Rating Rationale
December 15, 2023 | Mumbai
Megatherm Induction Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.85 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
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 has upgraded its ratings on the bank facilities of Megatherm Induction Ltd (MIL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’

 

The upgrade reflects strengthened business risk profile of the company with revenue of Rs 266 crore in fiscal 2023, which surpassed CRISIL Ratings’ expectation, exhibiting 42% growth as against the previous year owing to healthy order flow and steady demand scenario on the back of capacity additions by steel and casting manufacturing plants driven by infrastructural push. MIL’s long track record of operations in the manufacturing of heating, melting and welding induction furnaces along with diversified product offerings, its established marketing network, diversified clientele base and strong order book underpin its ratings. The company has continued its growth momentum in fiscal 2024 with healthy order book execution with revenue of Rs 147.32 crore uptil September, 2023. MIL is expected to improve its revenue profile over the medium term backed by a healthy outstanding order book of around 346 crore as of October, 2023 which provides healthy revenue visibility. Operating efficiency remains supported by healthy order book execution, better operational efficiency through backward integration benefits flowing in from recent capacity enhancements and modernisation activities and better ability to pass on raw material price volatility to consumers with margins expected to be around 10-11% over the medium term. MIL has a healthy Return on Capital Employed (ROCE) expected around 20-25% over the medium term.

 

The ratings continue to reflect the extensive experience of the promoters in the capital goods industry, the healthy revenue visibility of the company and its comfortable financial risk profile. These strengths are partially offset by moderately large working capital requirement and susceptibility to volatility in raw-material prices and foreign exchange rate fluctuations apart from MIL’s presence in the cyclical capital goods industry.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters: The promoters have experience of three decades in the capital goods industry, which has enabled them to develop a keen grasp of local market dynamics and price trends. The promoters calibrate stocking decisions and extend need-based financial support. MIL is an established player in the manufacturing of induction furnace systems in India and it ha served installed around 3000+ customers (including outside India), which demonstrates its strong execution capabilities. Backed by extensive support from the management, MIL has been able to clock in a turnover of Rs 266 crore in FY23, exhibiting a 42% growth as against the previous fiscal. Moreover, established relationship of the promoters with its customers has enabled them to build a healthy outstanding order book of around Rs 346 crore as on October, 2023 which supports healthy revenue visbility over the medium term. The extensive experience of the promoters will help MIL grow over the medium term.

 

  • Healthy revenue visibility: MIL is one of the leading players in manufacturing and supplying of induction furnaces in India. It has a well established clientel base both in the domestic and export market and has been serving the iron and steel, foundry and automotive casting sector for the past decade which has been contributing significantly to the revenue. MIL’s turnover which has grown at a compounded annual growth rate (CAGR) of 26% over a period of last five years ended FY23, grew by a healthy 4% in FY23 on year-on-year (y-o-y) basis. During H1FY24, MIL has reported a revenue of Rs 147.32 crore. MIL’s revenue growth was supported by an uptick in the capex cycle by the metal and steel industry despite correction in steel and metal prices. The company also has a healthy order book of Rs 346 crore as on October, 2023 which supports healthy revenue visibility with MIL expecting to close in fiscal 2024 at a turnover of Rs 300 crore.

 

  • Comfortable financial risk profile: Financial risk profile is average marked by healthy networth of Rs 58 crore as on September, 2023. Capital structure is also robust marked by moderate reliance on working capital debt yielding gearing and Total Outside Liabilities to Tangible Networth (TOL/TNW) ratio of 0.86 and 2.83 times respectively as on March 31st, 2023. TOL/TNW appears high owing to large customer advances on the back of unexecuted orders. Debt protection metrics also remain comfortable marked by expected interest coverage and NCA/AD at 5-7 times and 0.50-0.80 times respectively going forward. With no new debt funded capex plans and steady accretion to reserves, financial risk profile is expected to improve further going forward.

 

Weaknesses:

  • Moderately large working capital requirement: The company had gross current assets (GCAs) of 164 days and inventory of 109 days as on March 31, 2023. Inventory primarily consists of work in progress (WIP). The working capital cycle is likely to remain moderately and hence, a key monitorable.

