Detailed Rationale

Crisil Ratings has upgraded it's rating on the long-term bank facilities of Maruichi KUMA Steel Tube Private Limited (KUMA; part of the Maruichi group) to ‘Crisil A+/Stable’ from ‘Crisil A/Positive’ and has reaffirmed its ‘Crisil A1’ rating on the short-term facilities.

 

The ratings of KUMA factor in the strong support from the parent, Maruichi Steel Tube Limited. The upgrade is driven by the revision in the Crisil Ratings framework for mapping global scale ratings on to the Crisil Ratings scale.

 

KUMA is expected to clock operating income of Rs 700-710 crore in fiscal 2025 (around Rs 530 crore achieved in the first nine months of fiscal 2025) amid decline in realisation due to fall in steel prices, partially offset by volume growth of 4-5% on-year. The operating income grew to Rs 737 crore in fiscal 2024, compared with Rs 660 crore in fiscal 2023, driven by volume growth of around 12%. The operating income is expected to grow by 5-7% over the medium term aided by steady volume growth. The operating margin is expected to moderate to around 8.5% in fiscal 2025 owing to a reduction in spreads. The operating margin was 10-12% over the three fiscals through March 2024 and is expected to remain at 8-9% over the medium term owing to the initial stage of operations at the Gujarat plant.

 

The ratings reflect the extensive experience in the steel tube industry, strong operational, technical, and financial support from the parent, and a strong financial risk profile. These strengths are partially offset by the large working capital requirement and vulnerability to volatility in raw material prices, pricing pressure from Original Equipment Manufacturers (OEMs) and demand prospects in the automotive industry

Analytical Approach

Crisil Ratings has factored in the strong support that KUMA receives from its parent, Maruichi Steel Tube Ltd (Maruichi).

 

Crisil Ratings has calculated the base rating for the parent using the corporate methodology criteria of S&P Global Ratings. After mapping the rating based on this criteria to that of Crisil Ratings, the latter has applied a notched-up rating using the parent notch-up framework.

Key Rating Drivers & Detailed Description

Strengths:

• Extensive experience in the steel tube industry: KUMA was established in 2003 to undertake indigenous manufacturing of stainless steel and aluminized tubes for automobile industry. Mr. Mukul Varma, Managing Director, has extensive experience of over four decades in the steel manufacturing industry. The company has manufacturing facilities at Manesar (Haryana), Bangalore (Karnataka) and a warehouse in Pune (Maharashtra); it is in process of setting up a manufacturing facility in Gujarat. The company deals in over 1 lakh products. The extensive experience has enable to establish strong relationships with customers and suppliers and will continue to support the company’s business risk profile.

 

• Strong operational, technical and financial support from the parent: As one of the largest manufacturers of steel tubes in Japan, Maruichi Steel Tube Ltd has a robust credit risk profile. Although KUMA is a small subsidiary, it holds strategic importance in terms of prospects for growth and geographical diversification. Also, KUMA avails of bank facilities of Rs 62 crore with the parent's global banker, MUFG Bank Ltd, against the letter of awareness given by the parent—Maruichi. Furthermore, the company will continue to receive technical and operational support from Maruichi and Toyota Tsusho Corporation (TTC; rated ‘A/Stable/A1’ by S&P Global Ratings), with need-based funds in the form of equity.

 

Maruichi, set up in 1947, is a Japanese manufacturer of electric-welded steel tubes, primarily for the construction and automotive industries. It has 13 manufacturing facilities in Japan. The company, through its subsidiaries, also has manufacturing facilities in China, Indonesia, the US and Vietnam.

 

• Strong financial risk profile: The capital structure is expected to remain healthy owing to low reliance on external debt, as indicated by nil gearing and expected total outside liabilities to adjusted networth (TOLANW) ratio of 0.25 time as on March 31, 2025. The TOLANW ratio will likely remain similar over the medium term. The networth is expected to be around Rs 390 crore as on March 31, 2025, and is expected to improve further to over Rs 400 crore as on March 31, 2026, backed by healthy accretion to reserve. The debt protection metrics are strong owing to low leverage as reflected in the expected interest coverage ratio of around 136 times, in fiscal 2025. The interest coverage ratio is expected to improve further to around 140 times in fiscal 2026. The company is setting up a new unit in Gujarat to overcome the capacity constraints at its Manesar plant. The company is expected to incur capital expenditure (capex) of Rs 25-27 crore toward the same during fiscal 2025, which will be funded through internal accrual.

