| Scoda Tubes Limited | ||||||
| 'CRISIL BBB / Stable / CRISIL A3+ ' assigned to Bank Debt | ||||||
| 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 assigned its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings to the bank facilities of Scoda Tubes Ltd (STL).
The ratings reflect the extensive experience of the promoters in the pipes and pipe fittings industry, STL's sound operating efficiencies, integrated operations and healthy debt protection metrics. These strengths are partially offset by susceptibility of profitability to volatility in raw material prices and working capital-intensive operations. |
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profiles of STL. |
Key Rating Drivers & Detailed Description Strengths: Extensive industry experience of the promoters: The promoters have experience of over a decade in the pipe and pipe fittings industry. This has given them a strong understanding of the market dynamics and enabled them to establish healthy relationships with suppliers and customers.
Sound operating efficiencies: The company had healthy return on capital employed (RoCE) of ~16-20% in the two fiscals through 2024. The operating margin has increased with continuous improvement in technologies and improved scale of operations. The company is expected to maintain robust RoCE over the medium term, backed by healthy profitability. However, volatility in raw material prices (majorly steel) with higher inventory of 120-134 days in the past three years will be monitorable over the medium term.
Integrated operations: STL has capacity of 10,068 metric tonne (MT) per annum for manufacturing stainless steel seamless tubes and pipes and 1,020 MT per annum for manufacturing stainless steel welded tubes and pipes. Furthermore, the company has backward integrated to manufacture mother hollow of 20,000 MT per annum for fabricating stainless steel seamless tubes and pipes. With excess backward integration capacity available, STL proposes to expand the capacity of seamless tubes and pipes by 10,000 MT per annum aggregating to 20,068 MT per annum.
Healthy debt protection metrics: STL’s debt protection metrics have been comfortable, despite leverage, due to moderately healthy profitability. The interest coverage and net cash accrual to total debt (NCATD) ratios were 3.15 times and 0.18 time, respectively, for fiscal 2024. The debt protection metrics are expected to remain at similar level over the medium term.
Weakness: Susceptibility to profitability due to volatility in raw material prices: Raw materials such as stainless steel hollow pipes constitute 70-75% of the total cost of sales. Its prices have remained volatile in the past. The company mainly imports its raw materials and, hence, keeps large inventory. However, STL mitigates the risk by ordering raw material against orders, which leads to higher inventory and large working capital requirement on account of high lead time of around six months in production. This safeguards the company from any significant changes in raw material prices. CRISIL Ratings believes backward integration for the manufacture of hollow pipes will help STL with the risk of raw material volatility and will improve the operating margin over the medium term.
Working capital-intensive operations: Gross current assets (GCAs) were 185-194 days over the three fiscals ended March 31, 2024, and 185 days as on March 31, 2024. This was due to high debtors of 82 days and inventory levels of 120 days. It is required to extend long credit period. Furthermore, due to its business need, it holds large work-in-process and inventory. It is important to note that CRISIL Ratings has factored in Rs 55.00 crore raised from Malabar India Fund Ltd and Carnelian Bharat Amritkaal Fund which will be utilised to support the working capital cycle and capital structure. |
Liquidity: Adequate Bank limit utilisation was moderate at 90% on average for the 17 months ended October 31, 2024. Cash accrual is expected to be Rs 42-55 crore which will be sufficient against term debt obligation of Rs 11.50 crore over the medium term, and the surplus will cushion the liquidity of the company.
The current ratio was moderate at 1.09 times as on March 31, 2024. The promoters are likely to extend support in the form of equity and unsecured loans to meet the working capital requirement and debt obligation. |
Outlook Stable CRISIL Ratings believe STL will continue to benefit from the extensive experience of its promoters and established relationships with clients. |
Rating sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 2008, STL commenced commercial production in September 2010. It manufactures stainless steel seamless welded tubes and pipes, and U tubes. The company is currently managed by Mr Jagrut Patel, Mr Ravi Patel, Mr Vipul Patel and Mr Samarth Patel. Its manufacturing facility is in Mehsana, Gujarat. |
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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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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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Criteria Details
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