Rating Rationale
November 14, 2017 | Mumbai
Man Industries India Limited
Rating outlook revised to 'Stable'; ratings reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.2490 Crore
Long Term Rating CRISIL BBB/Stable (Outlook revised from 'Negative' and rating reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank loan facilities of Man Industries India Limited (MIIL; part of the Man group) to 'Stable' from 'Negative' and reaffirmed the rating at 'CRISIL BBB'. CRISIL has also reaffirmed the rating on the short-term bank loan facilities at 'CRISIL A3+'.

The outlook revision reflects CRISIL's expectation of no further support by MIIL to its real estate subsidiary, Merino Shelters Pvt Ltd (MSPL). Furthermore, MIIL's business risk profile is expected to improve driven by increase in order book position.

MIIL has undertaken that it will not extend any further financial support to MSPL. Furthermore, the corporate guarantee given by MIIL for loans taken by MSPL has ceased to exist because the loan has been refinanced without the stipulation of corporate guarantee of MIIL. Based on these changes, CRISIL has revised its analytical approach to not consolidate MSPL.

MIIL's order book has increased to Rs 2700 crore as on October 31, 2017, which will benefit the business risk profile over the medium term. MIIL has received large orders from Gail India Limited ('CRISIL AAA/Stable/CRISIL A1+') of Rs 925 crore, and 2 other orders aggregating to Rs 745 crore. While in 1HFY18, company has reported revenue and operating margin of Rs 602 crore and 6.6%, respectively (Rs 558 crore and 5.5%, respectively), performance in the second half of the year is expected to be higher driven by execution of the large orders. However, timely execution of these orders and profitability will remain key monitorables.

Liquidity is expected to remain constrained on account of large debt obligation of around Rs 90 crore per annum and increased working capital requirement (as visible in nearly full utilization of bank limit in the last 2 months). Working capital cycle has increased with receivables increasing to 126 days as on March 31, 2017, from 75 days a year earlier. The company is likely to utilise a large portion of surplus cash (Rs 118 crore as on March 31, 2017) in fiscal 2018 to meet working capital requirement. However, MIIL expects liquidity to improve with receipt of customer advances, conservation of cash on account of no further support to MSPL, and enhancement in bank line.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of MIIL and its wholly owned subsidiaries Man USA INC and Man Overseas Metal DMCC, because of financial fungibility between the entities, collectively referred to as the Man group. CRISIL has not combined the business and financial risk profiles of MSPL, as no further infusion is expected by MIIL and corporate guarantee of MIIL for facilities of MSPL has ceased to exist. CRISIL has written off the investments and loans to MSPL from MIIL's networth to calculate adjusted networth. 

Key Rating Drivers & Detailed Description
* Established position in the submersible arc welded (SAW) pipes industry: The domestic pipes industry is consolidated, with the top four players accounting for 80% of capacity. MIIL is among the largest SAW pipe players in India, and produces both helically submerged arc welded (HSAW) and longitudinal submerged arc welded (LSAW) pipes (combined capacity of 10 lakh tonne per annum). It has been manufacturing SAW pipes, branch pipes, and coatings since 1995.

* Adequate financial risk profile: The financial risk profile should remain adequate with sizable adjusted networth of Rs 387 crore. However, capital structure has deteriorated with total outside liabilities to adjusted networth (TOLANW) ratio at 1.95 times as on March 31, 2017, and expected at around 2 times over the medium term. Debt protection metrics are comfortable, with adjusted interest coverage and net cash accrual to total debt ratios at 3.29 times and 0.16 time, respectively, in fiscal 2017, and expected to improve in the near term.

* Susceptibility to cyclicality in end-user industries, and to volatility in raw material prices and foreign exchange rates: Oil and gas, and water and irrigation sectors are the major users of SAW pipes. Consequently, the Man group's order inflow and operating performance are linked to the prospects of these sectors. Moreover, there is a 2-4 month lead time between application for, and the final award of, a tender. Because these contracts have fixed priced nature, the group cannot pass on increase in input costs to its customers after applying for the tender.

* Working capital-intensive operations: Gross current assets were more than 200 days as on March 31, 2017, driven by receivables of 126 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 further increase in working capital cycle, and remains a key monitorable.
Outlook: Stable

CRISIL believes liquidity constraints because of increase in working capital requirement and substantial term debt obligation will partially be offset by higher net cash accrual generated from large orders bagged recently.

Upward scenario
* Improvement in liquidity driven by healthy cash accrual and efficient working capital cycle

Downward scenario
* Weakening of liquidity on account of stretch in working capital cycle, limited head room in bank line, or lower-than-expected cash accrual
* Additional support to the real estate business

About the Group

MIIL is one of the largest SAW pipe players in India with a 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, it bought 55% stake in Man Infraprojects Pvt Ltd (Man Infraprojects), which undertook real estate development, and increased stake to 100% after acquiring the promoter shareholding in September 2011. In September 2013, MIIL announced a restructuring of its businesses. As a part of the arrangement, with effect from April 1, 2014, Man Infraprojects was hived off from MIIL. Its subsidiary MSPL remains with MIIL.

Key Financial Indicators
As on/for the period ended March 31 2017 2016
Revenue Rs Crore 1066 1400
Profit After Tax (PAT) Rs Crore 43 63
PAT Margins % 4.0 4.5
Adjusted debt/adjusted networth Times 1.14 0.84
Interest coverage Times 3.29 3.05

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. 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) Rating assigned with outlook
NA Cash credit* NA NA NA 110.00 CRISIL BBB/Stable
NA External commercial borrowings NA NA May 2019 310.00 CRISIL BBB/Stable
NA Letter of credit & bank guarantee** NA NA NA 1495.00 CRISIL A3+
NA Proposed long-term bank loan facility NA NA NA 100.00 CRISIL BBB/Stable
NA Proposed short-term bank loan facility NA NA NA 475.00 CRISIL A3+
*Interchangeable with other fund-based and non-fund-based facilities
**Includes sub-limits for buyer's credit
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  995  CRISIL BBB/Stable/ CRISIL A3+  18-05-17  CRISIL BBB/Negative/ CRISIL A3+  06-06-16  CRISIL A-/Negative/ CRISIL A2+  07-07-15  CRISIL A-/Stable/ CRISIL A2+  17-06-14  CRISIL BBB+/Stable/ CRISIL A2  CRISIL BBB+/Watch Negative/ CRISIL A2/Watch Negative 
        10-02-17  CRISIL BBB+/Negative/ CRISIL A2               
Non Fund-based Bank Facilities  LT/ST  1495  CRISIL A3+  18-05-17  CRISIL A3+    No Rating Change  07-07-15  CRISIL A2+  17-06-14  CRISIL A2  CRISIL A2/Watch Negative 
        10-02-17  CRISIL A2               
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 110 CRISIL BBB/Stable Cash Credit* 110 CRISIL BBB/Negative
External Commercial Borrowings 310 CRISIL BBB/Stable External Commercial Borrowings 310 CRISIL BBB/Negative
Letter of credit & Bank Guarantee** 1495 CRISIL A3+ Letter of credit & Bank Guarantee** 1495 CRISIL A3+
Proposed Long Term Bank Loan Facility 100 CRISIL BBB/Stable Proposed Long Term Bank Loan Facility 100 CRISIL BBB/Negative
Proposed Short Term Bank Loan Facility 475 CRISIL A3+ Proposed Short Term Bank Loan Facility 475 CRISIL A3+
Total 2490 -- Total 2490 --
*Interchangeable with other fund-based and non-fund-based facilities
**Includes sub-limits for buyer's credit
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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