| Kirloskar Pneumatic Company Limited | ||||||
| Rated amount enhanced for Bank Debt; CP Withdrawn | ||||||
| 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 reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities of Kirloskar Pneumatic Company Limited (KPCL). CRISIL Ratings has also withdrawn its rating on the Rs.40 crore commercial paper at the company’s request and on receipt of the required documentation, as it has not been placed yet. This is in line with the rating withdrawal policy of CRISIL Ratings.
The ratings continue to reflect the company’s strong financial risk profile supported by healthy capital structure with nil gearing and established market position. These strengths are partially offset by susceptibility to cyclicality in demand from end-user sectors, strong competition and volatile input prices.
Operating income de-grew ~5% on-year to Rs 833 crore during the first nine months of this fiscal mainly because of lower exports with execution of domestic orders getting delayed due to approvals. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin improved to 13.3% as compared to 11.7% during fiscal 2023, driven by the company’s ability to pass-on raw material price increases to customers, increased share of high-margin equipment sales and moderating raw material prices.
KPCL’s order book has been growing steadily and stood at Rs 1,546 crore as on December 31, 2023, thereby providing revenue visibility. Despite modest revenue in the first nine months of fiscal 2024, strong execution and deliveries with ready-to-despatch packages in the fourth quarter should drive annual revenue growth, though it will be modest compared to the past two years. However, strong demand from the city gas distribution (CGD) segment where the company enjoys strong market position should drive revenue growth by 10-15% over the medium term. The EBITDA margin is expected to remain healthy at 12-13% over the medium term with moderating raw material prices and cost saving initiatives. Sustenance of revenue growth while maintaining healthy EBITDA margin over the medium term, remains a key monitorable. The expected ramp-up in road-railer operations is delayed despite addition of new routes and wagons. Furthermore, the financial risk profile remains robust, supported by debt-free balance sheet, strong debt protection metrics and healthy liquidity. |
Key Rating Drivers & Detailed Description Strengths: Strong financial risk profile: The financial risk profile is supported by healthy capital structure with nil gearing (as on December 31, 2023), prudent working capital management, healthy cash accrual and moderate capital expenditure (capex). Total outside liabilities to tangible networth (TOLTNW) ratio has remained healthy at 0.42 time as on March 31, 2023, with interest coverage ratio remaining strong at above 50 times. As on September 30, 2023, liquid surplus (comprising marketable securities and cash and bank balance) was healthy at Rs 190 crore.
Established market position: KPCL has an established market position in each product segment (air compressors, refrigeration and gas compressors, and transmission products) through technological collaboration and strong after-sales support services deriving 94% share of revenue from compression systems. The company has three state-of-the-art manufacturing facilities in India producing for diverse industries, such as oil and gas, power, cement, steel, automobiles, textiles, refinery, petrochemicals, CGD, cold storage and food, besides the defence and railway departments of the Government of India. KPCL holds 50% market share in the Compressed Natural Gas (CNG) station market and is the first company in India to be approved for hydrocarbon refrigeration systems.
Weaknesses: Vulnerability to inherent cyclicality in demand from end-user industries: KPCL's customers are mainly from the engineering and other capital-intensive industries, wherein demand is cyclical. Addition of new facilities or expansion of current facilities by the industries is dependent on the country’s economic performance as evident during fiscal 2021 when low demand impacted KPCL’s revenue. Therefore, the company’s fortunes are tied to the capex cycle of end-user industries.
Susceptibility to volatile input prices and competitive pressure: Operating margin is susceptible to volatile input prices. The gestation period of projects in the compressor systems segment is 3-18 months, rendering profitability susceptible to volatile input prices. Also, in the air compressor segment, KPCL faces competition from domestic and major international players and their Indian subsidiaries, with players having access to strong technological and managerial support from their parents. |
Liquidity: Strong Cash accrual is expected to be more than Rs 100 crore annually, which is adequate to fund capex of Rs 30-40 crore annually, and support working capital requirement in the absence of any long-term debt obligation. This will build up cash and equivalent levels over the medium term, which are currently at Rs 190 crore as on September 30, 2023. KPCL also has access to fund-based limit of Rs 40 crore which remains unutilised so far. |
Outlook: Stable CRISIL Ratings believes KPCL's business risk profile will steadily improve over the medium term, driven by healthy orders, increased demand from end-user industries, and established market position in the compressor segment. The financial risk profile should remain strong, supported by healthy capital structure with nil gearing and healthy liquidity. |
Rating Sensitivity Factors Upward Factors
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About the Company Incorporated in 1958, KPCL is a part of the Pune-based Kirloskar group. It has three divisions: air compressors, refrigeration and gas compressors, and transmission products. Manufacturing facilities of all divisions are integrated, and three locations situated in and around Pune. End users include the oil and gas, pharmaceutical, steel, power, railways and defence sectors.
KPCL entered into an agreement with the Indian Railways to operate road-railers, including the pilot project between New Delhi and Chennai, Tamil Nadu. The company has acquired the technology required to build road-railers from Wabash Inc, USA, which is a leading North American manufacturer of semi-trailers. The Indian Railways' Research Design and Standards Organisation (RDSO) has inspected and cleared the prototype and conducted the Emergency Brake Distance (EBD) test.
For the first nine months of fiscal 2023, revenue was Rs 833 crore and PAT was Rs 73 crore, against revenue of Rs 880 crore and PAT of Rs 76 crore in the corresponding period of the previous fiscal. |
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)
Annexure - Details of Rating Withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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