Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of Hi-Tech Pipes Limited (HTPL; part of the Hi-Tech Pipes group) to ‘Crisil A+/Stable’ from ‘Crisil A/Positive’ and reaffirmed its ‘Crisil A1’ rating on the short-term bank facilities of the company.

 

The upgrade reflects continued improvement in the business risk profile of the group, driven by healthy revenue offtake from the Sanand plant in Gujarat post commercialisation as well as sharp ramp up in offtake expected post timely completion of ongoing capital expenditure (capex) in Jammu and Kashmir, Uttar Pradesh and Gujarat. The group has a strong market position in the steel pipes industry. It is likely to clock compound annual growth rate (CAGR) of 18% over the three fiscals through 2025, driven by healthy offtake from enhanced capacities. The group achieved revenue of Rs 2,334 crore in the first nine months of fiscal 2025 (Rs 2,018 crore in the first nine months of fiscal 2024) and may report Rs 3,100-3,200 crore in fiscal 2025 (Rs 2,697 crore in fiscal 2024). Revenue should improve by 25-30% per annum over the medium term, aided by volume growth on account of enhanced capacities. The business risk profile is supported by improvement in operating efficiency, with expansion in the operating margin to around 5.37% in the first nine months of fiscal 2025 (against 3.93% in the first nine months of fiscal 2024 and 4.2% in fiscal 2024). Earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne was Rs 2,890 in fiscal 2024 and may improve to more than Rs 3,300 over the medium term, led by increasing revenue share from value-added products. The operating margin is expected to remain steady at 5.2-5.3% in the near term, driven by an increased share of revenue from value-added products, addition of new products and better economies of scale, though its sustenance is monitorable.

 

There has been an improvement in the group’s financial risk profile following a qualified institutional placement (QIP), through which HTPL raised Rs 500 crore in October 2024 and Rs 133 crore through conversion of share warrants in the first half of fiscal 2025. Resultantly, networth may improve to above Rs 1,200 crore as on March 31, 2025 (Rs 576 crore a year ago). These funds will be utilised to fund the capex for capacity enhancement and prepayment of debt (prepayment of ~Rs 104 crore), leading to improvement in the capital structure; total outside liabilities to tangible networth (TOL/TNW) ratio should improve to ~0.3 time as on March 31, 2025 (1.05 times a year ago). Reduction in debt, along with improved profitability, will strengthen debt protection metrics; interest coverage and net cash accrual to adjusted debt (NCAAD) ratios are estimated at over 4 times (2.7 times in fiscal 2024) and around 0.7 time (0.15 time), respectively, in fiscal 2025. Bank limit utilisation reduced, as reflected in average utilisation of 63% for the 12 months through January 2025. Free cash and bank balance of over Rs 120 crore is expected as on March 31, 2025, should support liquidity of the group.

 

The ratings reflect the group’s established market position, efficient working capital management and strong financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and exposure to intense competition.

Analytical Approach

HTPL acquired Hi-tech Global Steels Pvt Ltd (HGSPL) in November 2024 for a cash consideration of Rs 1 lakh. The subsidiary was incorporated on April 11, 2024, and is yet to start commercial production.

 

Consequently, Crisil Ratings has revised the analytical approach and combined the business and financial risk profiles of HTPL and its wholly owned subsidiaries, HTL Metal Pvt Ltd (HTL Metal), HTL Ispat Pvt Ltd (HTL Ispat), Hitech Metalex Pvt Ltd (HMPL) and HGSPL. This is because these entities, collectively referred to as the Hi-Tech Pipes group, have a shared name, are in the same business, and have common management and operational and financial linkages.

 

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:

Industry presence of over three decades has helped the promoters develop a strong understanding of market dynamics, resulting in diverse product profile, regular capacity enhancements and wide distributor network. Products include tubes and pipes, cold-rolled strips and engineering products used in varied industries such as real estate, automotive and agriculture. A wide portfolio acts as a safeguard against downturns in any single segment. Revenue is estimated to increase at a CAGR of 18%, to more than Rs 3,100 crore for the three fiscals through 2025. The group is undertaking brownfield and greenfield expansion, along with the addition of new products, which will aid further diversification in geographical presence. Revenue is expected to grow at a healthy 25-30% in fiscals 2026 and 2027, driven by volume growth on the back of enhanced capacity, improved geographic reach and healthy demand.

