| Universal Cables Limited | ||||||
| Ratings Reaffirmed and Withdrawn | ||||||
| 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 the ratings on bank facilities and commercial paper of Universal Cables Limited (UCL; part of the MP Birla group) 'CRISIL A/Stable/CRISIL A1' and simultaneously withdrawn the ratings at the company's request and upon received no objection certification from bankers for bank facilities and on receipt of no-dues certificate from its IPA (Issuing and Paying Agent) and statutory auditors.
The ratings continue to reflect the strong technical and financial support derived by UCL from the MP Birla group, the company's longstanding track record in the cables business backed by strong market presence in the extra-high voltage (EHV) cables segment, high medium-term revenue visibility and comfortable capital structure. These strengths are partially offset by large working capital requirement, modest interest coverage ratio and susceptibility to regulatory changes. |
Analytical Approach To arrive at the ratings, CRISIL Ratings has factored in support from the MP Birla group, as it has common promoters with the company and extends financial support whenever required. Furthermore, UCL is critical to the group, as it is one of the largest players in the Extra High Voltage (EHV) cables sector and has a strong market position in the electrical cables segment. |
Key Rating Drivers & Detailed Description Strengths: * Technical and financial support from the MP Birla group The group manufactures cement, power cables and optical fibre cables and undertakes engineering, procurement, and construction (EPC) contracts in the transmission and telecom industry. It holds a 62% stake in UCL. In 2012-2015, when the power industry was facing headwinds and UCL incurred losses, the group funded the company's losses and the incremental working capital requirement.
It extended inter-corporate deposits (ICDs) of Rs 175 crore as on March 31, 2015. With improvement in the industry and in UCL's performance, ICDs declined to Rs 78 crore as on March 31, 2017. However, they increased again in fiscal 2020 to Rs 123 crore in order to fund the incremental working capital requirement and have also increased to Rs. 148 crore in fiscal 2021, in order to support the working capital requirements.
The company has also benefitted from the technical support provided by the group over the years. The ratings centrally factor in timely support from the MP Birla group, likely to continue over the medium term. More-than-expected delay or shortfall in support will remain a key rating sensitivity factor
* Longstanding track record in cable manufacturing UCL has been manufacturing power cables and capacitors for five decades across all major segments, such as EHV and low-voltage, medium-voltage and rubber cables. The company is an approved cable vendor for major state electricity boards and has presence in Bangladesh and Mauritius. It is a leading player in the EHV segment and has entered into turnkey contracts from pure-play supply of EHV, thus strengthening the market position.
* Strong revenue visibility backed by healthy orders On account of covid-19 impact resulting in headwinds for the industry, revenue stood moderate to Rs 1,264 crore in fiscal 2021 as against Rs. 1,569 in Fiscal 2020. Revenue stood at Rs 278 crore in the first quarter of fiscal 2022. The revenue growth is expected to be supported by policy change regarding power distribution, Smart City projects and underground cable lines in metro cities. Revenue growth is expected to continue over the medium term, with revenue visibility strong as reflected by healthy orders of Rs 1,399 crore (confirmed orders).
* Comfortable capital structure Networth was large at Rs 487 crore and gearing was comfortable at 1.26 times as on March 31, 2021. The company brought in equity of Rs 57.00 crore in fiscal 2016 to support the working capital requirement. Total outside liabilities to tangible networth ratio remained moderate at 2.07 times as on March 31, 2021, compared with 2.33 times two years earlier on account of increase in the working capital requirement.
Weakness: * Large working capital requirement Gross current assets were 321 days as on March 31, 2021, driven by sizeable receivables of 233 days. This is because majority of the clients (largely state or central government entities) receive credit of 90 days, and payments are stretched. The company also maintains inventory of 60 days (30 days for raw material and the remaining for finished goods) and some work-in-progress for EPC projects. Further, during Fiscal 2021, a sizable amount of revenue were booked in last quarter (Q4) only. Though UCL gets supplier credit (119 days as on March 31, 2021), it is not sufficient to meet the incremental working capital requirement.
* Modest debt protection metrics Interest coverage ratio was modest at 1.48 times in fiscal 2021 because of working capital debt, interest-bearing corporate borrowings and bank charges related to non-fund-based facilities. The ratio is expected to improve with better revenue and profitability. Net cash accrual to total debt ratio, however, was adequate at 0.05 time in fiscal 2021. |
Liquidity: Strong Cash accrual, expected at Rs 80-100 crore per annum in Fiscal 2022 and 2023, which will sufficiently cover yearly debt obligation of Rs 37-40 crore (however inter corporate deposits are expected to be rolled over upon maturity similar to previous years). Bank limit utilisation averaged 91% over the 12 months through August 2021. Current ratio was comfortable at 1.26 times as on March 31, 2021. Liquidity is further supported by unsecured loans from the MP Birla group (Rs 148 crore as on March 31, 2021). |
Outlook -Stable CRISIL Ratings believes UCL will continue to benefit from its strong order book, longstanding presence, improving financial risk profile and support from the MP Birla group |
Rating Sensitivity factors Upward Factors * Significant growth in revenue and stable operating margin * Increase in interest coverage to beyond 3.0 times, with reduced dependence on outside borrowings * Efficient working capital management
Downward Factors * Steep decline in revenue and operating margin * Sizeable debt-funded capital expenditure (capex) weakening the credit metrics (on a net basis) * Increase in the working capital requirement constraining liquidity. |
About the Company Incorporated in 1962, UCL manufactures power cables and capacitors for the power industry and rubber cables for original equipment manufacturers and other industries, such as railways, steel plants, petrochemical plants, cement plants, oil rig manufacturers, shipbuilding and mining. Power cables are sold under the 'Unistar' brand.
The company also has a technical collaboration with Furukawa Electric Company Ltd, Japan, in the EHV cable sector and adopts the vertical continuous vulcanisation and pressurised liquid salt bath curing technologies to manufacture power and rubber cables, respectively. UCL has two plants, one in Satna, Madhya Pradesh, and the other in Goa. It is listed on the Bombay Stock Exchange. |
Key Financial Indicators (Standalone; CRISIL Adjusted)
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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 - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Bank Guarantee | 185 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Bank Guarantee | 160 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Bank Guarantee | 400 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Bank Guarantee | 115 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Bank Guarantee | 80 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Bank Guarantee | 25 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Capex Letter Of Credit | 10.22 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Cash Credit | 105 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Cash Credit | 65 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Cash Credit | 40 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Cash Credit | 40 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Cash Credit | 200 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Foreign Exchange Forward | 4 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Foreign Exchange Forward | 4 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Foreign Exchange Forward | 10 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Inland/Import Letter of Credit | 90 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Inland/Import Letter of Credit | 10 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Inland/Import Letter of Credit | 25 | CRISIL A1 (Rating Reaffirmed and Withdrawn) |
| Long Term Loan | 15 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Long Term Loan | 15 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Long Term Loan | 65 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
| Proposed Fund-Based Bank Limits | 31.15 | CRISIL A/Stable (Rating Reaffirmed and Withdrawn) |
Criteria Details
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