Rating Rationale
July 27, 2022 | Mumbai
Jindal Pipes Limited
Ratings reaffirmed at 'CRISIL A/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.300.7 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL 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 of Jindal Pipes Limited (JPL; part of the DP Jindal group).

 

In fiscal 2022, company standalone operations witnessed revenue growth of 46% primarily driven by 41% increase in realisations and volumetric growth of 5%. Blended Earnings before interest, taxes, depreciation and amortisation (Ebitda)  improved to around Rs. 2100 per tonne during fiscal 2022 compared to Rs. 1900 per tonne in previous fiscal despite increased revenue contribution from trading segment. Trading business recorded 60% of the revenues for fiscal 2022 as compared to 53% of the revenues in previous fiscal.

 

The business risk profile is expected to improve over the medium term, as the company is undertaking capital expenditure capex of around Rs 75 crore for the manufacturing of large diameter pipes that will be used in API segment and have a better margin. Also, the company is setting up a 15-megawatt (MW) solar plant, which will help the company in reducing power cost. Owing to this, the operating margin is expected to improve over the medium term.

 

The standalone financial risk profile remains healthy backed by strong networth and healthy debt protection metrics despite additional debt of Rs 120 crores for manufacturing of large diameter pipes and solar power plant. Liquidity will remain comfortable with cash equivalents of Rs 99 crores as on March 31, 2022 in addition to unutilised bank lines. As on March 31, 2022, JPL’s exposure to group companies in form of equity, preference shares, loans and advances aggregated Rs 223 crore which is around 45% of the JPL’s standalone networth. As per the management the loans and advances to group companies are expected to reduce gradually over the medium term.  

 

The ratings continue to reflect JPL's established position in the Electric Resistance Welded (ERW) pipes business, and a healthy financial risk profile marked by its strong capital structure and debt protection metrics. The ratings also factor in the support JPL receives as part of the DP Jindal group. These rating strengths are partially offset by the company's exposure to intense competition in the ERW pipe segment, volatility in raw material prices resulting in low profit margins.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has not consolidated the debt of Jindal Pipes Singapore Pte Ltd (JPSPL) with that of JPL despite JPL being JPSPL's majority owner. This is because guarantee on JPSPL's debt is expected to fall off and management articulation that no further guarantee to be issued to any group company. CRISIL Ratings has considered the standalone financials of JPL.

 

CRISIL Ratings has centrally factored in the strong business and financial linkages of JPL with the DP Jindal group. JPL is in the same business as group companies Maharashtra Seamless Ltd (MSL) and Jindal Drilling & Industries Ltd (JDIL; ‘CRISIL A/Stable/CRISIL A1’)

Key Rating Drivers & Detailed Description

Strengths:

  • Established position in the ERW pipes segment: JPL has been manufacturing ERW pipes for over 50 years and is among the top five players in the segment, with one of the largest production capacities in India. It has strong presence in the household pipes segment and an established brand, Jindal Star. The brand has better acceptability and pricing power than local players and competes with the products of Jindal Industries Pvt Ltd (JIPL; ‘CRISIL A/Stable/CRISIL A1; the ‘Jindal Hisar’ brand), Tata Steel Ltd and Ratnamani Metals and Tube Ltd (RMTL; ‘CRISIL AA/Stable/CRISIL A1+’). Additionally, the business risk profile of JPL is expected to improve once the new plant for large diameter pipes commences operations, as that would improve product diversity and has relatively better margin compared with current products.

 

  • Adequate financial risk profile: The financial risk profile is supported by healthy capital structure. Gearing has been historically low and is expected to remain below 0.3 time over the medium term despite additional term debt of Rs 120 crores for manufacturing of large size diameter pipes and solar power plant.

 

Additionally, debt protection metrics are satisfactory as indicated by adjusted interest cover ratio above 10 times and net cash accrual to total debt ratio above 1.25 times during fiscal 2022. Though the debt protection metrics are expected to moderate due to increased debt, however expected to remain healthy.

 

  • Support from DP Jindal Group: JPL benefits from managerial, financial and operational support from the DP Jindal group. The group is a leading player in the steel pipes and oil rig industries and consists of three main companies – MSL, JPL and JDIL. It is expected that the funding requirement of any group company will be first met out of the funds available within the group, wherein there has been a track record of JPL receiving the required funding support from its group companies, when required.

