Rating Rationale
June 01, 2023 | Mumbai
Man Industries India Limited
Ratings continues on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities RatedRs.2180 Crore
Long Term RatingCRISIL A/Watch Developing (Continues on 'Rating Watch with Developing Implications')
Short Term RatingCRISIL A1/Watch Developing (Continues on 'Rating Watch with Developing Implications')
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’ ratings on the bank facilities of Man Industries India Limited (MIIL) continues on 'Rating Watch with Developing Implications’.

 

CRISIL Ratings had placed its ‘CRISIL A/CRISIL A1’ ratings on watch, following an announcement by MIIL, that the Securities and Exchange Board of India (SEBI) had ordered a forensic audit on the financial statements of the company. The forensic audit, as per the company, was conducted primarily because of non-consolidation of Merino Shelters Pvt Ltd (MSPL; a fully owned subsidiary) in the books of accounts of MIIL.

 

MIIL had earlier received a show cause notice from SEBI in the month of August 2022, as a conclusion to the forensic audit. MIIL had decided to settle the matter with SEBI and is in the final stages of settlement currently, as per the company. The settlement amount expected from the same would not be material as conveyed by the company.

 

CRISIL Ratings has also noted MIIL’s plan to settle the loan dues of MSPL by infusing funds of Rs 70 crore as a one-time settlement with MSPL’s lenders. The settlement is now competed and MSPL lenders have released the charge on their assets. MIIL is in talks with various prospective buyers for the sale of assets of MSPL.

 

In fiscal 2023, the revenue has remained stable as against last year with operating margins declining to 6.5% from 9.9% in fiscal 2022. The margins have declined due to several factors during the year, such as low margin orders, loss due to forex and fluctuations in steel prices. The company has healthy revenue visibility for fiscal 2024 with an order book of Rs 2300 Crs currently to be executed in the next 6-8 months.

 

The company has added new capacities of ERW pipes of Rs 250 crores which was completed in March 2023 and is currently operational. Furthermore, capex of Rs 550 crore is planned towards  setting up new stainless-steel pipes plant in Jammu and  is expected to be completed by December 2024. This incremental capacity, once stabilized, is anticipated to improve the scale of operations and profitability.

 

The ratings continue to reflect the established market position of MIIL in the submerged arc welding (SAW) pipes industry along with healthy financial risk profile. These strengths are partially offset by the working capital-intensive nature of operations and the susceptibility of the company to cyclicality in end-user industries along with volatility in raw material prices and foreign exchange (forex) rates.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has consolidated MIIL and its wholly owned subsidiaries -- Man USA INC and Man Overseas Metal DMCC -- as there are financial fungibilities between the companies. The entities are collectively referred to as the Man group. The subsidiaries are strategic to MIIL in view of their strong integration with its operations.

 

CRISIL Ratings has not consolidated MSPL, given that MIIL had not provided any financial support (equity investment or loan) to it since fiscal 2017 in line with the management’s articulation and the corporate guarantee of MIIL for facilities of MSPL had ceased to exist. CRISIL Ratings has written off the past investments in MSPL from MIIL’s net worth to calculate its adjusted net worth. The fund infusion that MIIL has provided in current fiscal and will be providing subsequently to MSPL will be one off and is expected to recover the entire exposure by end of March 2024.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths: 

Established position in the SAW pipes industry

The domestic pipes industry is consolidated, with the top four players accounting for 80% of capacity. Limited competition is due to large capital requirement and the necessity to have critical accreditations and customer approvals. MIIL is amongst the largest SAW pipe players in India and produces both helically submerged arc welded (HSAW) and longitudinal submerged arc welded (LSAW) pipes. It has been manufacturing SAW pipes, branch pipes and coatings since 1995. 

 

Healthy financial risk profile

The financial risk profile is expected to remain healthy with sizeable adjusted networth of Rs 901 crore and gearing of 0.33 time as on March 31, 2023. Interest coverage ratio is moderate at 4.29 times during FY2023. Liquidity is expected to remain healthy, as cash accrual is expected to comfortably meet the yearly debt obligation. The company’s ability to manage the incremental working capital requirement while maintaining comfortable gearing remains crucial, given the moderate-to-high utilisation of the fund-based limit.

