| Apollo Pipes Limited | ||||||
| Ratings outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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| This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated April 21, 2020. |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term bank facilities of Apollo Pipes Ltd (APL) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL A-’; the short-term rating has been reaffirmed at ‘CRISIL A2+’.
The outlook revision reflects CRISIL Ratings’ expectation that the business risk profile of APL may strengthen over the medium term, supported by improving geographical diversification on account of upcoming capacity in the eastern region and increase in scale of business with widening of product portfolio. Revenue is expected to register a compound annual growth rate (CAGR) of around 20% in the near term on the back of healthy demand outlook for the industry and increased capacity (around 1,25,000 tonne per annum by April 2021), along with growing focus on advertisement and branding campaigns.
Revenue is expected at Rs 500 crore for fiscal 2021, a growth of around 20% year-on-year despite the disruption caused by Covid-19. However, the revenue growth in fiscal 2021 is also driven by higher realisations due to elevated raw material prices. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin is projected at around 13.5% for fiscal 2021, supported by inventory gains in the third quarter. The EBITDA margin is expected to sustain at 12-13% over the medium term because of increased focus on high-margin value-added products and better spread of cost on higher revenue base.
Financial risk profile remains strong, backed by healthy gearing projected below 0.3 time as on March 31, 2021. Debt protection metrics continued to be robust, with interest coverage ratio of above 15 times as of December 2020. Liquidity remains comfortable as the company continues to be net debt-free and is expected to retain this status on the back of higher accrual and moderate capital expenditure (capex; which will be primarily funded through internal accrual).
The ratings continue to reflect APL's established market position in North India and increasing geographical diversity. The ratings also factor in its strong financial risk profile because of a healthy capital structure. These strengths are partially offset by exposure to intense competition, and susceptibility of profitability to fluctuations in raw material prices and foreign exchange (forex) rates. |
Key Rating Drivers & Detailed Description Strengths * Established market position The promoters have been in the polyvinyl chloride (PVC) pipes industry for around two decades, during which they have withstood business cycles and established the APL Apollo brand, which is common to the APL Apollo group and is used by the flagship company, APL Apollo Tubes Ltd (‘CRISIL AA/Stable/CRISIL A1+’). Distribution network of APL spreads across 450 dealers/retailers and over 150 distributors. Product portfolio is diverse and includes column pipes, unplasticised PVC and chlorinated PVC plumbing pipes and fittings, domestic and sewage pipes and water tanks.
* Strong financial risk profile Adjusted gearing is estimated to be below 0.3 time as on March 31, 2021. Debt protection metrics are likely to remain comfortable, with projected interest coverage and net cash accrual to total debt ratios of over 9 times and more than 0.60 time, respectively, for fiscal 2021.
Weaknesses * Susceptibility of profitability to fluctuations in raw material prices and forex rates The company is exposed to volatility in forex rates as it imports part of its raw material requirements, while exports are minimal. Also, the prices of resin are volatile and susceptible to change in global prices and regional demand-supply dynamics. CRISIL Ratings believes that the company will remain exposed to cyclicality in the PVC industry in the medium-term.
* Exposure to intense competition Intense competition in the pipes and fittings industry, low product differentiation and high price sensitivity has kept the competitive intensity high from the urorganised segment. |
Liquidity: Strong Cash accrual is likely to be more than Rs 50 crore per annum against yearly term debt obligation of Rs 10-12 crore in fiscals 2021 and 2022. Fund-based limit of Rs 117.5 crore was moderately utilised at 37% over the 12 months through January 2021, while cash and equivalents stood at Rs 73 crore as on December 31, 2020. Incremental capex is likely to be funded through internal accrual which, along with unutilised bank limit, will be sufficient to meet debt obligation as well as working capital requirement. |
Outlook: Positive CRISIL Ratings expects APL’s business risk profile would strengthen over the medium term on the back of increased capacity and scale of business, and diversifying geographical presence; while maintaining healthy financial risk profile. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Incorporated in 2000 as Apollo Poly Pipes Pvt Ltd by Mr Sameer Gupta and his brother, Mr Vinay Gupta, APL was reconstituted as a public limited company with the current name in April 2009. It manufactures pressure pipes (PVC, ring-fit and self-fit pipes), column pipes, casing pipes, plumbing pipes, soil-waste-rainwater pipes and fittings and water tanks. The company is a part of the Sudesh group. Through a reverse merger with its holding company in November 2017, APL got listed on the Bombay Stock Exchange and the National Stock Exchange.
For the nine months through fiscal 2021, the company reported a profit after tax of Rs 28 crore on an operating income of Rs 344 crore, against Rs 22 crore and Rs 314 crore, respectively, for the same period of previous fiscal. |
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)
^Fully interchangeable with non-fund-based facilities to the extent of Rs 31.0 crore %Interchangeable with fund-based facility to the extent of Rs 35.0 crore &Interchangeable with fund-based facility to the extent of Rs 18.0 crore |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Bank Guarantee& | Kotak Mahindra Bank Limited | 20 | CRISIL A2+ |
| Cash Credit^ | Axis Bank Limited | 31 | CRISIL A-/Positive |
| Cash Credit^ | HDFC Bank Limited | 20 | CRISIL A-/Positive |
| Letter of Credit% | DBS Bank Limited | 35 | CRISIL A2+ |
| Letter of Credit% | HDFC Bank Limited | 30 | CRISIL A2+ |
| Proposed Long Term Bank Loan Facility | Not Applicable | 1.5 | CRISIL A-/Positive |
| Term Loan | Axis Bank Limited | 8.5 | CRISIL A-/Positive |
| Term Loan | Citibank N. A. | 19.2 | CRISIL A-/Positive |
| Term Loan | HDFC Bank Limited | 15 | CRISIL A-/Positive |
This Annexure has been updated on 1-Sep-2021 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.
&Interchangeable with fund-based facility to the extent of Rs 18.0 crore
^Fully interchangeable with non-fund-based facilities to the extent of Rs 31.0 crore
%Interchangeable with fund-based facility to the extent of Rs 35.0 crore
Criteria Details
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