Rating Rationale
April 05, 2019 | Mumbai
Ratnamani Metals and Tubes Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.2200 Crore (Enhanced from Rs.856 Crore)
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of Ratnamani Metals and Tubes Limited (Ratnamani).
 
The ratings continue to reflect the company's strong business risk profile, supported by market leadership in the stainless steel tubes and pipes (SSTP) segment, and its diversified revenue. The ratings also factor healthy financial risk profile because of low gearing and robust debt protection metrics. These strengths are partially offset by large working capital requirement, and susceptibility to slowdown in end-user industries.
 
For Fiscal 2019, revenue is estimated to improve by over 50% driven by increase in volumes in carbon steel segments. However, operating margins were slightly muted at 14.8% due to higher share of carbon pipes to the overall product mix.
  
Ratnamani plans capital expenditure (capex) of Rs 560 crore from fiscals 2019 to 2020 to increase its SSTP and CS LSAW capacity. It will be funded through mix of internal accrual and term debt. However, financial risk profile is not impacted.

Analytical Approach

For arriving at the ratings, CRISIL 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.

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. Its products are used in various end user industries, including power, oil and gas, chemicals, water, and refineries. It is one of the largest players in the SSTP segment in India, and has steadily enhanced stainless steel capacity to 28,000 tonne per annum (tpa). The company has also presence in LSAW/HSAW and ERW pipes. Its strong technological competitiveness has led to above-industry-average profitability.
 
* Robust financial risk profile: Ratnamani's financial risk profile is driven by healthy capital structure and robust debt protection metrics. The company has negligible debt, and has nil long-term debt. Gearing is expected to remain under 0.25 times.
 
Weakness
* Working capital-intensive operations: Ratnamani has gross current assets of around 200 days of operating income estimated as on March 31, 2019. This is because Ratnamani has a policy to cover its raw material on back to back on receipt of orders and due to increasing price trend in commodities, it has  to maintain higher inventories to meet the customised orders on time. Inventory levels are estimated at around 120 days, as on March 31, 2019 higher than the historical average of around 90 days. The company also has high debtors estimated at close to 110 days, as on March 31, 2019.
 
* Susceptibility to slowdown in end-user industries: Demand for steel tubes and pipes depend on the end-user industries such as oil and gas, power sector and water and irrigation sector. Any slowdown in end-user industries such as oil and gas, power, and fertiliser, etc. will weaken demand for SSTP, affecting the company's operating performance.
Liquidity

Ratnamani has strong liquidity driven by expected cash accruals of more than Rs 250 crore per annum in fiscal 19 and fiscal 20. Ratnamani also has access to fund based limits of Rs 149 crore, which were moderately utilized at 31% over the past year. Company has a capex plan of Rs 560 crore in FY 19 and FY 20 which will be funded through Rs 300 crore term loan and rest internal accruals, however the term loans have a moratorium of 15 months and the company has no long term repayment obligations in fiscal 2019 and 2020. CRISIL expects internal accruals, and unutilized bank lines to be sufficient to meet its incremental working capital requirements and capex requirements.

Outlook: Stable

CRISIL believes Ratnamani will maintain its leadership position in the SSTP segment and benefit from its diversified revenue. The outlook may be revised to 'Positive' if the company scales up operations significantly without adversely affecting its profitability or financial risk profile. The outlook may be revised to 'Negative' if a prolonged downturn in the industry leads to subdued operating performance, or if the financial risk profile weakens considerably because of increase in working capital requirement or large debt-funded capex.

About the Company

Ratnamani, incorporated in 1983, manufactures a wide range of welded and seamless SSTP (installed capacity of 28,000 tpa) and carbon steel pipes (installed capacity of 350,000 tpa of longitudinal submerged arc welded [LSAW], helical submerged arc welded [HSAW], circumferential seam submerged arc welded [CSAW], and electric resistance welded [ERW] pipes). The company is promoted by Mr Prakash Sanghvi, who is its chairman and managing director.

Key Financial Indicators
As on/for the period ended March 31 2018 2017
Revenue Rs Crore 1767 1413
Profit after tax Rs Crore 152 144
PAT Margins % 8.6 10.2
Adjusted Debt/Adjusted Net worth Times 0.14 0.00
Interest Coverage Times 31.17 47.61

Any other information: Not applicable

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 Cash Credit* NA NA NA 144 CRISIL AA/Stable
NA Term Loan NA NA Apr-2024 150 CRISIL AA/Stable
NA Term Loan NA NA May-2026 150 CRISIL AA/Stable
NA Proposed Working Capital Facility NA NA NA 314 CRISIL AA/Stable
NA Letter of Credit & Bank Guarantee# NA NA NA 1442 CRISIL A1+
*Interchangeable with export packing credit/packing credit in foreign currency
#Interchangeable with buyer's credit/supplier's credit
 
Annexure - List of entities consolidated
Fully consolidated entities: Ratnamani Inc
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  758.00  CRISIL AA/Stable      30-05-18  CRISIL AA/Stable  22-02-17  CRISIL AA/Stable      CRISIL AA/Stable 
Non Fund-based Bank Facilities  LT/ST  1442.00  CRISIL A1+      30-05-18  CRISIL A1+  22-02-17  CRISIL A1+      CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 144 CRISIL AA/Stable Cash Credit* 67.5 CRISIL AA/Stable
Letter of credit & Bank Guarantee# 1442 CRISIL A1+ Letter of credit & Bank Guarantee# 788.5 CRISIL A1+
Term Loan 300 CRISIL AA/Stable -- 0 --
Proposed Working Capital Facility 314 CRISIL AA/Stable -- 0 --
Total 2200 -- Total 856 --
*Interchangeable with export packing credit/packing credit in foreign currency
#Interchangeable with buyer's credit/supplier's credit
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 Consolidation
CRISILs Criteria for rating short term debt

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