 

Weaknesses:

Susceptibility to cyclicality in end-user industries and to volatility in raw material prices and forex rates

The Man group has historically derived over 85% of the revenue from the oil and gas segment and the remaining from the water and irrigation segment. Slowdown in the oil and gas industry because of a significant decline in crude prices impacted operations in the past. Strong demand from new projects in the oil and gas segment in key markets of India and the Middle East is critical for improvement in overall operations. Any major and continued slowdown in end-user industries will weaken demand for line pipes and impact performance.

 

Furthermore, operations remain exposed to government policies and preferences with respect to factors such as local supply and trade duties. Consequently, the group’s order inflow and operating performance are highly linked to the demand prospects from these sectors. Moreover, there is lead time of 2-4 months between the application and the final award of a tender. Because these contracts are of a fixed-priced nature, the Man group cannot pass on increases in input costs to customers after applying for the tender.

 

The company is also exposed to forex functions as reflected by the forex losses incurred by the company during first half of the current fiscal.

 

Working capital-intensive operations

Gross current assets have been around 200 days in the past, driven by debtors of over 100 days. Over the medium term, the working capital requirement is expected to rise with increase in the order book. Also, concentration in receivables renders MIIL susceptible to steady increase in the working capital requirement, and hence, remains a key monitorable.

Liquidity: Strong

Liquidity is aided by moderate fund-based working capital lines utilization and internal cash accruals; the company also avails need-based project-specific limits. Cash and cash equivalents were over Rs 162 crore as on March 31, 2023. CRISIL Ratings expects internal accrual, cash & cash equivalents, and unutilized bank lines to be sufficient to meet repayment obligation as well as incremental capex requirements.

Rating Sensitivity factors

Upward factors

  • Improved operating performance leading to operating margin of above 12%
  • Business risk profile improves with significant growth in outstanding order book along with diversification of product profile
  • Considerable improvement in liquidity on account of realization of non-current assets / non-core investments

 

Downward factors

  • Weak operating performance resulting into fall of operating margins below 5%.
  • Business risk profile weakens as reflected in substantial outstanding order book reduction
  • Deterioration in financial risk profile due higher than expected debt funded capex or any support provided to non-business-related entities.

About the Company

MIIL is one of the largest SAW pipe players in India with combined capacity of 10 lakh tonne per annum, distributed equally between HSAW and LSAW. Incorporated in 1988, it commenced operations with the production of aluminum extrusion products. In 1995, it diversified into manufacturing SAW pipes. In March 2008, MIIL bought 55% stake in Man Infraprojects Pvt Ltd (Man Infraprojects), which undertook real estate development and increased its stake to 100% after acquiring the promoter shareholding in September 2011. In September 2013, MIIL announced a restructuring of its businesses. As part of the arrangement, with effect from April 1, 2014, Man Infraprojects was hived off from MIIL.

 

As on November 22, 2021, SEBI appointed V Singhi & Associates as MIIL’s forensic auditor. As per the company, the last clarification was sought in March 2022. SEBI had responded over the forensic audit with a show cause notice to the company in August 2022, the settlement of which is sought by the company currently and is at its final stages.

Key Financial Indicators (consolidated; adjusted by CRISIL Ratings)

As on/for the period ended March 31   2023 2022
Revenue Rs crore 2092 2153
Profit after tax (PAT) Rs crore 67 102
PAT margin % 3.2 4.7
Adjusted debt/adjusted networth Times 0.33 0.06
Interest coverage Times 4.29 5.84

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 Cash credit* NA NA NA 190 NA CRISIL A/Watch Developing
NA Letter of credit & bank guarantee** NA NA NA 1483 NA CRISIL A1/Watch Developing
NA Loan Equivalent Risk Limits NA NA NA 58 NA CRISIL A1/Watch Developing
NA Proposed Long term bank loan facility NA NA NA 10 NA CRISIL A/Watch Developing
NA Proposed Short term bank loan facility NA NA NA 274 NA CRISIL A1/Watch Developing
NA Term loan NA NA Mar-28 165 NA CRISIL A/Watch Developing

