Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Bansal Wire Industries Ltd (BWIL; part of the Bansal Wire group) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’ while reaffirming the short-term rating at ‘CRISIL A1’.

 

The upgrade factors in the strong market position of the Bansal group as group is the largest stainless-steel wire manufacturer and the second largest steel wire manufacturer by volume in India. Further, the group has clocked a compound annual growth rate of nearly 10% over the four fiscals through 2024 on the back of timely addition of new products. Furthermore, ramping up of operations in Dadri plant which started its commercial operation Feb’2024 will add to support the revenue growth going forward with addition of new products and capacity constraint will not be the challenge for the group. Business risk profile is also aided by sustenance of operating efficiency, with improvement in operating margin to 7-7.1% in fiscal 2024 from 6% in fiscal 2023; margin is likely to remain steady at 7-7.3% in fiscal 2025. Prudent working capital management also led to lower dependence on working capital limit. Operating efficiency is likely to improve further, led by addition of new products and better economies of scale; though its sustenance is monitorable.

 

The upgrade also factors in improvement in the financial risk profile with better leverage and comfortable debt protection metrics. This was on account of an initial public offer (IPO) that raised nearly Rs 750 crore leading to improvement in networth estimated to more than Rs 1,500 crore in fiscal 2025. These funds are to be utilised towards payment of running debt leading to improvement in the capital structure with total outside liabilities to adjusted networth (TOLANW) ratio expected to improve to 0.3-0.4 time from 1.33 times in fiscal 2024. The debt protection metrics are expected to remain comfortable with an interest coverage ratio of over  7 times, over the medium term, amid steady operating profitability. Liquidity has also strengthened on the back of improved net cash accrual following steady increase in revenue and better profitability. This has improved the cushion between net cash accrual and debt obligation.

 

The ratings continue to reflect the company’s established market position supported by diversified product and customer profiles and strong financial risk profile. These strengths are partially offset by susceptibility to steel prices and freight cost and large working capital requirement.

Analytical Approach

CRISIL Ratings had earlier considered the consolidated business and financial risk profiles of the Bansal group. However, post the initial public offering of BWIL, its management has indicated that it does not intend to maintain any business/financial fungibility with BASPL (Bansal Aradhya Steel Private Limited). Therefore, the performance of BASPL has been evaluated on a standalone level. Therefore, CRISIL Ratings has combined the business and financial risk profiles of BWIL, Balaji Wires Pvt Ltd (BWPL), Bansal High Carbons Pvt Ltd (BHCPL), Bansal Steel and Power Ltd (BSPL). BSPL is a subsidiary of BWIL and the businesses of both BHCPL and BWPL will be transferred to BWIL in fiscal 2024-25.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position supported by diversified product and customer profiles: The group is one of the largest players in North India with well-entrenched presence owing to large manufacturing capacities, established brand and longstanding relationships with customers. The clientele comprises over 500 customers, including traders and manufacturers across the engineering and infrastructure, automobile components and household segments. The product portfolio includes different varieties and sizes of galvanised iron (GI), mild steel (MS), high carbon (HC) and stainless steel (SS) wires. The three-decade-long experience of the promoter and his healthy relationships with suppliers and customers should continue to support the business risk profile.

 

• Strong financial risk profile: Networth is estimated to be large at over Rs 770-780 crore as on March 31, 2024, which is expected to improve to more than Rs 1,500 crore in fiscal 2025 with the infusion of funds through the IPO that raised nearly Rs 750 crore. Furthermore, these funds are to be utilised towards payment of running debt leading to improvement in the capital structure with TOLANW ratio expected to improve to 0.3-0.4 time from 1.33 times in fiscal 2024. Despite debt-funded capital expenditure (capex) in the near term to enhance capacity, the capital structure is expected to remain comfortable due to healthy accretion to reserves. The debt protection metrics are expected to remain moderate with interest coverage and net cash accrual to total debt ratios of 7-8 times and 0.4-0.50 time, respectively. Although the financial risk profile is expected to be comfortable, any large debt or cost overruns in the planned capex would be monitorable.

