Detailed Rationale Crisil Ratings has assigned its ‘Crisil A-/Stable/CrisilA2+’ ratings to the bank facilities of Maxim Tubes Company Pvt Ltd (MTCPL).
The ratings reflect the extensive experience of the promoters in the steel pipes industry along with diversified clientele and healthy financial risk profile of the company. These strengths are partially offset by large working capital requirement and exposure to intense competition and fluctuations in steel prices. |
Analytical Approach For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of MTCPL and its subsidiary, Maxim Tubes Sp Zoo.
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:
The promoters have more than a decade of experience in the steel pipes business; their strong understanding of market dynamics and healthy relations with customers and suppliers should continue to support the business. Clientele is varied; the company derives 50-55% of income from export. In the domestic market, it supplies to sectors such as oil and gas production, exploration and transport, heat exchangers, condensers and pressure vessels, chemical and petrochemical, nuclear power and energy generation, automotive, aerospace, shipping and naval engineering, mechanical and plant engineering, liquefication projects, railway, cryogenics, fertilizers and centralized heating system. The well-diversified clientele insulates the business from industry-specific business cycles.
The capital structure should remain healthy due to lower reliance on external funds. Gearing is at 0.93 times and total outside liabilities to adjusted networth ratio at 1.78 times as on March 31, 2024 and estimated to improve further with gearing below 0.80 times and TOL/ANW below 1.40 times respectively in fiscal 2025. Debt protection metrics may continue to be strong owing to leverage and steady profitability. Interest coverage ratio stood at 4.39 times (estimated above 5 times in fiscal 2025) and net cash accrual to total debt ratio at 0.41 time for fiscal 2024 (estimated above 0.45 times in fiscal 2025).
Weakness:
The working capital cycle is likely to remain stretched and will be closely monitored. Gross current assets (GCAs) have been 111-130 days for the past three fiscals and were 112 days as on March 31, 2024, driven by inventory of 57 days and debtors of 34 days. The company needs to extend long credit period in line with the industry standards as the customers are small- and medium-sized players who require credit. Furthermore, it holds huge work in process and inventory to meet business requirement.
The steel pipes industry is highly fragmented and the consequent intense competition may continue to constrain scalability, pricing power and profitability. Further, as 15-20% of the revenue is tender based, profitability is susceptible to volatility in steel prices. The rates are market driven and individual players are price takers. Hence, any sharp fluctuation in steel price will significantly impact the operating margin. Operating margin was modest at 8.15-8.65% during the three fiscals through 2024. However, the margin will improve over the medium term, led by backward integration, translating into higher cash accrual and will remain a key monitorable. |
Liquidity: Strong Liquidity should remain supported by the ample surplus available in cash accrual and bank lines. Bank limit utilisation was around 78% for the 12 months through December 2024. Cash accrual is expected at Rs 55-65 crore per annum, against yearly debt obligation of Rs 19.2 crore over the medium term. Current ratio stood healthy at 1.69 times and cash and bank balance at Rs 4.26 crore on March 31, 2024. The promoters are likely to extend need-based funds (equity and unsecured loans) to aid operations. |
Outlook Stable MTCPL will continue to benefit from the extensive experience of its promoters and their established relationship with clients. |
Rating sensitivity factors Upward factors
Downward factors
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About the Group MTCPL, incorporated in 2006, manufactures stainless steel and welded pipes and tubes used for industrial purposes. Its facility at Gandhinagar in Gujarat has capacity to produce 12,120 metric tonne per annum (MTPA) of seamless pipes and tubes and 2,400 MTPA of welded pipes and tubes. The company caters to both domestic and international markets. Mr. Yogesh Patel, Mr Krunal Patel, Mr. Ramkrushna Patel, Mr Sureshbhai Patel, Mr. Parth Patel and Mr. Satishbhai Patel are the promoters.
Maxim Tubes Sp Zoo is wholly owned subsidiary of MTCPL. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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