Detailed Rationale

CRISIL Ratings has revoked the suspension of its rating on the bank facilities of Rubamin Private Limited (RPL; formerly known as Rubamin Limited; part of Rubamin Group) and has assigned its ‘CRISIL A1+’ rating to the commercial paper of RPL. CRISIL Ratings had suspended the ratings on 14-Nov-2016 on account of non-cooperation by RPL with CRISIL Ratings’ efforts to undertake a review of the ratings. RPL has now shared the requisite information enabling CRISIL Ratings to assign its ratings.

 

The rating reflects the group’s established market position with large product offerings and multi-locational operations, the extensive experience of the promoters in the commodity sector, the group’s healthy operating margin and comfortable financial risk profile. These strengths are partially offset by susceptibility of profitability to inherent volatility in commodity prices, exchange rates and geo-political risks, working capital-intensive nature of operations, and project risk in on-going debt funded capex.

Analytical Approach

To arrive at the rating, CRISIL Ratings has carried out full consolidation of the business and financial risk profiles of RPL and its subsidiaries (refer annexure for list of entities consolidated) and proportionate consolidation, as per the accounting standards, of its joint ventures (refer annexure for list of entities consolidated) since the companies are either direct or step-down subsidiaries, have financial linkages and are in similar line of business related to commodity-based products (overseas business) and commodity waste recycling (India business).

 

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 with large product offerings and multi-locational operations: Rubamin group has a diversified business profile with large product offerings and multi-locational operations (in India and overseas markets), thereby resulting in an established market position. In India, it is one of the leading players for zinc-based products and in rare earth metals division (molybdenum, vanadium etc.), a highly fragmented market. Additionally, in its copper smelting business, it is one of the prominent and key players in Democratic Republic of Congo (DRC). The operations are supported by a wide offering of specialty products with diversified end-use. Operating income is estimated to be around ~ Rs 2450 crore in fiscal 2022 (Rs 2166 crore in fiscal 2021) and has grown at a compound-annual-growth-rate (CAGR) of around 20% over the five fiscals ended fiscal 2022. The robust medium term demand outlook for end user segments of tyre, animal feed, fertilizer and copper industries are expected to support the revenue growth over the near-to-medium term.

 

Extensive experience of the promoters in the commodity sector: RPL is promoted by Vadodara (Gujarat) based Dalmia family (~60% shareholding) and Patel family (~40% shareholding). Mr Atul Dalmia and Mr Anil Patel, who are first generation entrepreneurs, are promoters of the company. They have an extensive experience of more than four decades in the commodity business. This has resulted in the group establishing strong relations with its customers and a comfortable market share in the commodity business in both India and overseas markets. Group has an established customer base and has a set of repeat customers; top 10 customers contribute to around 50-60% of the total revenue. The extensive experience of the promoters will continue to support the business risk profile of the group.

 

Healthy operating margin over the past few years: Operating margin was stable at around 15-17%, pre-covid, at both consolidated and standalone levels during fiscals 2017 to 2020. An upside was witnessed during the last two fiscals (32.8% in fiscal 2021 and ~20.5% in fiscal 2022) due to sharp rises in commodity prices. Operating margin is expected to be healthy at around 18-20% going ahead, supported by expected increase in share of high margin domestic metal business. Healthy operating margin has resulted in robust net cash accruals. Furthermore, group has sound risk management practices in place, for hedging foreign exchange exposure as well as commodity price volatility, and the same is expected to keep the operating margin stable going ahead.

 

Comfortable financial risk profile: Group has a healthy networth, estimated at around Rs 1760 crore as on Mar 31, 2022, backed by steady accretion to reserves. Supported by a strong networth and limited external debt of ~ Rs 298 crore as on March 31, 2022, the group has a healthy capital structure, as reflected in gearing and total outside liabilities to tangible networth (TOLTNW) ratio of ~0.17 time and ~0.29 time, respectively, as on Mar 31, 2022. Further, debt protection metrics are healthy, reflected in interest cover and net cash accruals to adjusted debt (NCAAD) ratios of around 31 times and 1.3 times, estimated, for fiscal 2022.

