| Star Wire India Engineering Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB+ / Stable / CRISIL A2 ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings on the bank facilities of Star Wire India Engineering Ltd (SWIEL; part of the Star Wire group).
The ratings continue to reflect the Star Wire group’s strong market position, diversified end-user industries and robust financial risk profile. These strengths are partially offset by SWIEL’s modest revenue and limited contribution to the Star Wire group’s scale of operations, and the group’s large working capital requirement and susceptibility to cyclicality in the steel and automotive (auto) industries. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SWIEL and Star Wire India Ltd (SWIL; ‘CRISIL A+/Stable/CRISIL A1’). The companies, together referred to as the Star Wire group, are in the same business and have common customers and promoters, and significant operational linkages.
Unsecured loans of Rs.20.65crore stood as of March 2021, have been treated as 100% debt as the same can be repaid over the medium term.
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: Diversified end-user industries and geographical presence The group manufactures engine valves for the auto sector and alloy steel, forging and casting products for the power, aerospace and defence sectors. It specialises in large-diameter critical components, such as turbine casting and blades. Its robust market position is driven by substantial capacity, wide product mix and established clientele, which includes reputed customers in both auto and non-auto sectors with the top 10 customers contributing only 30% to total revenue. Furthermore, the group has strong presence in more than 23 countries. Diversified end-user industries and geographical presence mitigate the impact of slowdown in a particular segment and region.
Robust financial risk profile The financial risk profile remains comfortable, driven by healthy profitability and continuous large accretion to reserve despite sizeable, debt-funded capital expenditure (capex). Networth was strong estimated over Rs 560 crore and gearing comfortable at 0.70 time as on March 31, 2022 (Rs 482.9 crore and 0.83 time, respectively, as on March 31, 2021). With better accretion to reserve and no sizeable debt-funded capex plan over the medium term, the capital structure should improve. Debt protection metrics will remain robust, backed by expected improvement in operating profitability, and reduction in interest cost. Interest coverage and net cash accrual to total debt ratios are projected at more than 6.5 times and 0.26 time, respectively, for fiscal 2022 (5.77 times and 0.22 time, respectively, in fiscal 2021).
Weaknesses: SWIEL’s modest scale of operations SWIEL undertakes finishing of machined castings and forgings used by power and energy equipment manufacturers. It undertakes jobwork for SWIL and other players in industry. The company has a modest scale of operations as reflected in revenue of Rs 18.53 crore in fiscal 2021, estimated at Rs 20 crore in fiscal 2022, and hence its contribution to the group’s scale and profitability is limited. SWIEL’s scale of operations will remain modest over the medium term given its limited exposure to end-user industries.
Susceptibility to cyclicality in the auto and steel industries The business is susceptible to the inherent cyclicality in the auto and steel industries, which are linked to the overall economic performance. Though the group’s reliance on the auto industry has reduced, it remains significant. However, geographical presence is diversified, with exports accounting for more than 35% of the sales in fiscal 2021. Diversified end-user industries and geographical presence will mitigate the impact of slowdown in any particular segment and sector.
Large working capital requirement Gross current assets (GCAs) were at 310 days as on March 31, 2021, driven by stretched receivables of 118 days and sizeable inventory of 191 days. The GCAs are estimated at 250-270 days as on March 31, 2022. Over 25% of sales are booked in the last quarter of the fiscal leading to substantial receivables. While inventory is large because of the long lead time for processing, a majority of it is order-backed. Adequate credit from suppliers supports the working capital management. The GCAs are likely to remain around 250 days over the medium term. RoCE was moderate at 12.3% in fiscal 2021, and is estimated over 15% during fiscals 2022 and 2023 supported by improved operating efficiency. |
Liquidity Adequate The Star Wire group is likely to generate net cash accrual of Rs 110-130 crore per fiscal, which will be more than adequate to cover debt obligation of Rs 48-51 crore per fiscal, over the medium term. The surplus accrual will help fund incremental working capital requirement. Bank limit utilisation was moderate at 83% on average for the 12 months through December 2021 for fund-based limit of Rs 240 crore. Current ratio was moderate at 1.39 times and cash and bank balance was Rs 2.93 crore as on March 31, 2021 (Rs 2.59 crore as on January 31, 2022). Unsecured loans from the promoters stood at Rs 20.66 crore as on March 31, 2021. The promoters are likely to extend support in the form of equity and unsecured loans to meet working capital requirement and debt obligation. |
Outlook Stable The Star Wire group will continue to benefit from its diverse end-user industry base leading to healthy topline growth, along with enhanced operating efficiency. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group Incorporated in 1963 by Mr M K Gupta and his family members, SWIL manufactures engine valve steel, special steels and other alloy steel used in the auto, power and defence sectors.
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Key Financial Indicators(consolidated)
Key financial indicators (standalone)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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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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Criteria Details
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