 

Weaknesses:

• Large working capital requirement: Gross current assets (GCAs) are expected to be around 210 days as on March 31, 2025 (191 days as on March 31, 2024). The company maintains a sizeable inventory of around 100 days, given the diverse product range, leading to a high lead time for manufacturing. Receivables were at 60–90 days in the last three fiscals through March 2024. However, the payables of 50–60 days partially support the working capital cycle. Commensurate with the increase in the scale of operations, working capital requirement is expected to remain significant over the medium term and will remain monitorable.

 

• Vulnerability to volatility in raw material prices, pricing pressure from OEMs and demand prospects in the automotive industry: The operating margin remains susceptible to volatility in raw material prices and pricing pressure from OEMs. Majority of the company’s raw materials consists of base metal— steel, and the company also imports 30-40% of its raw materials, which exposes it to fluctuations in foreign exchange (forex) rates. Also, frequent changes in input prices make it difficult for auto component manufacturers to pass on any rise in cost immediately to their customers. The company has moderate flexibility to increase product prices through negotiation with the end users during any increase in raw material prices. KUMA supplies stainless steel and aluminised steel tubes for automotive exhaust applications for passenger cars, two-wheelers and commercial vehicles. Hence, its growth is directly linked to the prospects of the automotive industry. However, this risk is mitigated by the diversified presence in four-wheeler, two-wheeler and commercial vehicle segments. Though the company has healthy relationships with clients, risks related to revenue concentration and vulnerability to performance of the automotive industry will persist.

Liquidity: Adequate

In the absence of debt obligations, expected annual net cash accrual of Rs 30-37 crore over the medium term will support the working capital cycle. Fund-based limit remained unutilised for the 12 months through December 2024. Unencumbered cash and bank balance stood at Rs 18 crore, while the unencumbered fixed deposit receipts were around Rs 24 crore, as on December 31, 2024. Dividend payout shall remain at 50-60% of profit after tax.

Outlook: Stable

KUMA will continue to benefit from its established customer base and the operational and financial support from its parents.

Rating sensitivity factors

Upward factors

• Upgrade in the credit rating of the parent company
• Revenue growth of more than 25%, driven by a rise in volume aided by ramp-up of operations at Gujarat plant, with operating margin sustaining at 8.5-9.0%
• Sustenance of the strong financial risk profile

 

Downward factors

• A downgrade in the credit rating of the parent or any change in the funding and operational support from the parent
• Any steep decline in the revenue and/or decline in the operating margin below 6.5-7.0%, resulting in net cash accrual falling below Rs 25 crore
• Any stretch in the working capital cycle or large debt-funded capex impacting the financial risk profile and liquidity

About the Company

KUMA (formerly, Kuma Stainless Tube Ltd) was set up in 2003 to indigenously manufacture stainless steel tubes. It was incorporated as a joint venture between tube mill manufacturers Kusakabe Electric & Machinery Company Ltd, Japan (Kusakabe), and Gallium Industries Ltd (Gallium, a subsidiary of Kusakabe), and automotive exhaust manufacturer SKH Metals Ltd (SKH Metals). Kusakabe acquired SKH Metals’ stake in KUMA in September 2009 and acquired Gallium’s stake subsequently. Kusakabe sold its stake in KUMA to Maruichi in 2009-10. Maruichi transferred 30 per cent of its stake in KUMA to TTC in 2010-11. KUMA is hence a joint venture of Maruichi (70% stake) and TTC (30%). The company is a tier-II supplier and manufactures stainless steel and aluminized steel tubes for automotive exhaust applications at its facilities in Manesar (Haryana), Bengaluru (Karnataka). It is setting up a new facility at Gujarat

About parents

Maruichi Steel Tube Ltd: Established in 1947, Maruichi is a leading Japanese manufacturer of electric-welded steel tubes used in the construction and automotive industries. It has 13 facilities in Japan. Through its subsidiaries, the company also has manufacturing facilities in China, Indonesia, the US and Vietnam. Maruichi is listed on the Tokyo Stock Exchange and the Osaka Securities Exchange.

 

Toyota Tshusho Corporation (TTC): It is a part of the Toyota Motor group, trades in steel and other products and has a global presence through its subsidiaries and affiliates.

Any other information: Not Applicable