| Ravin Cables Limited | ||||||
| Rating outlook revised to 'Negative'; 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 Ravin Cables Ltd (RCL; part of the Ravin group) to 'Negative' from 'Stable' while reaffirming the rating at 'CRISIL BBB-'; the short-term rating has been reaffirmed at 'CRISIL A3'
The revision in outlook reflects weaker-than-expected business performance of Ravin group, marked by decline in operating margin to 2.5% in fiscal 2022 from 5.1% in fiscal 2021. This was due to increase in copper prices and inability to pass on the same to customers. As a result, debt protection metrics have weakened, with interest coverage ratio at 1.27 times in fiscal 2022 (vis-a-vis 2.56 times in fiscal 2021). Business profile is expected to improve in fiscal 2023 with increase in operating margins and would remain a key monitorable. Liquidity too have faced pressure as indicated with bank limit utilisation averaging 96% for the five months through October 2022, and would remain a key monitorable.
The ratings continue to reflect the established market position of the Ravin group in the domestic power cables industry, its growing presence in overseas markets, recognised brand and widespread distribution network. The ratings also factor in the comfortable capital structure. These strengths are partially offset by the large working capital requirement and exposure to intense competition, and to fluctuation in raw material prices and below average debt protection metrics.
Prysmian Cavi E Sistemi Energia Srl, Italy (Prysmian) has maintained a 51% stake in RCL since 2010. The ongoing dispute between Prysmian and the Karia family, over shareholding of RCL, is under arbitration in the London Court of International Arbitration. Outcome of the dispute and its impact on the credit risk profile of RCL are key rating sensitivity factors. |
Analytical approach CRISIL Ratings has combined the business and financial risk profiles of RCL and its 49% subsidiary, Power Plus Cable Co LLC (PPC), which is strategically important to, and have a significant degree of operational integration with RCL.
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: Established market position supported by a recognized brand and wide distribution network: The Ravin group has a strong market position in the power cables and electrical accessories business in India, and has been expanding its reach globally, via associate firm, PPC. Extensive experience of the promoters in the power cables business has helped the group develop a well-established brand, PrimeCab. It caters to a diverse clientele, backed by the ability to manufacture various types of cables and its wide marketing and distribution network. Technical and financial pre-qualification and successful track record provide RCL a considerable advantage over other power cable suppliers in India. Orders worth Rs 136 crore, to be executed over the medium term, offer moderate revenue visibility.
Comfortable capital structure: Capital structure of the company is marked by low gearing and total outside liabilities to adjusted networth ratios of 0.2 time and 0.75 time, respectively, as on March 31, 2022. Networth stood at Rs 300 crore as on the same date and is further expected to improve. Capital structure is expected to improve with steady accretion to reserves over the medium term.
Weaknesses: Working-capital-intensive operations: The power cable business is working capital intensive, as reflected in gross current assets (GCAs) days of 180-265 days reported by the Ravin group over the four fiscals ended March 31, 2022. GCAs stood at 265 days as on March 31, 2022, driven by receivables and inventory of 64 days and 126 days, respectively. The group largely caters to government agencies and industrial houses and offers credit of 45-60 days. Given the nature of business, it has to maintain large inventory Further GCA also consists of high cash and bank balance and other current assets, which is higher due to high retention money. Working capital cycle is expected to remain intensive over the medium term.
Susceptibility to fluctuations in raw material prices: Price of the key raw material - copper, constitutes 80-85% of the manufacturing cost and tends to be volatile . Operating margin remains susceptible to any sharp fluctuations in the input cost. Operating margin declined to 2.5% in fiscal 2022 from 5.1% in fiscal 2021, despite price escalation policy which enables the company to pass on any hike in prices to its customers though with a lag. Further, low entry barriers in the power cables industry has attracted several small manufacturers. Hence, the group remains exposed to increasing competition from the unorganised sector and cheaper imports.
Below average debt protection metrics: Debt protection metrics of the group had deteriorated in fiscal 2022 with the decline in operating margin which led to a fall in interest coverage to 1.27 times in fiscal 2022 from 2.56 times in fiscal 2021. Debt protection metrics are likely to improve, aided by better profitability over the medium term and would remain a key monitorable. |
Liquidity: Adequate Net cash accrual of Rs 17-20 crore expected per fiscal against no repayment obligations should suffice to cover the incremental working capital requirement over the medium term. Bank limit utilization averaged 75% over the 12 months ended October 31, 2022 with utilization of more than 95% for the past 5 months. Current ratio and unencumbered cash and bank balance are at 2.04 times and Rs 95.6 crore, respectively, as on March 31, 2022. Also, the Ravin group has no major capital expenditure plans over the medium term. |
Outlook: Negative CRISIL Ratings believes the business risk profile of RCL is likely to remain under pressure over the medium term because of volatility in raw material prices and the large working capital requirement |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company RCL was incorporated as in November 1982. The company manufactures power cables and electrical accessories. It also trades in allied products and provides services and solutions related to power cables. Prysmian, a leading Italy-based global energy and telecommunication cables company, has 51% stake in RCL, while the Karia family continues to hold 49% stake. The operations of the company are managed by the Karia family.
RCL holds 49% stake in PPC, and the government and ruler of the Fujairah state of UAE holds the balance stake. PPC has a manufacturing facility in the UAE, and mainly caters to demand from the Middle East . |
Key financial indicators-consolidated
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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This Annexure has been updated on 14-Dec-2022 in line with the lender-wise facility details as on 06-Sep-2021 received from the rated entity.
Criteria Details
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