* Interchangeable with other fund-based and non-fund-based facilities

** Includes sub-limits for buyer's credit

Annexure – List of entities consolidated

Names of Entities Consolidated Extent of Consolidation  Rationale for Consolidation 
Man USA INC, and Man Overseas Metal DMCC Full consolidation Strong integration with MIIL’s operations and financial fungibility
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 697.0 CRISIL A1/Watch Developing / CRISIL A/Watch Developing 24-04-23 CRISIL A1/Watch Developing / CRISIL A/Watch Developing 07-12-22 CRISIL A1/Watch Developing / CRISIL A/Watch Developing 11-08-21 CRISIL A1 / CRISIL A/Stable 12-11-20 CRISIL A2+ / CRISIL A-/Positive CRISIL A2+ / CRISIL A-/Stable
      -- 03-03-23 CRISIL A1/Watch Developing / CRISIL A/Watch Developing 08-09-22 CRISIL A1/Watch Developing / CRISIL A/Watch Developing   -- 03-03-20 CRISIL A2+ / CRISIL A-/Stable --
      --   -- 10-06-22 CRISIL A1/Watch Developing / CRISIL A/Watch Developing   --   -- --
Non-Fund Based Facilities ST 1483.0 CRISIL A1/Watch Developing 24-04-23 CRISIL A1/Watch Developing 07-12-22 CRISIL A1/Watch Developing 11-08-21 CRISIL A1 12-11-20 CRISIL A2+ CRISIL A2+
      -- 03-03-23 CRISIL A1/Watch Developing 08-09-22 CRISIL A1/Watch Developing   -- 03-03-20 CRISIL A2+ --
      --   -- 10-06-22 CRISIL A1/Watch Developing   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit& 50 State Bank of India CRISIL A/Watch Developing
Cash Credit& 20 ICICI Bank Limited CRISIL A/Watch Developing
Cash Credit& 70 Union Bank of India CRISIL A/Watch Developing
Cash Credit& 15 Bank of India CRISIL A/Watch Developing
Cash Credit& 5 The South Indian Bank Limited CRISIL A/Watch Developing
Cash Credit& 30 HDFC Bank Limited CRISIL A/Watch Developing
Letter of credit & Bank Guarantee! 120 HDFC Bank Limited CRISIL A1/Watch Developing
Letter of credit & Bank Guarantee! 271 State Bank of India CRISIL A1/Watch Developing
Letter of credit & Bank Guarantee! 400 State Bank of India CRISIL A1/Watch Developing
Letter of credit & Bank Guarantee! 40 ICICI Bank Limited CRISIL A1/Watch Developing
Letter of credit & Bank Guarantee! 411 Union Bank of India CRISIL A1/Watch Developing
Letter of credit & Bank Guarantee! 96 Bank of India CRISIL A1/Watch Developing
Letter of credit & Bank Guarantee! 45 The South Indian Bank Limited CRISIL A1/Watch Developing
Letter of credit & Bank Guarantee! 100 Exim Bank CRISIL A1/Watch Developing
Loan Equivalent Risk Limits 9 State Bank of India CRISIL A1/Watch Developing
Loan Equivalent Risk Limits 4 ICICI Bank Limited CRISIL A1/Watch Developing
Loan Equivalent Risk Limits 45 The South Indian Bank Limited CRISIL A1/Watch Developing
Proposed Long Term Bank Loan Facility 10 Not Applicable CRISIL A/Watch Developing
Proposed Short Term Bank Loan Facility 274 Not Applicable CRISIL A1/Watch Developing
Term Loan 165 State Bank of India CRISIL A/Watch Developing
This Annexure has been updated on 01-June-2023 in line with the lender-wise facility details as on 06-Dec-2022 received from the rated entity.
& - Interchangeable with other fund-based and non-fund-based facilities
! - Includes sub-limits for buyer's credit
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
CRISILs Criteria for Consolidation

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