| Vishal Pipes Limited | ||||||
| Ratings upgraded to 'CRISIL BBB / CRISIL A3+ '; outlook revised to 'Stable'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the bank facilities of Vishal Pipes Limited (VPL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Positive/CRISIL A3’.
The upgrade reflects sustained growth in the business performance of VPL, driven by both better volumes and realisation; revenue was reported at around Rs 690 crore during fy21, up from Rs 560 crore during previous fiscal. In the ongoing fiscal (April-Nov), VPL had already booked Rs 550 crore worth of revenue and was also having an unexecuted order book of Rs 412 crore, as at Nov-21, hence providing revenue visibility over the medium term. Business risk profile is further supported by company’s healthy operating efficiency, despite low and volatile margin, driven by improving return on capital employed (ROCE) over the years.
The rating also factors in company’s healthy financial risk profile, which shall further improve over the medium term in the absence of debt funded capital expenditure compounded with better accretion to reserves. Despite working capital intensive operations, liquidity is adequate marked by sufficient cushion in bank lines (utilized at 82%) and healthy accruals of Rs 20-25 crore against minimal repayment obligations. Proposed enhancement in bank lines and promoters need based financial support via unsecured loans will continue to aid the liquidity requirements over the medium term as well.
The ratings continue to reflect Promoters’ extensive experience and a diversified product portfolio along with a comfortable financial risk profile. These strengths are partially offset by VPL’s large working capital requirement and low operating profitability. |
Analytical Approach Unsecured loan of Rs 43.53 crore provided by the promoters as on March 31, 2021, has been treated as neither debt nor equity, as the loan belongs to the promoters, will be maintained in the business over the medium term and interest charged on it is below the market rate. |
Key Rating Drivers & Detailed Description Strengths:
The three-decade-long experience of the promoters, their sound understanding of the market dynamics, healthy relationships with customers and suppliers and a wide variety of products should continue to support the business. VPL’s products include conduit pipes, hollow sections, galvanised iron (GI) structures, electrics poles, hand pumps, CPVC Pipes etc. The diversified product portfolio has offset the risk of downturn in any specific industry, thus keeping revenue growth healthy. VPL also has a wide distribution network of more than 200 distributors. This is also reflected in the VPL’s healthy and sustained revenue growth at a CAGR of 13% over the past fiscals fiscals; revenue was healthy at Rs 689.14 crore in fiscal 2021. Company has already booked revenue of Rs 550 crore till November 26th, 2021 and has an order book of Rs 412 crore which provides revenue visibility over the medium term.
The financial risk profile should remain comfortable in the absence of any major capital expenditure along with healthy accretion to reserves over the medium term. Despite large working capital requirement leading to significant reliance on debt, the company’s capital structure has remained comfortable as reflected in healthy networth at Rs 85.27 crore as on March 31, 2021 aided by healthy accretion to reserves. Total outside liabilities to tangible networth ratio was comfortable at around 1.35 times. Debt protection metrics were adequate, indicated by interest coverage and net cash accrual to adjusted debt ratios of 2.75 times and 0.15 times, respectively, in fiscal 2021.
Weaknesses
Operations are working capital intensive as reflected in GCAs at 133 days as on March 31, 2021. VPL provides credit of 60-90 days to its customers (both private and government authorities) and inventory holding ranges from 50-60 days due to diversified product portfolio and large customer base. However, working capital requirement has been partially supported by creditors of 30-45 days; 28 days as on March 31, 2021. Further, promoters have also infused funds in the form of unsecured loans to support the working capital requirements of VPL. Going forward, efficient working capital management amid increased scalability will continue to remain a key monitorable
Operating margin remains susceptible to volatility in raw material prices and hence have varied between 3.6-5% over the past four fiscals: 4.4% in fiscal 2021. Margins are also constrained on account of competitive pressure and regular R&D undertaken by the company towards introducing new products. Though margin will continue to remain volatile amid price sensitive nature of the commodity, improvement in realisation leading to better ROCE will remain a key rating sensitivity factor. |
Liquidity: Adequate Bank limit utilization is moderate at around 82.45 percent for the past twelve months ended September 2021. Utilization is high due to working capital intensive nature of operations. Cash accrual are expected to be over Rs 20 crore which are sufficient against term debt obligation of Rs 0.75-1 crore over the medium term. In addition, it will act as cushion to the liquidity of the company. Current ratio was healthy at 1.61 times on March 31, 2021. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. Moderate cash and bank balance of around Rs 3-4 crore as on March 31, 2021 |
Outlook Stable CRISIL Ratings believes VPL’s business should continue to benefit from its healthy scale and improved profitability |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1988, VPL manufactures galvanised iron pipes, mild steel pipes and PVS pipes. Its facility is in Sikandrabad, Uttar Pradesh. Mr Radhey Shyam Agarwal and his family members are the promoters of the company. |
Key Financial Indicators
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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 | ||||||||||||||||||||||||||||
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This Annexure has been updated on 02-Dec-2021 in line with the lender-wise facility details as on 02-Dec-2021 received from the rated entity.
Criteria Details
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