-based to fund-based interchangeability allowed
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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