| Kalyani Forge Limited | ||||||
| Rating outlook revised to 'Stable'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 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 Kalyani Forge Limited (KFL) to 'Stable' from 'Negative' while reaffirming the rating at 'CRISIL BBB+'. The rating on the short-term bank facilities has been reaffirmed at 'CRISIL A2'.
The revision in outlook reflects restoration in the business risk profile on back of higher-than-expected revenue and improvement in operating margin in fiscal 2021 supported by demand recovery. The lockdown and other measures taken by the Centre and various state governments towards containment of the Covid-19 pandemic had resulted in weakening of demand and performance during Q1 FY21. However, with gradual recovery in demand from auto segment as well as non-auto segment (such as power, engineering, etc.) led to steady recovery in revenue. Hence, company reported an operating income of Rs.181.56 crore in fiscal 2021. Operating margin too recovered to 7.3% in fiscal 2021 (from 4.9% in fiscal 2020). The demand from customers continues to remain comfortable, as reflected in revenue of Rs 118.95 crore during H1 FY 2022. With the improvement in revenue, operating margin has also further improved to 8.4% during the same period and is expected to improve further to around 8.8-9.0%, in-line with historical levels. Company reported net profit of Rs 1.89 crore during H1 FY 2022, as against net loss during the last two fiscals ended 2021. The overall credit risk profile continues to be supported by the company's healthy financial risk profile and adequate liquidity.
The ratings continue to reflect KFL's established market position in the domestic forging and machining industry and healthy financial risk profile. These strengths are partially offset by large working capital requirements, modest return on capital employed (RoCE) and susceptibility to cyclicality in the automotive (auto) sector, volatility in raw material prices and intense competition. |
Key Rating Drivers & Detailed Description Strengths: Established market position: A presence of around four decades in the domestic forging and machining industry has enabled the promoters to develop a healthy relationship with reputed original equipment manufacturers (OEMs) in the auto segment. Company has a diversified customer base, with top 5 customers contributing to 30-35% of the total revenue. The heavy dependency of customers on KFL will continue to support its business risk profile.
Healthy financial risk profile: Gearing, and total outside liabilities to tangible networth ratio were low at 0.27 time and 0.80 time as on March 31, 2021, supported by healthy networth of Rs 100.16 crore and controlled working capital debt. Backed by lower interest outgo and recovery in operating margin, interest cover has improved to 4.72 times in fiscal 2021. Net cash accruals to adjusted debt ratio was 0.39 time in fiscal 2021.
Weaknesses: Susceptibility of operating margin to cyclicality in the auto sector, volatility in raw material prices and intense competition, and modest RoCE: Operating margin remains susceptible to volatile raw material prices with any increase being passed on to customers with some time lag. Further, most of the revenue (around 70-80%) comes from the auto sector, which is cyclical. Moreover, there is intense competition from auto ancillary manufacturers, which limits bargaining power with customers. Operating margin was 8.4% for H1 FY22 and is expected to be around 8.8-9.0% over the medium term. The RoCE is expected to recover to 6.5-8.0% over the medium term supported by recovery in profitability but expected to remain low because of moderate profitability.
Large working capital requirement: KFL has large working capital requirements as reflected in gross current asset days in the range of 175-235 days over the last five fiscals ended 2021. GCA days increased to 233 days as on March 31, 2021 (from 187 days in previous fiscal) due to increase in debtor days to 136 days (from 103 days in previous fiscal) and increase in inventory days to 97 days (from 76 days in previous year) due to stretch in debtor collection because of Covid-19 pandemic and slow movement of products during fiscal 2021 because of the Covid-19 induced disruptions, respectively. However, the debtor days and inventory days have come under control in the current fiscal and were at 101 days and 83 days, respectively, on Sept 30, 2021. The working capital requirements are expected to remain large with GCA days of 190-200 days over the medium term. |
Liquidity: Adequate Net Cash accruals are expected to be in the range of Rs 15-19 crore per fiscal and will be more than adequate against debt repayments of Rs 1.2-2.3 crore per fiscal over the medium term. The company has access to working capital limits of Rs 40 crore, which have been utilized at an average of 69% over the 12 months ended November 2021. Unencumbered cash and bank balance was Rs 0.10 crore as on March 31, 2021 and this has revived to Rs 1.63 crore as on Nov 30, 2021. Company will be undertaking debt funded capital expenditure of Rs 15 crore over fiscal 2022 and 2023. CRISIL Ratings believes KFL's net cash accruals, unutilized bank limits and cash and cash equivalent will be sufficient to fund incremental working capital, debt repayment and capex requirements over the medium term. |
Outlook: Stable CRISIL Ratings believes KFL will continue to benefit from its established position in the forging and machining industry. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company Established in 1979, KFL is led by Ms. Rohini G Kalyani, as the managing director. The company manufactures high-quality, hot-warm and cold-forged products at its plants in Koregaon Bhima and Sanaswadi in Pune, Maharashtra. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 20 | HDFC Bank Limited | CRISIL BBB+/Stable |
| Cash Credit | 20 | State Bank of India | CRISIL BBB+/Stable |
| FCNR (B) Long Term Loan | 1.22 | State Bank of India | CRISIL BBB+/Stable |
| Foreign Exchange Facility | 1 | State Bank of India | CRISIL A2 |
| Letter of credit & Bank Guarantee | 10 | HDFC Bank Limited | CRISIL A2 |
| Letter of credit & Bank Guarantee | 12 | State Bank of India | CRISIL A2 |
| Proposed Fund-Based Bank Limits | 24.28 | Not Applicable | CRISIL BBB+/Stable |
| Term Loan | 11.5 | State Bank of India | CRISIL BBB+/Stable |
This Annexure has been updated on 23-Feb-23 in line with the lender-wise facility details as on 08-Feb-23 received from the rated entity.
Criteria Details
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