| Mangal Industries Limited | ||||||
| Ratings placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ratings on the bank facilities of Mangal Industries Limited (MIL) on ‘Rating Watch with developing Implications’.
The rating action follows the scheme of arrangement wherein MIL’s Plastic Component for Battery Business is being demerged into a group company, Amara Raja Batteries Ltd (ARBL, rated 'CRISIL AA+/Stable/CRISIL A1+') as a going concern. This business accounted for about ~40% of revenues and ~57% of operating profits of MIL in FY22. The remaining businesses including Manufacturing of Auto components (including fasteners , plastics, copper inserts/ connectors and others),metal fabrication, storage solution, lead bushes and trading of various products etc will continue with MIL.
The scheme is aimed at enhancing ARBL’s control over the supply and inventory management of its raw materials. It is expected to result in reduced operational, logistics, and supervisory costs through elimination of duplicate administrative efforts and better procurement policies and prices.
ARBL has already filed an application with the Securities and Exchange Board of India (SEBI) upon approval from SEBI the company will file application with National Company Law Tribunal (NCLT). Approvals from concerned authorities and shareholders/creditors are expected by the Q1 of FY 2024.The scheme of arrangement will be applicable effectively from April 1, 2022, subject to the approval of NCLT, lenders and other stakeholders.
Given that the Plastic Component for Battery Business accounted for 40% of revenues and had ~17% operating margins, the demerger of the same from MIL will impact its revenues and profitability, However, the non-plastic component business has been growing at a healthier pace (compound annual growth rate of 42% between fiscals 2020 and 2022) supported by its diversified revenue streams. Demerger of Plastic Component for Battery Business will also help MIL focus better on remaining business and aid in increasing number of clients and end-use diversity.
Further, as part of the scheme of arrangement, significant portion of long term debt is also expected to be transferred to ARBL, which will improve the debt metrics and liquidity of MIL. CRISIL Ratings will engage with the company’s management to understand the timelines and the exact contours of the scheme including the expected asset and liability position of MIL post the split. CRISIL Ratings will continue to monitor developments regarding the transaction and take appropriate rating action once clarity emerges on the impact on the credit risk profile of MIL upon implementation of the scheme.
For fiscal 2022, Revenue increased by 57% to Rs 1451 crore in fiscal 2022 driven by growth in revenues in Auto components, trading, Storage solution and Metal fabrication segment. Profitability had declined marginally to 11.9 % in fiscal 2022 (compared to 13.9% in fiscal 2021) driven by steep increase in input costs, freight and power costs. In fiscal 2023, revenues from remaining business of MIL is expected to be about ~1000 crore, while operating margin would be in the range of 8-9%.
Over the medium term, the revenue growth is expected to be driven by growth in new products including auto components and storage solutions. The financial risk profile is also expected to improve notwithstanding capacity expansion plans, driven by progressive debt repayments, healthy cash accruals and prudent working capital management. |
Analytical Approach For arriving at its rating, CRISIL Ratings has considered the standalone business and financial risk profiles of MIL. |
Key Rating Drivers & Detailed Description Strengths: Healthy business risk profile: MIL derives about 64% of its revenue from ARBL, the flagship company of the Amara Raja group. ARBL is the second-largest player in the storage batteries segment in India, with diverse revenue streams. Post the demerger, MIL will still derive about ~ 20% of its revenues from ARBL. MIL has healthy presence across segments such as Auto components, Metal and custom fabrication , Storage solutions and Chemical Trading. All these businesses have recorded a healthy CAGR of 40% between fiscals 2020 and 2022. Over the medium term, MIL will benefit from ARBL’s growth as well as its initiatives to diversify the customer base as well as end-use segments
Adequate financial risk profile: MIL’s financial risk profile is marked by adequate capital structure, healthy debt protection metrics, and is supported by steady cash flows from operations. Progressive debt repayment and healthy cash accruals have resulted in comfortable gearing of 0.5 times as of March 2022. Interest coverage and net cash accrual to debt ratios also remain healthy at about 11.9 times and 0.5 times respectively in fiscal 2022.With transfer of debt from books of MIL to extent of Rs.100 crore to books of ARBL as part of scheme, debt metrics of MIL is expected to improve in the medium term.
Weakness: Exposure to cyclicality in the end user industries: MIL’s business cycle is exposed to business cyclicality with respect to demand from original equipment manufacturers as well as after-market sales. The monetization of expanded capacity is contingent on sustained off-take from these end user industries.
Moderate profitability: Over the past 5 years, MIL’s profitability has remained above 12% on a sustained basis. However, with the demerger of plastic components business whose profitability is above 17%, the overall profitability will decline to below 10% over the medium term. Increase in share of chemical trading which are at lower margins has also contributed to moderation in margins. |
Liquidity: Adequate Liquidity will remain adequate driven by steady improvement in cash accruals and prudent working capital management. MIL's working capital bank lines of Rs 94.5 crore, are utilised at an average of 80% (of drawing power) over the 12 months period ended Aug 2022. Healthy accruals of about 80-100 crores, post demerger of plastic business, is expected to remain adequate to fund the incremental working capital and capex requirements. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company MIL, incorporated in 1996 as part of the Amara Raja group of companies, manufactures metal fabrication, battery and auto components. These products are used in home inverters, trickle chargers, switch mode rectifier cabinets, and batteries. The company also manufactures auto components and has also ventured into the storage solutions segment where it provides customised solutions to manage storage needs of clients. During fiscal 2019, it has expanded to Tool Works segment which is involved in manufacture of industrial tools and moulds. In fiscal 2021, the company has ventured into trading business in which it supplies substitute chemicals to customers. The company has two manufacturing facilities near Tirupati and Chittoor in Andhra Pradesh. ARBL and other Amara Raja group companies remain its largest customers. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 06-Oct-2022 in line with the lender-wise facility details as on 05-Oct-2021 received from the rated entity.
Criteria Details
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