| Ratnamani Metals and Tubes Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
| ||||||
| 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 reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities of Ratnamani Metals and Tubes Limited (Ratnamani).
The rating reaffirmation factors in healthy business performance of Ratnamani during fiscal 2022 and first half of fiscal 2023, wherein revenue increased by 37% and 52% on-year respectively. This was supported by strong realisation growth and healthy volume growth, driven by robust ordering from the oil and gas sector. The earnings before interest taxes depreciation and amortisation (EBITDA) per tonne also saw an increase from Rs 18,690 per tonne in fiscal 2021 to Rs 22,878 per tonne in the first half of fiscal 2023, boosted by a rise in volumes of value-added products, i.e., stainless steel pipes. With current order book of over Rs 3,000 crore, the full year revenue is expected at more than Rs 3,800 crore along with healthy EBITDA per tonne, supported by further ramping up of enhanced capacity in stainless steel pipes.
The company is incurring Rs 170 crore capital expenditure (capex) for forward integration in the stainless-steel seamless pipes segment, which is expected to be completed by fiscal 2024 end. Further, it is incurring Rs 160 crore capex towards capacity addition of 100,000 tonne per annum (TPA) in carbon steel helical submerged arc welded (HSAW) pipes segment, which is expected to be completed by fiscal 2025 end. This capex will be funded entirely from cash accrual. Financial risk profile should remain strong, aided by healthy cash accrual and the absence of any large, debt-funded capex over the medium term.
The ratings continue to reflect the strong business risk profile of Ratnamani, supported by market leadership in the stainless-steel tubes and pipes (SSTP) segment, diversified revenue, and a healthy financial risk profile as reflected in low gearing and comfortable debt protection metrics. These strengths are partially offset by large working capital requirement and susceptibility to slowdown in end-user industries. |
Analytical Approach CRISIL Ratings has consolidated the business and financial risk profiles of Ratnamani and its wholly owned subsidiary, Ratnamani Inc (based in the US), because of strong operational and financial linkages between them.
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: Strong business risk profile, supported by diversified revenue and market leadership in the SSTP segment: Ratnamani has a diversified product profile comprising SSTP and carbon steel pipes, which are used in various end-user industries such as power, oil and gas, chemicals, water, and refineries. The company is one of the largest players in the SSTP segment in India and has steadily enhanced stainless-steel capacity to 61,500 TPA. The company also has presence in carbon steel longitudinal submerged arc welding (LSAW)/HSAW and electric resistance welded (ERW) pipes and has steadily enhanced its capacity to 5,10,000 TPA, which may further be boosted to 610,000 TPA by fiscal 2025 end.
In October 2022, Ratnamani acquired 53% stake in Ravi Technoforge Pvt Ltd (a high precision forged and turned bearing rings manufacturer). The balance 27% will be done in 2024 and rest 20% in 2027. The total cost for acquisition of 53% was Rs 98 crore. This acquisition will help the company in expanding its business into a new product line catering to existing customers.
Existing strong market position planned capex in the pipeline and inorganic growth taken up will maintain a strong business risk profile going forward as well.
Healthy operating performance: Operating performance has continued to be comfortable, wherein the company had acquired the necessary approvals and developed expertise to manufacture high-end application products, allowing it to earn above-industry-average profits. The company has further planned capex of stainless-steel pipes (forward integration), which will maintain these earnings.
It also maintains strong relationships with customers by producing customised and quality products. The company has also been able to diversify its revenue base through exports over the past few years. The company is expected to maintain comfortable average EBITDA margin of 15-18% over the medium term, which would vary depending on the value-added requirements and product mix.
Robust financial risk profile: Ratnamani’s financial risk profile is driven by healthy capital structure and robust debt protection metrics. The capital structure and debt protection metrics remained comfortable with gearing being less than 0.2 time and interest coverage over 20 time in the last 5 fiscals. The company’s financial risk profile is expected to remain comfortable in the medium term as well with no further debt-funded capex planned.
Weaknesses: Large working capital requirement: The working capital cycle may remain stretched owing to the nature of business undertaken. The company generally maintains a higher inventory due to the company’s policy to cover its raw material requirement on a back-to-back basis, based on receipt of orders. Gross current assets were 212 days and 205 days as on March 31, 2022, and September 30, 2022.
Susceptibility to slowdown in end-user industries: Demand for SSTP depends on end-user industries such as oil and gas, fertilisers, power, and water and irrigation. Any slowdown in these segments could weaken the demand for steel pipes, thereby affecting the operating performance. However, diversified products profile and non-dependence on a single customer have kept this risk low in the past. |
Liquidity: Strong Cash accrual is projected at more than Rs 400 crore per annum in fiscals 2023 and 2024, against term debt obligation of Rs 20-50 crore. The fund-based limit of Rs 149 crore was utilised negligibly over the 12 months through October 2022. Cash and cash equivalents (including mutual fund) of around Rs 200 crore as of September 2022 provides strong liquidity buffer. Internal cash accrual and unutilised bank limit will be sufficient to meet incremental working capital and capex requirements over the medium term.
Environment, social and governance (ESG) profile The ESG profile of Ratnamani supports its credit risk profile.
The steel pipe manufacturers have a high impact on environment primarily driven by high power consumption done during their manufacturing process. The sector also has a significant social impact because of its large workforce across its own operations and value chain partners, and due to its nature of operations affecting local community and health hazards involved. Ratnamani has been focusing on mitigating its environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. The commitment of Ratnamani to the ESG principle will play a key role in enhancing stakeholder confidence given access to domestic capital market. |
Outlook: Stable Ratnamani will maintain its leadership position in the SSTP segment and benefit from its diversified revenue. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company Ratnamani, incorporated in 1983, manufactures a wide range of welded and seamless SSTP (installed capacity of 61,500 TPA) and carbon steel pipes (5,10,000 TPA) of LSAW, HSAW, circumferential seam submerged arc welded, and ERW pipes. The company is promoted by Mr Prakash Sanghvi, who is its chairman and managing director. |
Key Financial Indicators
| ||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@ Inter-changeable to fund based limits to the extent of Rs. 125 Crores |
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|