Detailed rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Hi-Tech Pipes Limited (HTPL; part of the Hi-Tech Pipes group) to ‘CRISIL A/Positive/CRISIL A1’ from ‘CRISIL A-/Stable/CRISIL A2+’.

 

The upgrade factors in the 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 crores through conversion of share warrants in the first half of fiscal 2025. Resultantly, networth is expected to improve to above Rs 1,200 crore as on March 31, 2025 (Rs 576 crore as on March 31, 2024). These funds will be utilised to fund the capital expenditure (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 (TOLTNW) ratio is expected to improve to ~0.3 time as on March 31, 2025 (1.05 times as on March 31, 2024). Reduction in debt, along with improved profitability, will lead to improvement in the debt protection metrics; interest coverage and net cash accrual to adjusted debt (NCAAD) ratios are expected over 5 times (2.7 times in fiscal 2024) and around 0.8 time (0.15 time in fiscal 2024), respectively, in fiscal 2025.

 

The positive outlook factors in the expected improvement in the business risk profile of the group driven by healthy revenue offtake from the recently completed Sanand capex as well as healthy offtake post timely completion of ongoing capex in Jammu and Kashmir, Uttar Pradesh and Gujarat. The group has a strong market position in the steel pipes industry. It is expected to clock compound annual growth rate (CAGR) of 22% over the three fiscals through 2025 due to healthy offtake from enhanced capacities. The group has achieved revenue of Rs 867 crore in the first quarter of fiscal 2025 (Rs 642 crore in the first quarter of fiscal 2024) and is expected to achieve revenue of over Rs 3,300 crore in fiscal 2025 (Rs 2,697 crore in fiscal 2024). Revenue is expected to improve by 20-25% per annum over the medium term driven 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% in the first quarter of fiscal 2025 (3.23% in the first quarter 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 are expected to improve to over Rs 3,300 over the medium term supported by increasing revenue share from value-added products. The operating margin is expected to remain steady at 5.0-5.5% 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.

 

The ratings reflect the group’s established market presence, 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

CRISIL Ratings has 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) and HITECH Metalex Pvt Ltd (HMPL). 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 and detailed description

Strengths:

• Established market position

Industry presence of over three decades has helped the promoters develop 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 expected to grow at CAGR of 22% in the three fiscals through 2025 to more than Rs 3,300 crore. 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 20-25% in fiscals 2026 and 2027, driven by volume growth on the back of enhanced capacity, improved geographic reach and expected healthy demand.

 

• Efficient working capital management

The working capital cycle is supported by efficient collection and inventory management system, resulting in moderate dependence on working capital limits. Gross current assets (GCAs) are expected in the range of 100-120 days as on March 31, 2025 (94 days as on March 31, 2024), 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 crores through conversion of share warrants in the first half of fiscal 2025. Networth is expected over Rs 1,200 crore as on March 31, 2025 (Rs 576 crore as on March 31, 2024). Debt prepayment and lower reliance on working capital debt will lead to improvement in the capital structure, with TOLTNW expected to be 0.3 time as on March 31, 2025 (1.05 times as on March 31, 2024). Reduction in debt, along with improved profitability, will likely lead to improvement in the debt protection metrics; interest coverage and NCAAD ratios are expected to be above 5 times and 0.8 time, respectively, in fiscal 2025.

 

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 5.0-5.5% 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 expected to generate healthy cash accrual of Rs 100-110 crore against debt obligation of around Rs 130 crore (including debt prepayment of ~Rs 104 crore funded by QIP proceeds) in fiscal 2025. Net cash accrual is expected to improve to Rs 150-190 crore per annum and will adequately cover debt obligation of Rs 5-10 crore per fiscal. 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 74% on average in the 12 months through August 2024. Current ratio was comfortable at 1.3 times as on March 31, 2024.

Outlook: Positive

CRISIL Ratings believes the business risk profile of the Hi-Tech Pipes group 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

• Increase in revenue over Rs 3,000 crore driven by volume growth and improvement in Ebitda per tonne to over Rs 3,300 supported by value addition
• Sustenance of healthy financial risk profile

 

Downward factors

• Decline in Ebitda per tonne leading to operating margin below 4.5%
• Large, debt-funded capex or working capital debt impacting the financial risk profile

About the group

Incorporated in 1985 by Mr H L Bansal, HTPL is certified under the International Organisation for Standardisation (ISO) 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, Gujarat. 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.

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

 

Any other information: Not applicable

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Hi-Tech Pipes Ltd	Full consolidation	Common management and same business
HTL Ispat Pvt Ltd	Full consolidation	Common management and same business
HTL Metal Pvt Ltd	Full consolidation	Common management and same business
Hitech Metalex Pvt Ltd	Full consolidation	Common management and same business