Rating Rationale
February 18, 2020 | Mumbai
Universal Cables Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.1694.37 Crore (Enhanced from Rs.1444.37 Crore)
Long Term Rating CRISIL A/Positive (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
 
Rs.100 Crore Commercial Paper CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities and commercial paper of Universal Cables Limited (UCL; part of the MP Birla group) at 'CRISIL A/Positive/CRISIL A1'.
 
The ratings continue to reflect the strong technical and financial support that UCL enjoys from the MP Birla group; established 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, moderate interest coverage ratio, and susceptibility to changes in government policy.

Analytical Approach

To arrive at the ratings, CRISIL has factored in support from the MP Birla group, as it has common promoters and extends financial support when needed. Furthermore, the company is critical to the group as it is one of the largest players in the 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 fiber cables; and undertakes engineering, procurement, and construction (EPC) contracts in the transmission and telecom industry. It holds 62% stake in UCL. During 2012-15, when the power industry was facing headwinds and UCL incurred losses, the group funded the company's losses and incremental working capital requirement. It had 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 2019 to Rs 123 crore to fund incremental working capital requirement. The company has also benefitted from the technical support that the group has provided over the years. The ratings centrally factor in the timely support from the MP Birla group, which is likely to continue over the medium term. More-than-expected delay or shortfall in support will remain a key sensitivity factor.
 
* Established track record in cable manufacturing
UCL has been manufacturing power cables and capacitors for five decades across all major segments such as EHV, low-voltage cable, medium-voltage cables, and rubber cables. The company is an approved cable vendor for major state electricity boards and also has presence in Bangladesh and Mauritius. It is a dominant player in the EHV segment and has also entered turnkey contracts from pure-play supply of EHV, which strengthens its market position.
 
* Strong revenue visibility backed by healthy orders
Turnover increased 20% in fiscal 2019 to Rs 1416 crore. Sales were Rs 801.6 crore in the first-half of fiscal 2020, supported by change in government policy regarding power distribution, Smart City projects, and underground cable lines in metro cities. Revenue growth is expected to continue over the medium term with healthy orders of Rs 1552 crore.
 
* Comfortable capital structure
Networth was large at Rs 425 crore and comfortable gearing of 1.28 times, as on March 31, 2019. The company brought in equity of Rs 57.00 crore in fiscal 2016 to support working capital requirement. Total outside liabilities to tangible networth (TOLTNW) ratio increased slightly and remained moderate at 2 times as on March 31, 2019 as compare to 1.7 times two years ago on account of increase in working capital requirement.
 
Weaknesses
* Working capital-intensive operations
Gross current assets were 242 days as on March 31, 2019, because of high receivables of 159 days. This is because majority of the clients (largely state or Central government entities) receive credit of 90 days, and payments are stretched further. The company also maintains inventory of 60 days (30 days for raw material and the rest in finished goods) and some work-in-progress for EPC projects. Though UCL gets supplier credit (95 days as on March 31, 2019), this is not sufficient to meet incremental working capital requirement. Cash flow was negative in four of the past five fiscals, leading to dependence on working capital debt.
 
* Moderate debt protection metrics
Interest coverage ratio was 2.8 times in fiscal 2019 because of working capital debt, interest-bearing corporate borrowings, and bank charges related to non-fund-based facilities. It is expected to improve with better revenue and profitability. Net cash accrual to total debt ratio was comfortable at 0.15 time in fiscal 2019.
Liquidity Strong

Cash accrual of Rs 73-85 crore will be sufficient to repay term debt of Rs 21-27 crore, annually, in fiscals 2020 and 2021. Moderate bank limit utilisation of 86% for the 8 months through December 2019. Current ratio was comfortable at 1.4 times as on March 31, 2019. Unsecured loans from the group (Rs 123 crore as on March 31, 2019, against Rs 93 crore in the previous year) also support liquidity.

Outlook: Positive

CRISIL believes UCL will continue to benefit from its strong order book, established presence, improving financial risk profile, and support from the MP Birla group.

Rating Sensitivity Factors
Upward Factor
*Significant growth in revenue with stable operating margin
*Improvement in interest coverage to beyond 3.5 times with reduced dependence on outside borrowings
*Improvement in working capital cycle

Downward Factor
*Steep decline in revenue and operating margin
*Sizeable debt-funded capital expenditure (capex) weakening credit metrics (on net basis)
*Increase in working capital requirement affecting liquidity.

About the Company

Established in 1962, UCL manufactures power cables and capacitors for the power industry and rubber cables for original equipment manufacturers and other industries, such as the Railways, steel plants, petrochemical plants, cement plants, oil rig manufacturers, ship building, 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 each in Satna, Madhya Pradesh, and Goa. It is listed on the Bombay Stock Exchange.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 1416.55 1186.4
Profit After Tax (PAT) Rs crore 69.0 41.9
PAT Margin % 4.87 3.5
Adjusted debt/adjusted networth Times 1.28 1.2
Interest coverage Times 2.8 2.0

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon
rate (%)
Maturity date Issue
size
(Rs.Cr)
Rating assigned with outlook
NA Bank Guarantee NA NA NA 780 CRISIL A1
NA Capex Letter of Credit NA NA NA 13.5 CRISIL A1
NA Cash Credit NA NA NA 400 CRISIL A/Positive
NA Foreign Exchange Forward NA NA NA 14 CRISIL A1
NA Inland/Import letter of Credit NA NA NA 125 CRISIL A1
NA Long Term Loan NA NA 31-Dec-20 50.16 CRISIL A/Positive
NA Commercial paper NA NA 7-365 days 100 CRISIL A1
NA Proposed Short Term Bank Loan Facility NA NA NA 250 CRISIL A1
NA Proposed Long Term Bank Loan Facility NA NA NA 61.71 CRISIL A/Positive
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  100.00  CRISIL A1      22-02-19  CRISIL A1  06-03-18  CRISIL A1  30-12-17  CRISIL A1  -- 
            04-01-19  CRISIL A1  27-02-18  CRISIL A1       
                08-01-18  CRISIL A1       
Fund-based Bank Facilities  LT/ST  775.87  CRISIL A/Positive/ CRISIL A1      22-02-19  CRISIL A/Positive/ CRISIL A1  06-03-18  CRISIL A/Stable/ CRISIL A1    --  -- 
            04-01-19  CRISIL A/Positive/ CRISIL A1  27-02-18  CRISIL A/Stable/ CRISIL A1       
Non Fund-based Bank Facilities  LT/ST  918.50  CRISIL A1      22-02-19  CRISIL A1  06-03-18  CRISIL A1    --  -- 
            04-01-19  CRISIL A1  27-02-18  CRISIL A1       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 780 CRISIL A1 Bank Guarantee 780 CRISIL A1
Capex Letter of Credit 13.5 CRISIL A1 Capex Letter of Credit 13.5 CRISIL A1
Cash Credit 400 CRISIL A/Positive Cash Credit 400 CRISIL A/Positive
Foreign Exchange Forward 14 CRISIL A1 Foreign Exchange Forward 14 CRISIL A1
Inland/Import Letter of Credit 125 CRISIL A1 Inland/Import Letter of Credit 125 CRISIL A1
Long Term Loan 50.16 CRISIL A/Positive Long Term Loan 111.87 CRISIL A/Positive
Proposed Short Term Bank Loan Facility 250 CRISIL A1 -- 0 --
Proposed Long Term Bank Loan Facility 61.71 CRISIL A/Positive -- 0 --
Total 1694.37 -- Total 1444.37 --
Links to related criteria
CRISILs Approach to Financial Ratios
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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