| Groz Engineering Tools Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL A+ / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has reaffirmed its 'CRISIL A+/Stable/CRISIL A1+' ratings on the bank facilities of Groz Engineering Tools Pvt Ltd (GETPL; part of the Groz group).
The ratings continue to reflect the robust financial risk profile of the Groz group, its established market position in the lubrication products and precision engineering tools industry, diversified product profile and customer base. The ratings also factor in the steady revenue growth and healthy operating margin. These rating strengths are partially offset by the large working capital requirement and vulnerability to volatility in raw material prices.
The nationwide lockdown announced by the central government in March 2020, to contain the spread of the Covid-19 pandemic, impacted the Groz group, which reported lower revenue in the first quarter of fiscal 2021. However, recovery has been healthy since then, as indicated by net sales of above Rs 456.8 crore in fiscal 2021 (compared to 421.6 crore in fiscal 2020). Healthy order pipeline of above Rs 175 crore as on May 31, 2021 offers revenue visibility for the medium term. |
Analytical approach To arrive at the ratings, CRISIL Ratings has combined the business and financial risk profiles of GETPL and Accurate Products Corporation Pvt Ltd (APCPL; 'CRISIL BBB/Stable/CRISIL A3+'), That's because the two companies, together referred to as the Groz group, have strong operational and financial linkages, and are under a common management.
Of the estimated unsecured loans of Rs 25.6 crore (as on March 31, 2021) from the promoters, Rs 7.9 crore is treated as equity as this amount has been in the business for the past five fiscals and is expected to remain so over the medium term as well. The remaining loans have been treated as debt.
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: Robust financial risk profile The total outside liabilities to tangible networth ratio is estimated at 0.25 time as on March 31, 2021, and has been less than 0.5 time for the past five fiscals. Low debt and sufficient cash accrual have led to healthy debt protection metrics; interest coverage ratio was estimated at 82 times in fiscal 2021. Minimal dependence on working capital debt and absence of significant debt-funded capital expenditure (capex) plans should support the financial risk profile over the medium term.
Established market position and diversified geographic reach: The company is one of the few established players for precision tools and lubrication products globally. Having spent over three decades in these fields, the promoters have longstanding relationships with customers in the automotive, mining, oil and gas, construction and woodworking industries. The group supplies to over 300 customers spread across these industries.
Though the group caters to demand from over 80 countries, the US and Europe account for half of the total exports. Diversified geographical reach helps beat the slowdown due to the Covid-19 pandemic and lockdowns across various countries. A vast portfolio of more than 1,000 products also enables the group to maintain its established position in the global market.
Steady revenue growth and healthy operating margin: Revenue has risen to Rs 457 crore in fiscal 2021, from Rs 328 crore in fiscal 2017, recording a compounded annual growth rate (CAGR) of 8.7% during this period. The group could sustain its topline even amidst the pandemic, supported by healthy exports and a diversified geographic reach. Operating margin is estimated at 30.2% as on March 31, 2021 and was steady between 29% and 34% in the past three fiscals, backed by the management's focus on continuous product innovation and widening the product profile. Return on capital employed has also been healthy at 21-24% over the past three fiscals. It is estimated at 21.4% as on March 31, 2021, and should remain above 16% over the medium term. The group’s ability to scale up operations and maintain a healthy margin of around 30% are key rating monitorables.
Weaknesses: Vulnerability to volatile raw material prices Alloy steel and aluminium are two key raw materials, with steel accounting for over 70% of total material cost. Prices on products supplied to original equipment manufacturers (OEMs; which contribute to 60% of revenue), are generally fixed at the start of the product life but negotiated in case of any significant change in input cost; prices are mostly negotiated bi-annually for sales through distributors. This reduces the scope to pass on any hike in raw material cost to customers. Furthermore, raw materials are procured at spot rates, thus making the operating margin vulnerable to price fluctuations. Also, the company maintains a large inventory of 120-135 days to process certain number of products, so as to optimise fixed cost.
Large working capital requirement The company needs to hold a large inventory, given its vast product portfolio. Thus, inventory was estimated at 132 days as on March 31, 2021, and is likely to be in the range of 130-140 days in the medium term. Goods are manufactured and shipped on a monthly basis, as per the delivery schedule given by customers (mainly OEMs) and payment is received in around 60 days. Receivables were estimated at 97 days as on March 31, 2021, and expected at 70-80 days over the medium term. However, working capital management is supported by moderate credit of 58 days extended by the suppliers. |
Liquidity: Strong Expected cash accrual of Rs 119-131 crore per fiscal should comfortably cover the negligible debt of Rs 0.6 crore each in fiscals 2022 and 2023. Liquidity is further aided by free cash of above Rs 70 crore as of April 2021, and investments of over Rs 175 crore. Bank limit utilisation was also low, averaging 45% for the 12 months through March 2021. |
Outlook: Stable CRISIL Ratings believes the Groz group will continue to benefit from the extensive experience of its promoters and their established relationships with large customers. |
Rating sensitivity factors Upward factors
Downward factors
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About the group GETPL was incorporated by the promoters, Mr Anil Bammi and his son, Mr Dhiren Bammi in 1999. The company manufactures lubrication equipment, precision engineering tools, and professional hand tools. It exports to US, Australia, South Africa, and the Middle East and Far East regions.
APCL manufactures automobile components, such as lubricant fittings and precision turned parts, including thread fittings, leak-proof grease fittings, and brake parts. The manufacturing facility is in Chennai, Tamil Nadu. |
Key financial indicators: Group
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| 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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Bank Guarantee | Kotak Mahindra Bank Limited | 2 | CRISIL A1+ |
| Export Packing Credit | Kotak Mahindra Bank Limited | 44 | CRISIL A+/Stable |
| Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting | HDFC Bank Limited | 20 | CRISIL A+/Stable |
| Export Packing Credit & Export Bills Negotiation/Foreign Bill discounting | Indian Overseas Bank | 4 | CRISIL A+/Stable |
| Letter of Credit | Kotak Mahindra Bank Limited | 4 | CRISIL A1+ |
| Letter of Credit | Kotak Mahindra Bank Limited | 1 | CRISIL A1+ |
This Annexure has been updated on 15-Sep-2021 in line with the lender-wise facility details as on 30-Jul-2021 received from the rated entity.
Criteria Details
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