| Ratnamani Metals and Tubes Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 revised its outlook on the long term bank facilities of Ratnamani Metals and Tubes Limited (Ratnamani) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL AA’ The short term rating has been reaffirmed at ‘CRISIL A1+’.
The revision in outlook factors in the improvement in business risk profile driven by healthy revenue growth and expansion in operating profitability, which is expected to sustain going forward. The EBITDA per tonne improved to over 28,000 per tonne in 9M fiscal 2024 and fiscal 2023 from Rs 20,885 per tonne in fiscal 2022 boosted by a rise in volumes of value-added products.
Revenue increased by 43% y-o-y and 20% y-o-y in fiscal 2023 and 9M fiscal 2024 respectively supported by strong realisation growth and healthy volume growth, driven by robust ordering from the oil and gas and water sector. With current order book of over Rs 2800 crore, the full year revenue for fiscal 2024 is expected at more than Rs 4,700 crore along with healthy EBITDA per tonne, supported by further ramping up of enhanced capacity in stainless steel pipes. Operating margins have improved from 17.8% in fiscal 2023 to 18.3% in 9M fiscal 2024 with better product mix. Operating margins are expected to remain around 17-18% going forward with company’s continued focus on higher value-added products.
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 Q1 fiscal 2025 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 is expected to 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 subsidiaries, 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 510,000 TPA, which may further be boosted to 610,000 TPA by fiscal 2025 end.
The company is also venturing into inorganic growth to expand its presence. 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 acquired in 2024 end and rest 20% in 2027. The total cost for acquisition of 53% was Rs 98 crore. This acquisition will help the company to expand its business into a new product line catering to existing customers. Ratnamani has also entered into Joint Venture with Techenergy AG to expand its presence in export markets in September 2023.
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 has 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 17-18% 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 181 days as on September 30, 2023.
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 550 crore per annum in coming fiscals, against term debt obligation of Rs 15-20 crore. The fund-based limit of Rs 149 crore was utilised negligibly over the 12 months through October 2023. Cash and cash equivalents (including mutual fund) of around Rs 300 crore as of October 2023 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.
Steel pipe manufacturers have a high impact on the 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 the 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 the domestic capital market. |
Outlook: Positive CRISIL believes Ratnamani will be able to improve its credit profile and maintain its leadership position in the SSTP segment and benefit from its diversified revenue. |
Rating Sensitivity Factors Upward factors
Downward factors
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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
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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
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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@@Inter-changeable to fund based limits to the extent of Rs.100 Crores
*Inter-changeable to fund based limits to the extent of Rs.5 Crores
**Inter-changeable to fund based limits to the extent of Rs.50 Crores
$Inter-changeable with export packing credit/packing credit in foreign currency
^Inter-changeable with buyer’s credit/supplier’s credit
#Inter-changeable with fund based /export packing credit/packing credit in foreign currency / buyer’s credit/supplier’s credit, bills discounting
Criteria Details
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