 

Weaknesses:

  • Susceptibility of operating margins to volatility in raw material prices   ERW pipe manufacturers are steel convertors (raw material of Hot rolled coils constituting above 90% of the sales) and can pass on fluctuations in raw material prices to consumers but with a lag of 1-2 months. Hence, their operating margins are susceptible to fluctuations in prices of steel (hot rolled coils). JPL has a monthly pricing mechanism and its prudent working capital management are expected to safeguard it from significant raw material price movements. In the trading segment, JPL gets a fixed margin on sales, minimising the impact of raw material price changes.

 

  • Exposure to intense competition: ERW pipes are used in water and sewage transportation and irrigation. The competition is intense because of low product differentiation and high price sensitivity.

Liquidity: Strong

JPL has healthy liquidity driven by expected cash accrual of Rs 45-50 crore against term debt obligation of Rs 7 crore in fiscal 2023, and cash and equivalent of around Rs 99 crore as on March 31, 2022. The working capital facilities of Rs 48.75 crore were utilised just 14% on average over the six months through May 2022. Its bank lines will suffice to meet incremental working capital requirement.

Outlook: Stable

JPL will continue to generate steady cash accrual over the medium term backed by its established market position in the ERW pipe segment.

Rating Sensitivity factors

Upward factors

  • Diversification in cash flow in terms of product profile, geography or end user industry, with growth in volume while maintaining healthy financial risk profile.
  • Sustained improvement in profitability as indicated by blended EBIDTA per tonne increasing to above Rs 3000 per tonne
  • Improvement in credit profile of DP Jindal group

 

Downward factors

  • Weakening operating performance thus deteriorating the capital structure or debt protection metrics
  • DP Jindal group's credit profile weakens, leading to limited support for JPL.
  • Significant debt-funded capex leading to gearing of more than 1 time
  • Additional support or corporate guarantee to subsidiary/group companies

About the Company

Incorporated in 1970 and part of the DP Jindal group, JPL has installed capacity of 250,000 tonne per annum of ERW pipes. The pipes are used in industries such as agriculture, oil refinery, housing construction, irrigation, and fire-fighting. JPL has a network of more than 70 dealers across India and sells pipes under the Jindal Star brand.

About the Group

The DP Jindal group is in various businesses through its three companies: MSL, JDIL and JPL. The group's turnover was around Rs 6000 crore in fiscal 2022. MSL, manufactures seamless and ERW pipes and tubes. JDIL undertakes offshore drilling of oil and gas.

Key Financial indicators (standalone)

As on/for the period ended Mar 31

2022#

2021

Revenue

Rs Crore

2205

1511

Profit after tax

Rs Crore

36

38

PAT margin

%

1.6%

2.5%

Adjusted debt/adjusted networth

Times

0.06

0.05

Interest coverage

Times

10.31

17.16

#Provisional numbers

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

Fund-Based Facilities^

NA

NA

NA

52.25

NA

 CRISIL A/Stable

NA

Non-Fund Based Limit#

NA

NA

NA

210.0

NA

 CRISIL A1

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

38.45

NA

CRISIL A/Stable

^ Interchangeable with Cash Credit (CC) and Working Capital Demand Loan (WCDL)

# Interchangeable with Letter of Credit and Bank Guarantee

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 90.7 CRISIL A/Stable   -- 29-04-21 CRISIL A/Stable 24-01-20 CRISIL A+/Stable   -- CRISIL A+/Stable
Non-Fund Based Facilities ST 210.0 CRISIL A1   -- 29-04-21 CRISIL A1 24-01-20 CRISIL A1+   -- CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Fund-Based Facilities^ 2.25 CRISIL A/Stable
Fund-Based Facilities^ 10 CRISIL A/Stable
Fund-Based Facilities^ 10 CRISIL A/Stable
Fund-Based Facilities^ 30 CRISIL A/Stable
Non-Fund Based Limit# 65 CRISIL A1
Non-Fund Based Limit# 80 CRISIL A1
Non-Fund Based Limit# 55 CRISIL A1
Non-Fund Based Limit# 10 CRISIL A1
Proposed Long Term Bank Loan Facility 38.45 CRISIL A/Stable
^ - Interchangeable with cash credit (CC) and working capital demand loan (WCDL)
# - Interchangeable with letter of credit and bank guarantee
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
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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