Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Goodluck India Limited (GIL; part of Goodluck group) to ‘CRISIL A+/Positive’ from ‘CRISIL A/Stable’ while reaffirming the short-term rating at ‘CRISIL A1’.

 

The upgrade in the rating along with the revision in the outlook reflects the improved market position of the company in the value-added products like tubes structure and other engineering products while continuously diversifying the product range into the newer industries like defense which is expected to contribute substantially to the overall growth of the company going forward. In addition, the company has also launched large diameter tubes with limited competition in India and having healthy demand across exports market, this is expected to further give the edge to the company and grow at a healthy pace along with improving operating margins.

 

The healthy market position of the company is reflecting in the strong operating income which has grown at a compound-annual-growth-rate of 31% in last 3 years ending March 2024 owing to broader product profile of along with diversified clientele and presence in multiple geographies. Operating income grew to Rs 3512 crore in fiscal 2024, from Rs. 3077crore in fiscal 2023. Further, in the first quarter of fiscal 2025, the group has achieved revenue of Rs 913 crore (as against revenue of around Rs. 858 crores in the first quarter of fiscal 2024). Group is expected to clock revenue of over Rs. 4000 crores for full fiscal 2025, led by increase in volume and realizations. Healthy demand from multiple end-user industries such as automobiles, construction, power, oil & gas will drive volumetric growth going forward which is expected to improve the scale by more than 15-20% over the medium term. Operating margin was 8.2% in fiscal 2024 as against 7.1% in previous fiscal driven by the group’s focus on value addition. EBITDA per ton has improved to around Rs. 8000 per ton in fiscal 2024 from ~Rs 6900 per ton in fiscal 2023 and is expected to improve further with increasing contribution from value added business.

  

The financial risk profile has strengthened with networth improving to Rs. 1150 crores as on March 31, 2024, from Rs. 619 crores, a year earlier, backed by equity infusion of around Rs 295 crore (through share warrants and proceeds from Qualified Institutional Placement (QIP)) and accretion to reserves. Networth is expected to improve to nearly Rs 1300 crore as on March 31, 2025. Total outside liabilities to tangible networth (TOLTNW) ratio stood at 0.87 times as on March 31, 2024 and is expected to be ~0.8 time as on March 31, 2025. With no major debt-funded capital expenditure plans and the fund-raising capabilities of the company, the financial risk profile is expected to remain strong.

 

The ratings reflect the established presence in the pipe and engineering product industry along with diversified product profile, the healthy scale of operations, and strong financial risk profile. These strengths are partially offset by the moderate working capital requirement and susceptibility to volatility in raw material prices and intense competition in the fragmented steel industry.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GIL and Goodluck Defence & Aerospace Private Limited (GDAPL) as GDAPL is the wholly owned subsidiary of GIL

 

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 presence in the pipe and engineering product industry along with diversified product profile: The group has leveraged the nearly four-decade-long experience of its promoters in the steel processing industry, to expand its capacity and product portfolio. The group offers a diverse range of products with a high level of customization. The group has a diversified product profile across four key segments, engineering structures and precision fabrication, forgings, precision pipes and auto tubes, and cold-rolled coil pipes and hollow sections. It specializes in stainless steel, duplex, carbon, alloy steel forgings and flanges, which are used in more than 100 products. GIL has also recently acquired Goodluck Defense and Aerospace Pvt Ltd to manufacture defence related products. The required approvals are in place and the revenue is expected to grow at a healthy pace from FY25 onwards. The group is also entering into the manufacturing of large diameter tubes which is into the trial phase and is expected to generate revenue from Jan-25 onwards. The diversified end-user profile and product range shield the company from downturns in any specific industry. The end-user industry base is well-diversified, and includes players from various segments, such as automotives and trucks, heavy commercial vehicles, agriculture machinery, equipment, valves, fittings, petrochemical applications, hardware, off-road, railway equipment, general industrial equipment, aerospace and defence. It has a strong presence in the domestic as well as export markets. The group is managed by its promoters, along with their family members. Due to the diversified product profile the company is able to charge the healthy and stable margins of over 8% which is better than the players in the similar industry.

 

Healthy scale of operations: Operating income rose to Rs 3512 crore in fiscal 2024 (from Rs 3077 crore in fiscal 2023); revenue of Rs. 913 crore was generated during Q1-FY25 and is likely to be around Rs. 4,000 crore for the full fiscal 2025. Growth in scale is supported by growth in volume and realization. Receipt of continuous orders along with entry into new product segments such as defense products and large diameter tubes, the group is expected to maintain healthy revenue growth over the medium term. With the increasing scale and  established market position, along with a diversified product profile and end-user industry base, across the domestic and overseas markets, and a healthy order book should aid revenue growth of 10-15% over the medium term.

