| Emkay Taps and Cutting Tools Limited | ||||||
| Ratings continues on 'Watch Developing' | ||||||
| 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 continues its ratings on the bank facilities of Emkay Taps and Cutting Tools Limited (ETCTL) on ‘Rating Watch with Developing Implications’.
CRISIL Ratings had placed the rating on watch on July 06, 2023 following the update given by the management on the proposed Demerger of ETCTL (Demerged Company) with Emkay Tools Limited (ETL, Resulting Company). The demerger is on account of transferring the manufacturing of threading taps and cutting tools division to ETL. Demerger is still in process. CRISIL Ratings will continue to monitor the progress along with impact of the demerger and will resolve the watch with appropriate rating action post completion of the same.
The rating continues to reflect the established position in the threading taps segment, backed by established market position, robust operating margin and company’s strong financial risk profile. These strengths are partially offset by susceptibility of operating performance to slowdown in the end-user industry, moderate scale of operations and working capital intensive operations. |
Key Rating Drivers & Detailed Description Strengths: Established market position and robust operating margins: Promoters have experience of over four decades in the threading taps segment of the cutting tools industry and have established relationships with suppliers and customers. The promoters have developed a strong understanding of the industry dynamics, which has helped them successfully navigate several business cycles as well as build longstanding relationships with customers. All these factors have helped the company establish a strong market position. Operating margins have been in the range of 40-50% over past four years ended fiscal 2023. For H1FY24 operating margins were ~49%.
Strong financial risk profile: Financial risk profile is strong marked by robust net worth to be around 225.9 crores as on March 31, 2023 and is expected to improve further on account of accretion to reserves and low total outside liabilities to adjusted networth of around 0.1 times for as on March 31, 2023. This is on account of lower reliance on working capital debt and significant liquid investment. Debt protection metrics is comfortable marked by interest coverage over 400 times for fiscal 2023. Financial risk profile is expected to remain strong on account of steady accretion to reserves.
Weakness: Susceptibility of operating performance to slowdown in the end-user industry and moderate scale of operations: Bulk of the revenue accrues from the automobile and auto-ancillary industry, hence any slowdown in the sector will impact the operating performance of ETCTL. Company’s operating performance is expected to remain susceptible to cyclicality in end user industries.
Working capital intensive operations: Operations are working capital intensive as indicated by gross current assets (GCA) in range of 210 days to 260 days for last 3 years through March 31,2023. GCA is high mainly driven by debtors and inventory of 81 days and 140 days respectively. and inventory days are large due to short turnaround time for orders, significant lead time in importing raw materials and large number of stocks keeping units. Working capital cycle is likely to remain high over the medium term. |
Liquidity: Strong Liquidity is strong marked by net cash accruals over Rs 41 crore against repayment obligation of Rs 0.5 crores for fiscal 2023. Accruals are expected to be over Rs 44 crore against repayment obligation of Rs 0.1- 0.5 crores over medium term. Bank Limit utilization is barely utilized and is 9% for the last 12 months ending March 2023. Company has investments of over Rs 210 crore as of September 30, 2023. No major capex plans over medium term. |
Upward factors:
Downward factors:
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About the Company ETCTL was set up in 1976, as a proprietorship firm of Mr Ajay Prakash Kanoria, a Nagpur-based first-generation entrepreneur. The firm was reconstituted as a private limited company in 1995, and a public limited company in 2015. It is listed on NSE-Emerge. It manufactures high-speed steel (HSS) threading taps and cutting tools, mainly for the automobile and auto ancillary industries. It also owns and operates wind-mills in Rajasthan (2 windmills with capacity of 0.8 MW each) and Karnataka (1.2 MW). |
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 - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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