Rating Rationale
February 14, 2018 | Mumbai
Ram Ratna Wires Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.207.6 Crore (Enhanced from Rs.142.6 Crore)
Long Term Rating CRISIL BBB+/Stable (Reaffirmed)
Short Term Rating CRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank loan facilities of Ram Ratna Wires Limited (RRWL) at 'CRISIL BBB+/Stable/CRISIL A2'.
 
CRISIL had upgraded its ratings on the bank facilities of RRWL to 'CRISIL BBB+/Stable/CRISIL A2' from 'CRISIL BBB/Positive/CRISIL A3+' on January 30, 2018
 
The upgrade reflects CRISIL's belief that RRWL will continue to improve its credit risk profile over the medium term. Operating income increased to Rs 814 crore in fiscal 2017 from Rs 728 crore in the previous fiscal, driven by better demand from its key customers. Operating margin improved to 6.4% for fiscal 2017 from 4.9% for the previous fiscal due to better absorption of fixed overhead. Revenue was Rs 458 crore for the half year ended September 2017, up 20% over the corresponding period of the previous fiscal, while operating margin was 6.0%. The company also benefited from increasing copper prices which are expected to remain high in medium-term. Company's ability to maintain healthy operating margins remains a key monitorable.
 
Financial risk profile improved with networth increasing to Rs 136 crore as on September 30, 2017, and healthy debt protection metrics. The company plans debt-funded capital expenditure (capex) of Rs 57.5 crore to enhance capacity over the medium term. Despite the additional borrowing, cash accrual will remain sufficient to meet debt obligation.
 
The ratings reflect the extensive experience of RRWL's promoters in the copper wires segment, and its moderate financial risk profile because of increasing networth and comfortable debt protection metrics. These strengths are partially offset by susceptibility of operating performance to volatility in raw material prices, and large working capital requirement.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of RRWL and its subsidiary Global Copper Pvt Ltd (GCPL), acquired in fiscal 2018, and Bangladesh-based joint venture RR Imperial Electricals Ltd. RRWL provides business, operating, and financial support to the subsidiaries.

Key Rating Drivers & Detailed Description
Strengths
* Experienced management, strong distribution network, and established clientele: The promoters' experience of more than four decades and in-depth understanding of business dynamics resulted in healthy growth. The winding wires industry is highly competitive as the unorganised segment accounts for 50%. Despite this, RRWL has an established position in the industry driven by its reputed clientele of original equipment manufacturers, and strong distribution network, which will support the business risk profile over the medium term.
 
* Adequate financial risk profile: Despite debt-funded capex, financial risk profile will remain adequate, driven by improving cash accrual and adequate debt protection metrics. Capital structure is stable, with comfortable gearing of 1.12 times as on September 30, 2017 (1.8 times as on March 31, 2017). Higher cash accrual has improved debt protection metrics. Interest coverage and net cash accrual to total debt ratios improved to 4.6 times and 0.18 times, respectively, in fiscal 2017 from 2.63 times and 0.11 times, respectively, in fiscal 2016.
 
Weaknesses
* Susceptibility of operating performance to volatility in raw material prices: As raw material prices (mainly copper) account for 90% of revenue, operating performance is susceptible to volatility in copper price. As value addition is low, any sharp movement in raw material price may impact profitability adversely. The price risk is managed by placing back-to-back orders for raw materials. However, any sharp fluctuation in prices will result in inventory loss.
 
* Large working capital requirement: Majority of the company's debt is for meeting working capital requirement. Original equipment manufacturers, which account for 70% of the company's sales, are offered credit of 60 days against the 30 days offered to dealers. RRWL provides channel financing facility to its dealers (Rs 22 crore as on March 31, 2017) to facilitate higher sales through dealers. Despite this, working capital requirement is expected to remain high over the medium term with ramp-up in operations expected post expansion.
Outlook: Stable

CRISIL believes RRWL will maintain steady growth in sales volume over the medium term, backed by its established clientele and strong distribution network, and will sustain adequate financial risk profile. The outlook may be revised to 'Positive' if there is a significant and sustained improvement in the financial risk profile, driven by higher-than-expected cash accrual leading to better debt protection metrics. The outlook may be revised to 'Negative' if lower profitability and cash accrual restrict improvement in liquidity, or if working capital requirement increases substantially. Ability to stabilise operations after expansion will be a key rating sensitivity.

About the Company

RRWL manufactures enameled copper winding wires under the RR Shramik brand. The company was set up in 1995 by Mr Rameshwarlal Kabra and his sons Mr Tribhuvan Prasad Kabra, Mr Mahendra Kumar Kabra, and Mr Shreegopal Kabra. The promoter family also owns MEW Electricals Ltd ('CRISIL BB+/Stable/CRISIL A4+'), which manufactures enameled copper winding wires, and RR Kabel Ltd, which produces light duty electrical cables.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs crore 814 728
Profit After Tax (PAT) Rs crore 22 10
PAT Margins % 2.7 1.3
Adjusted debt/adjusted Networth Times 1.80 1.82
Interest coverage Times 4.64 2.63
 

Any other information
During fiscal 2018, the company acquired 60% stake in Global Copper Pvt Ltd (GCPL) which is engaged in manufacture of copper tubes used in the plumbing, cooling, heating and petroleum segments. GCPL has a splant in Vadodara with installed capacity of 4,000 TPA.

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 cr)
Rating assigned with outlook
NA Bank Guarantee NA NA NA 5.00 CRISIL A2
NA Bill Discounting NA NA NA 15.00 CRISIL BBB+/Stable
NA Cash Credit NA NA NA 111.00 CRISIL BBB+/Stable
NA Letter of Credit NA NA NA 1.00 CRISIL A2
NA Term Loan NA NA Mar-2022 50.60 CRISIL BBB+/Stable
NA Working Capital Demand Loan NA NA NA 25.00 CRISIL BBB+/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  201.6  CRISIL BBB+/Stable  30-01-18  CRISIL BBB+/Stable    No Rating Change  28-10-16  CRISIL BBB/Positive  23-06-15  CRISIL BBB/Stable  CRISIL BBB-/Stable 
Non Fund-based Bank Facilities  LT/ST  CRISIL A2  30-01-18  CRISIL A2    No Rating Change    No Rating Change  23-06-15  CRISIL A3+  CRISIL A3 
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
Bank Guarantee 5 CRISIL A2 Bank Guarantee 1.55 CRISIL A2
Bill Discounting 15 CRISIL BBB+/Stable Bill Discounting 15 CRISIL BBB+/Stable
Cash Credit 111 CRISIL BBB+/Stable Cash Credit 80 CRISIL BBB+/Stable
Letter of Credit 1 CRISIL A2 Letter of Credit 16 CRISIL A2
Term Loan 50.6 CRISIL BBB+/Stable Proposed Long Term Bank Loan Facility 3.87 CRISIL BBB+/Stable
Working Capital Demand Loan 25 CRISIL BBB+/Stable Term Loan 1.18 CRISIL BBB+/Stable
-- 0 -- Working Capital Demand Loan 25 CRISIL BBB+/Stable
Total 207.6 -- Total 142.6 --
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 rating short term debt

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