 

Weaknesses:

Susceptibility of profitability to inherent volatility in commodity prices, exchange rates and geo-political risks: Group is present in the commodity business and is dealing in products of zinc, molybdenum, copper, cobalt, nickel, vanadium, etc. and hence it is susceptible to volatility in commodity prices. For India operations, around 50% of revenue is derived from domestic market and the balance from export market, thus making it susceptible to volatility in exchange rates. The group had incurred losses in its cobalt division (overseas business) from period 2008 to 2012 on account of intense price volatility and nonexistence of any mechanism to hedge the prices of cobalt through any exchange or mechanism, thereby leading to high volatility in its operating margin. However, the group has, over the years, incorporated sound risk management policies, like formula-based pricing, hedging of inventory, undertaking insurance risk for receivables, etc., in place in order to mitigate the same. The group’s copper business in DRC is susceptible to geo-political risks. While mining is a key sector for the economic development of DRC, however, any kind of political instability or unfavorable changes in mining regulation may have a significant impact on the business operations of RPL in DRC. The group has taken a political insurance of USD ~91 million to hedge any geo-political risk in DRC.

 

Working capital-intensive nature of operations: Group has working capital intensive nature of operations, reflected in gross current asset days ranging between 150-200 days over the five fiscals ended 2022 (GCA days net of cash have ranged between 110-180 days during the same period) on account of debtors and inventory ranging between 40-90 days and 60-120 days, respectively. However, despite the working capital-intensive nature of operations, the improving profitability has resulted in positive cash flow from operations for the past five fiscals. Reliance on external funding has not increased significantly and hence capital structure of the group has remained healthy.

 

Project implementation risk in on-going debt funded capex: The group is undertaking total capex of Rs 657 crore during fiscal 2023 to fiscal 2025. The said capex is towards addition of capacities under the metal division (under RPL and its wholly owned subsidiary - Kepler Resources Pvt Ltd). Around 70-75% of the project cost will be funded by bank loan and the balance will be supported by internal accruals. The same is expected to result in moderation in debt metrics and capital structure; however, the same is still expected to remain comfortable. Hence, the timely conclusion of capex, along with no cost over-runs, and the offtake from the new capacities will remain key rating monitorables.  

Liquidity: Strong

Group has strong liquidity supported by healthy net cash accruals and cash & cash equivalents. Group is expected to generate net cash accruals of ~Rs 350-450 crore annually which will be more than adequate against the yearly debt repayment obligations of Rs 35-80 crore over the medium term and equity portion for the planned capex. Further, RPL has access to working capital limits of Rs 200 crore, which have been utilized at an average of 72% over the 12 months ended Apr-2022. There is adequate cushion in the bank limit to support the incremental working capital requirements going ahead. Cash and liquid assets are estimated to be around Rs 880 crore as on Mar 31, 2022. Further, the promoters have healthy networth and will support RPL in near to medium term, if required.

Rating Sensitivity Factors

Downward Factors:

• Sharp decline in volumes or prices resulting in decline in revenue along with a sustained decline in operating margin to below 15%; resulting in lower cash accruals and reduced liquidity
• Material time or cost overruns in the on-going capex
• Political instability in overseas geographies of operations and/or any unfavorable changes in regulations substantially impacting its business operations
• Higher-than-expected debt-funded capex or acquisition negatively impacting the financial risk profile and liquidity profile

About the Company

Incorporated in Sept 1987, RPL is promoted by Vadodara (Gujarat) based Mr Atul Dalmia and Mr Anil Patel. The company is engaged in manufacturing of various types of zinc-based products which include zinc oxide, zinc carbonate, zinc sulphate, zinc phosphate and other products. The company is also present in various other product categories like molybdenum, cobalt, tungsten, vanadium, etc. It is a part of Rubamin Group which also has operations in Africa through its subsidiaries and joint ventures. The overseas business comprises of sale of copper blister, copper mineral and providing other services such as drilling, equipment rental, sale of gas, etc. RPL is among the top players for catalyst recycling with hydrometallurgy process competence & its zero-waste recycling through inhouse solvent extraction provides circularity advantage to catalyst companies.

Key Financial Indicators

Particulars	Unit	2022*	2021
Revenue	Rs.Crore	2446.40	2165.89
Profit After Tax (PAT)	Rs.Crore	335.29	591.12
PAT Margin	%	13.7	27.3
Adjusted debt/adjusted networth	Times	0.17	0.18
Interest coverage	Times	31.3	45.0

*Provisional

Any other information: Not applicable