 

Efficient working capital management:

The working capital cycle is supported by an effective collection and inventory management system, resulting in moderate dependence on the working capital limit. Gross current assets (GCAs) are estimated at 110-120 days as on March 31, 2025 (94 days a year ago), driven by receivables of 30-40 days, inventory of 40-50 days and large cash and bank balance post the QIP. While growth in turnover may lead to an increase in working capital requirement, GCAs are expected to remain stable at 90-100 days over the medium term.

 

Strong financial risk profile:

At the group level, the financial risk profile has significantly improved following a QIP through which HTPL raised Rs 500 crore in October 2024 and Rs 133 crore through conversion of share warrants in the first half of fiscal 2025. Networth is estimated at over Rs 1,200 crore as on March 31, 2025 (Rs 576 crore a year ago). Debt prepayment and lower reliance on working capital debt will lead to improvement in the capital structure, with TOL/TNW estimated at around 0.3 time as on March 31, 2025 (1.05 times). The group is expected to undertake capex of Rs 140-150 crore in fiscal 2026 for new direct forming technology line that may be completed by end of fiscal 2026 and funded by QIP proceeds. Reduction in debt, along with improved profitability, will likely strengthen debt protection metrics; interest coverage and NCAAD ratios are estimated at above 4 times and 0.7 time, respectively, in fiscal 2025, against 2.7 times and 0.15 time in fiscal 2024. Financial risk profile is expected to improve with no major, debt-funded capex and healthy accretion to reserve, marked by gearing below 0.2 time as on March 31, 2026.

 

Weaknesses:

Susceptibility to volatility in raw material prices:

Operating profitability is susceptible to volatility in the cost of raw materials, such as sponge iron, steel scrap, steel and power. The prices are market driven and individual players are price takers. Hence, any sharp fluctuation in steel prices may impact the operating margin as the Hi-Tech Pipes group has limited price contracts with suppliers or customers. The operating margin is expected at 5.2-5.3% in the near term.

 

Exposure to intense competition:

Intense competition because of limited product differentiation and low entry barriers has kept the operating margin low. Moreover, industry is inherently cyclical and strongly correlated to the economy.

Liquidity: Strong

The group is likely to generate healthy cash accrual of Rs 100-110 crore against debt obligation of around Rs 26 crore (excluding debt prepayment of ~Rs 104 crore funded by QIP proceeds) in fiscal 2025. Net cash accrual may improve to Rs 150-190 crore per annum and will adequately cover yearly debt obligation of Rs 5-15 crore. The group has prepaid Rs 100-105 crore of term loan as of October 2024 and reduced its utilisation of the working capital limit. The bank limit was utilised at a moderate 63% on average during the 12 months through January 2025. Current ratio was 1.3 times as on March 31, 2024.

Outlook: Stable

The Hi-Tech Pipes group will remain healthy 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 increase in revenue driven by healthy volume growth and improvement in Ebitda per tonne to over Rs 3,500 supported by value addition
• Sustenance of healthy financial risk profile

 

Downward factors

• Decline in Ebitda per tonne leading to the operating margin below 4.5%
• Large, debt-funded capex or higher-than-expected working capital debt

About the Group

Incorporated in 1985 by Mr H L Bansal, HTPL is certified under the International Organisation for Standardisation 9001 for manufacturing steel tubes and pipes and flat steel products. Operations are managed by Mr Ajay Bansal and Mr Anish Bansal. Manufacturing capacities are in Sikandrabad, Uttar Pradesh and Sanand. The company is listed on the National Stock Exchange and the Bombay Stock Exchange.

 

HTL Metal is a wholly owned subsidiary of HTPL and commenced operations in 2017. Its facility is in Hindupuram, Andhra Pradesh.

 

HTL Ispat is a wholly owned subsidiary of HTPL, acquired by the latter in fiscal 2019. It has a manufacturing capacity in Khopoli, Maharashtra.

 

HMPL is a wholly owned subsidiary of HTPL and was incorporated in 2019.

 

HTPL acquired HGSPL in November 2024 for a cash consideration of Rs 1 lakh. The subsidiary was incorporated on April 11, 2024, and is yet to start commercial production.

Key Financial Indicators (consolidated)*

As on/for the period ended		31-Mar-24	31-Mar-23
Operating income	Rs crore	2697	2385
Reported profit after tax (PAT)	Rs crore	59	51
PAT margin	%	1.63	1.58
Adjusted debt/adjusted networth	Times	0.7	0.65
Interest coverage	Times	2.7	2.9

*Crisil Ratings-adjusted financials

Any other information: Not Applicable