 

Weaknesses:

• Large working capital requirement: Operations are working capital intensive, as reflected in gross current assets of 120-140 days in the past few fiscals and expected to remain at a similar level going forward. The company holds high inventory of 40-60 days due to the nature of the business as it deals in a variety of products and different types of raw material inventory need to be maintained. The company extends credit of 40-60 days to its customers. Prudent management of receivables has resulted in timely realisation in the past and timely liquidation of inventory. Furthermore, continuous efficient management of the working capital cycle, amid revenue growth, will be closely monitored.

 

• Susceptibility to steel prices and freight cost: Operating margin and realizations are susceptible to volatility in steel prices and freight cost, as reflected in an estimated dip in operating profitability to 6.4% in fiscal 2023. However, the group has taken measures related to regular price alteration and revision of arrangement with its customers to mitigate risk of cost increase. Also, the group not to stock much inventory to avoid price fluctuations in the current fiscal, this has led to improvement in operating margins to 7% in fiscal 2024 and going forward as well margins are expected to remain within same range of 7-7.2%. Further, presence in diverse product segments and steady addition in value-added products also lessens the impact of price volatility. Improvement and sustenance of profitability will remain a key rating sensitivity factor over the medium term.

Liquidity: Strong

Bank limit utilisation was moderate at 68% on average for the 12 months through May 2024. Cash accrual is expected to be Rs 150-155 crore which will be sufficient against term debt obligation of Rs 40-45 crore over the medium term, and the surplus will cushion the liquidity of the company. The current ratio was healthy at 1.83 times as on March 31, 2024. The promoter is likely to extend support in the form of equity and unsecured loans to meet the working capital requirement and debt obligation.

Outlook: Stable

CRISIL Ratings believes the Bansal Wire group will continue to benefit from the extensive experience of its promoter and his established relationships with clients.

Rating Sensitivity factors

Upward factors:

• Ramping of new capacities leading to CAGR growth in volumes of over 15% while keeping the operating profitability steady at around 7-8%.
• Better financial risk profile, particularly interest coverage ratio and capital structure
• Timely completion of planned capex with no cost overrun.

 

Downward factors:

• Interest coverage ratio weakening to below 2 times
• Steep decline in operating margin resulting in lower-than-expected cash accrual
• Sizeable increase in debt further weakening the overall financial risk profile.

About the Group

BWIL, the flagship company of the Bansal group, was established in 1985 by Mr Arun Gupta; he also established the group's other three companies. The company manufactures SS and MS wires.

 

The promoter acquired M/s Garg Inox Ltd through the National Company Law Tribunal in March 2019 and subsequently renamed it BSPL. It produces SS, HC, GI and cable armouring wires at its facility in Bahadurgarh, Haryana.

BWPL, incorporated in 1988, manufactures galvanised MS wires.

BHCPL, established in 1997, makes HC and MS wires.

Key Financial Indicators

BWIL

Standalone	Unit	2024	2023
Operating income	Rs crore	2284.38	2412.17
Reported profit after tax (PAT)	Rs crore	68.42	59.98
PAT margin	%	3	2.49
Adjusted debt/adjusted networth	Times	1.75	1.47
Interest coverage	Times	5.07	4.75

 

BHCPL

Standalone
As on / for the period ended March 31	Unit	2024*	2023
Operating income	Rs crore	904.18	1040.20
Reported profit after tax	Rs crore	12.74	5.85
PAT margins	%	1.41	0.56
Adjusted Debt/Adjusted Net worth	Times	1.14	1.14
Interest coverage	Times	2.48	2.37

*Provisional

 

BWPL

Standalone
As on / for the period ended March 31	Unit	2024*	2023
Operating income	Rs crore	718.50	966.07
Reported profit after tax	Rs crore	6.06	5.50
PAT margins	%	0.84	0.57
Adjusted Debt/Adjusted Net worth	Times	1.08	1.83
Interest coverage	Times	2.27	2.06

*Provisional

 

BSPL

As on / for the period ended March 31	Unit	2024*	2023
Operating income	Rs crore	667	680.78
Reported profit after tax (PAT)	Rs crore	33	27.18
PAT margin	%	4.9	3.99
Adjusted debt/adjusted networth	Times	0.48	1.02
Interest coverage	Times	6.02	6.21

*Provisional

Any other information: Not Applicable