Key rating drivers & detailed description

Strengths:

Extensive experience of the promoters: Mr Kiran Kothari and his family members have more than four decades of experience in agriculture and irrigation-related works. The expertise of the promoters, their understanding of market dynamics and healthy relations with customers and suppliers should continue to support the business.

Diversified product portfolio: KAPL operates in two business segments -- micro irrigation systems (MIS) and non-MIS. Under MIS, the company manufactures, assembles and installs MIS for drip irrigation and sprinkler irrigation; under non-MIS, the company manufactures rigid plastic pipes, unplasticised polyvinylchloride (PVC) pipes and fittings and high-density polyethylene (HDPE) pipes. In the MIS segment, the company generates majority of the revenue from subsidy business and the remaining through distributors. Furthermore, the company  forayed into the building pipes segment in fiscal 2024, which is expected to contribute significantly to topline over the medium term and reduce dependency on the other segments. The diversified product profile has helped to increase the market presence.

Strong distribution channel and diversified geographical presence: KAPL has a strong distribution network of over 2,000 dealers across 14 states, resulting in wide geographical reach across the country. This has supported increase in revenue from Rs 695 crore in fiscal 2023 to Rs 1,131 crore estimated for fiscal 2025. The top five states contribute to around 85% of the total revenue.

Strong financial risk profile: Networth is estimated at Rs 282 crore as on March 31, 2025. KAPL’s capital structure has been comfortable with gearing estimated  at 0.84 time and total outside liabilities to adjusted networth ratio at 1.55 times  as on March 31, 2025 (0.89 time and 1.59 times, respectively, as on March 31, 2024) despite sizeable capital expenditure (capex) incurred in past few years. Debt protection metrics have also been adequate, with interest coverage ratio estimated at 4 times for fiscal 2025 (3.43 times for fiscal 2024). The financial risk profile is expected to improve over medium term with no major debt-funded capex and expected improved performance.

Weaknesses:
Susceptibility to intense competition and adverse changes in government policies : The pipes and fittings industry is highly competitive, especially in the commoditised products segment, which has low differentiation, thus resulting in intense competition from both organised and unorganised segments. Government subsidies is one of the major drivers for the MIS in India and hence, government policies significantly influence the end-user decisions to install MIS.

Volatility in raw material prices affecting margin: KAPL’s profitability is susceptible to fluctuations in the cost of the key raw material, PVC, which is a crude oil derivative and hence affected by change in crude oil prices and foreign exchange rates. This had led to lower operating margin in fiscals 2022 and 2023. The margin improved to 9.18% in fiscal 2024 and is further estimated to be at a similar level fiscal 2025. The risk is partially offset by the ability of the company to pass on any price hike to consumers and measures it takes, such as in-house production of some products as a part of backward integration, better product mix and better absorption of fixed costs resulting from increase in scale of operations. Sustained profitability will remain monitorable over the medium term.

Large working capital requirement: Gross current assets have been  147-152 days for the three fiscals ended March 31, 2024, and are estimated at similar levels for fiscal 2025. This is largely driven by high receivables resulting from receivables of more than 6 months pending from the subsidy business sponsored by central/state government; as well as higher sales in the last quarter. The company also maintains huge inventory to meet business requirement as well as due to large product variety. Management of working capital cycle and improvement of same remain monitorable.

Key financial indicators

Annexure - Details of Instrument(s)

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