 

  • Susceptibility to volatility in raw-material prices and foreign exchange rate fluctuations apart from MIL’s presence in the cyclical capital goods industry: MIL is exposed to the risk of cyclicality inherent in the end-use industries such as metals and mining and the capital goods industry. New orders or repeat orders are largely dependent on the economic condition as the new or expansion projects by industries mainly depend on the level of expected economic growth. However, MIL has largely been able to insulate itself from the inherent cyclicality associated with the industry due to its presence in a niche segment and by catering to clients across diverse geographies (within as well as outside India) as well as due to good share of spare parts and service income at around 15-20% of its total sales. The basic raw material for manufacturing furnaces is electricity-conducive materials such as copper and copper rods. Copper prices are linked to the trends in international markets, which makes MIL’s profitability susceptible to the volatility in material prices, especially in the backdrop of its largely fixed-priced orders. MIL earns around 20% of its income through exports and hence is exposed to a sharp appreciation of the INR against the USD; though some natural hedge is available as the company also sources around 20-30% of its raw material requirement through imports. Nevertheless, as articulated by the management, the company does not hedge the foreign currency exposure as MIL has natural hedge for part of its foreign currency pay-out. Sustenance of operating margins despite extreme fluctuations in the price of raw materials shall remain a key monitorable.

Liquidity: Adequate

Expected annual cash accrual of Rs 20-27 crore should comfortably cover term debt obligation of Rs 6-8 crore per annum over the medium term and the surplus will support liquidity. Bank limit utilisation of the fund based limits averaged a moderate 30% over the past twelve months through October, 2023. Current ratio is expected to be moderate around 1.20-1.50 times over the medium term. Healthy unencumbered cash and bank balance of Rs 7.94 crore as on September, 2023 with MIL. Need-based funding support from the promoters is expected to continue. Low gearing and moderate networth support financial flexibility.

Outlook: Stable

CRISIL Ratings believes MIL will benefit from its promoter’s extensive experience and established relationship with customers.

Rating Sensitivity Factors

Upward factors

  • Substantial improvement in scale of operations and stable operating margin, leading to higher cash accrual of more than Rs 30 crore.
  • Steady improvement in working capital management while sustaining the strong financial and liquidity risk profile.

 

Downward factors

  • Substantial decline in revenue and profitability with net cash accrual to below Rs 10 crore.
  • Any large, debt-funded capital expenditure weakening the capital structure and/or substantial increase in working capital requirement, weakening the liquidity and financial risk profile.

About the Company

Incorporated in October 2010 and promoted Mr Shesadri Bhusan Chanda, MIL began operations in fiscal 2018. The company manufactures induction melting furnace and induction heating and heat treatment equipment.

Key Financial Indicators

Particulars

Unit

2023

2022

Operating income

Rs.Crore

266.30

187.84

Reported profit after tax (PAT)

Rs.Crore

14.00

1.64

PAT margin

%

5.26

0.87

Adjusted debt/adjusted networth

Times

0.86

1.11

Interest coverage

Times

4.79

1.90

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

level

Rating assigned with outlook

NA

Term loan

NA

NA

Mar-2028

14.94

NA

CRISIL BBB/Stable

NA

Cash credit

NA

NA

NA

27.00

NA

CRISIL BBB/Stable

NA

Working capital term loan

NA

NA

Mar-2028

8.06

NA

CRISIL BBB/Stable

NA

Bank guarantee

NA

NA

NA

7

NA

CRISIL A3+

NA

Inland/import letter of credit

NA

NA

NA

28

NA

CRISIL A3+

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 LT 50.0 CRISIL BBB/Stable   -- 17-10-22 CRISIL BBB-/Stable / CRISIL A3 31-08-21 CRISIL BBB-/Stable / CRISIL A3   -- CRISIL BB+ /Stable(Issuer Not Cooperating)*
      --   -- 30-09-22 CRISIL BBB-/Stable / CRISIL A3 24-03-21 CRISIL B /Stable(Issuer Not Cooperating)*   -- --
Non-Fund Based Facilities ST 35.0 CRISIL A3+   -- 17-10-22 CRISIL A3 31-08-21 CRISIL A3   -- CRISIL A4+ (Issuer Not Cooperating)*
      --   -- 30-09-22 CRISIL A3 24-03-21 CRISIL A4 (Issuer Not Cooperating)*   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 7 Indian Bank CRISIL A3+
Cash Credit 27 Indian Bank CRISIL BBB/Stable
Inland/Import Letter of Credit 28 Indian Bank CRISIL A3+
Term Loan 5 Indian Bank CRISIL BBB/Stable
Term Loan 9.94 Indian Bank CRISIL BBB/Stable
Working Capital Term Loan 8.06 Indian Bank CRISIL BBB/Stable
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 rating short term debt
Understanding CRISILs Ratings and Rating Scales

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Nitin Kansal
Director
CRISIL Ratings Limited
D:+91 124 672 2154
nitin.kansal@crisil.com


Argha Chanda
Associate Director
CRISIL Ratings Limited
D:+91 33 4011 8210
argha.chanda@crisil.com


VANSHIKA JHAJHARIA
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 33 4011 8200
VANSHIKA.JHAJHARIA@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 

 



About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to:
https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.

 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html