| Venus Pipes and Tubes Limited | ||||||
| Rated amount enhanced | ||||||
| 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 reaffirmed its 'CRISIL BBB+/Stable/CRISIL A2' ratings on the bank loan facility of Venus Pipes and Tubes Limited (VPTL).
CRISIL Ratings had assigned its 'CRISIL BBB+/Stable/CRISIL A2' ratings to the bank loan facility of VPTL through rationale dated October 6, 2022.
The rating reflects its promoter’s extensive experience in SS pipe business, increasing scale of operations along with healthy operating margins and healthy financial risk profile. These strengths are partly offset by competitive and fragmented nature of industry and large working capital requirement. |
Key Rating Drivers & Detailed Description Strengths: Experienced Management and Long-standing Relationships with the clients: The top management consisting of the promoters Mr. Megharam Chaudhary, Mr. Jayantiram Chaudhary, Mr. Arun Kothari and Mr. Dhruv Patel has extensive experience of over a decade in the industry of steel pipes and tubes manufacturing. This has given them a strong understanding of the market dynamics and enabled them to establish healthy relationships with suppliers and customers. The same has also helped the company to grow its scale of operations significantly in the recent years. The company will continue to benefit from the established relationship with customers which in turn help the company to grow strongly going ahead.
Improving scale of operations and healthy operating margins: The company’s scale of operations stood moderately healthy at Rs. 387 crores in fiscal 2022 increasing from modest Rs. 138 crores in fiscal 2019 supported by increasing capacity, successful ramp up in operations and increasing demand for its products. The company has already booked revenues of around Rs. 114 crores in Q1FY23 aided by stable demand and realisations. The company is planning to more than double its existing capacity along with addition of hollow pipe manufacturing unit in current fiscal which will support the growth in revenues going ahead over medium term. However, timely completion of capex and successful ramp up in operations will continue to remain monitorable.
The operating profitability has also improved significantly over fiscal 2022 and fiscal 2021 to around 11.7-13% from a low of around 6-6.7% during fiscal 2019 and fiscal 2020. The same has been supported by increasing scale of operations and better margin orders executed by the company. Also, with installation of hollow tune manufacturing unit, company will benefit from backward integration leading to sustenance of healthy operating margins going ahead.
Healthy financial risk profile: The capital structure of the company is supported by comfortable gearing and total outside liabilities to total networth of 0.53 times and 0.93 times respectively as on March 31, 2022 aided by healthy networth of around Rs. 128 crores in fiscal 2022. The networth has increased significantly in Q1FY23 aided by successful raising of funds from recently concluded Initial Public Offering (IPO).
Also, the debt protection metrics are comfortable supported by interest coverage and net cash accrual to adjusted debt of 7.18 times and 0.48 times respectively as on March 31, 2022. The interest coverage has improved over past two fiscals aided by healthy growth in scale of operations and improving operating profitability.
The company has large capex plan over medium term for expanding its capacity and to manufacture new products. The same will be funded through funds raised through IPO, internal accruals and moderate external debt. The same will aid the company in increasing scale of operations going ahead. Despite the capex, the financial risk profile will continue to remain healthy over medium term as well aided by steady and healthy accretion to reserves and moderate debt levels. The debt protection metrics will also remain comfortable over medium term.
Weaknesses: Competitive and fragmented nature of the industry: The industry constituting of steel pipes and manufacturing is highly fragmented and has very low entry barrier which makes it a very competitive industry. Both organized as well as the unorganized players are competing for the market share. This tends to reduce the pricing capability of the company as the market decides the price of the product.
Large working capital requirement: The company has large working capital requirement with gross current assets (GCA) of 189 days on back of debtors and inventory of 69 days and 101 days respectively as on March 31, 2022. The company receives moderate credit period from its suppliers leading to higher dependence on bank limits for meeting its working capital requirement. However, with healthy accretions and expected increase in sanctioning of working capital limits will help the company to manage its increasing working capital requirement with increasing scale of operations. The efficient management of the same will remain key monitorable factor. |
Liquidity: Adequate VPTL has adequate liquidity supported by estimated net cash accruals of over Rs. 40-70 crores per annum against repayment obligations of Rs. 5.5 - 6 crores per annum over the medium term. The bank limit remains highly utilised at around 97% for past 12 months through August 2022 due to large working capital requirement. The timely sanctioning of additional funds and controlled working capital cycle with increasing scale of operations will remain monitorable factor. Further, VPTL has free cash and unencumbered FD of over Rs. 100 crores as on June 2022 which supports the liquidity. The same will be used to fund the capex plans of the company over medium term. The current ratio remains healthy at around 2 times for fiscal 2022. |
Outlook: Stable CRISIL Ratings believes VPTL will continue to benefit from its promoter’s extensive industry experience and increasing manufacturing capacity along with steady demand. |
Rating Sensitivity Factors Upward factors * Sustained and sharp revenue growth along with sustenance of healthy operating profitability leading to cash accruals of over Rs. 45 crores. * Efficient management of working capital along with timely sanctioning of additional limits leading to moderation in average bank limit utilisation.
Downward factors * Significant drop in revenue or profitability, resulting into cash accrual of less than Rs. 30 crores. * Any significantly larger than expected debt-funded capex or acquisition or stretch in the working capital cycle, weakening the financial risk profile and liquidity. |
About the Company VPTL had been incorporated on February 17, 2015 by Mr. Megharam Chaudhary, Mr. Jayantiram Chaudhary, Mr. Arun Kothari and Mr. Dhruv Patel. The company is based out of Bhuj district of Gujarat. The company has been involved in manufacturing of Stainless Steel (SS) pipes and tubes used across multiple industries. The company has its manufacturing facility located on Bhuj-Bhachau highway near Dhaneti (Kutch, Gujarat) which is also in the vicinity of ports of Kandla and Mundra. The total manufacturing capacity of the company currently is 12,000 MTPA and is currently undertaking capex to more than double the manufacturing capacity. |
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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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This Annexure has been updated on 24-Nov-2022 in line with the lender-wise facility details as on 06-Oct-2022 received from the rated entity.
Criteria Details
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