 

Strong Financial risk profile: The financial risk profile has strengthened with networth improving to Rs. 1150 crores as on March 31, 2024, from Rs. 619 crores, a year earlier, backed by equity infusion of around Rs 295 crore (through share warrants and proceeds from Qualified Institutional Placement (QIP)) and accretion to reserves. Networth is expected to improve to nearly Rs 1300 crore as on March 31, 2025. TOLTNW ratio stood at 0.87 times as on March 31, 2024 and is expected to be ~0.8 time as on March 31, 2025. Interest coverage ratio and net cash accruals to adjusted debt (NCAAD) ratio are expected to be around 5 times and around 0.3 time, respectively, for fiscal 2025.

 

Weaknesses:

Moderate working capital requirement: Gross current assets (GCAs) stood at 131 days as on March 31, 2024, driven by receivables of 50 days and inventory of 69 days. The group has a diversified customer profile with domestic payment terms of around 60-90 days and export orders are secured through payment confirmation after which material dispatched. With the increase in export sales the payment realisation is better. Raw material inventory of around 60-80 days is kept which is majorly order-backed. GCAs are expected to range between 130 to 140 days going forward. Working capital management and extent of bank limit utilisation remain key monitorable.

 

Susceptibility to volatility in raw material prices due to intense competition in the fragmented industry: The steel industry is inherently cyclical and remains vulnerable to volatility in raw material prices and price realisations. The key raw material, hot-rolled coils, accounts for 70% of the total raw material cost. Moreover, the company limited room to pass on the impact of increase in raw material prices to customers in short-term contacts although they can pass on for some of the products. Even in the case of long-term contracts, price changes can be passed on only after a lag of 1-2 months. Furthermore, intense competition and limited product differentiation can exert pressure on the margin. However, high value addition partially offsets the susceptibility to fluctuation in raw material prices.

Liquidity: Strong

Net cash accruals are expected to be Rs 190-250 crore per annum and will be more than adequate against the yearly debt repayment obligation of Rs 35-45 crore over the medium term. Bank limit utilisation averaged at 74% over the 12 months ended July-24. Current ratio was comfortable at 1.74 times as on March 31, 2024, and is projected at around 1.8 times as on March 31, 2025. Company has liquid funds of Rs. 106 crores (in the form of fixed deposits) as on March 31, 2024 however the same has been utilized by the group for the funding the capital expenditure.

Outlook: Positive

CRISIL Ratings believes that the group’s business risk profile will continue to improve on account of healthy volume growth following capacity enhancements, diversified product profile and improved profitability from value-added products.

Rating Sensitivity Factors

Upward factors

• Sustained growth in revenue at around Rs. 5000 with sustenance of operating margin of more than 8%.
• Better working capital management and no significant increase in debt levels, keeping gearing below one time on a sustained basis.

 

Downward factor

• Decline in operating margin below 6% leading to lower cash accrual.
• Stretch in the working capital cycle on a continued basis or any major debt-funded capex weakening the financial risk profile.

About the Group

Incorporated in 1986, GIL (formerly, Goodluck Steel Tubes Ltd) manufactures sheets, pipes, engineering structures, fabricated structures, forgings, and automobile tubes. The company has five manufacturing facilities in Sikanderabad (Uttar Pradesh) and one recently operational in Kutch (Gujarat), with a total installed capacity of more than 412,000 tonne per annum. The company is listed on Bombay Stock Exchange Ltd and National Stock Exchange Ltd. GIL reported a revenue of Rs.913 crore with net profit of Rs. 36  crore during Q1-FY25.

 

Goodluck Defence & Aerospace Private Limited (GDAPL) was incorporated on August 31, 2023, with objective to specialize in the forging, machining, treatment, and coating of various metals for defense applications. It is the wholly owned subsidiary of Goodluck India Limited.

Key Financial Indicators

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	3512	3075
Reported profit after tax	Rs crore	122	88
PAT margins	%	3.5	2.9
Adjusted Debt/Adjusted Networth	Times	0.63	1.05
Interest coverage	Times	3.7	3.3

 

Any other information: Not Applicable

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Goodluck India Limited	100%	Holding company
Goodluck Defence And Aerospace Limited	100%	Wholly owned subsidiary