Rating Rationale

Strengths
* Established market position
Benefits derived from the promoters' experience of around two decades, their strong understanding of local market dynamics, and healthy relations with suppliers and customers should continue to support the business. The promoters helped the company develop competencies, increasing capacities and expanding clientele. The facilities are equipped with precision machines for manufacturing electric resistance welded (ERW), cold-drawn welded, and stainless steel tubes.

About 90% of the sales are to Tier I suppliers and original equipment manufacturer (OEMs). The company is an approved vendor for large automobile manufacturers in the domestic market, such as Hero, Honda, and Suzuki. Furthermore, the location of the units in the automobile manufacturing belt of Haryana helped develop an established customer base, which includes both large and small automotive ancillary units.

* Improving scale of operations
Revenue increased by more than 30% in fiscal 2019 to Rs 277.0 crore from Rs 209.3 crore in fiscal 2018. Although revenue growth may remain muted in fiscal 2020 due to slowdown in the automobile industry. Business should continue scaling up, driven by diversification in products profile, continued focus on value-added products, and addition of new Tier 1 customers. However, the operating margin declined to 7.2% in fiscal 2019 from 9.5% in fiscal 2018 owing to revision in the rentals paid to the group entity-Magnum Strips and Tubes Private Limited.

* Comfortable financial risk profile
The financial risk profile is expected to remain healthy, supported by the absence of any yearly maturing debt and no large, debt-funded capital expenditure (capex) plan over the medium term. Networth was moderate at Rs 54.4 crore as on March 31, 2019, with total outside liabilities to adjusted networth ratio at 1.7 times. Debt protection metrics were robust, with interest coverage and net cash accrual to adjusted debt ratios of over 6.4 times and 18%, respectively, for fiscal 2019.

Weaknesses
* Moderate working capital requirement
Operations are likely to remain working capital intensive over the medium term. Gross current assets were 126 days as on March 31, 2019, with receivables of 80 days and inventory of 41 days. The company offers credit of 60-70 days to customers from shipment. It also gets similar credit from suppliers.

* Susceptibility to demand prospects in automotive industry, two-wheeler segment concentration
MMIS manufactures and supplies electric resistance welding pipes and steel components for the automobile industry, majorly for the two wheeler industry (revenue contribution is 73% in fiscal 2019). Hence, business will remain vulnerable to performance of the OEMs. Slowdown in the automobile industry has led to muted revenue growth in fiscal 2020.

Liquidity: Adequate
Cash accrual is estimated at Rs 5-9 crore against no repayment obligation until fiscal 2022. Bank limit utilisation remains low and averaged 34% during the 12 months through July 2019. The company paid a dividend of Rs 7.8 crore in fiscal 2019 (87% of profit after tax [PAT]); however, the management has articulated dividend payout worth 40% of PAT for the medium term. Unencumbered fixed deposits were Rs 8 crore as on September 27, 2019, which have been created to meet repayment of external commercial borrowing of Rs 15.75 crore from the Japanese partner, MI, Fiscal 2023 onwards.