Rating Rationale
July 29, 2019 | Mumbai
Isgec Titan Metal Fabricators Private Limited
Ratings Reaffirmed  
 
Rating Action
Total Bank Loan Facilities Rated Rs.40 Crore
Long Term Rating CRISIL AA(SO)/Stable (Reaffirmed)
Short Term Rating CRISIL A1+(SO) (Reaffirmed) 
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA(SO)/Stable/CRISIL A1+(SO)' ratings on the bank facilities of Isgec Titan Metal Fabricators Private Limited (ITMFPL). The facilities are backed by an unconditional and irrevocable guarantee, and additional undertaking guarantee provided by parent, Isgec Heavy Engineering Ltd (IHEL).
 
The ratings reflect the operational and financial support of IHEL, which has an established position in the heavy engineering capital goods industry and a robust financial risk profile, with unencumbered liquid investments of Rs. 155 crore. The ratings also factor in the expected improvement in business risk profile of ITMFPL, backed by the fabrication and designing technology obtained from the joint venture partner, Titan Metal Fabricators, INC (Titan). These strengths are partially offset by the initial stage of operations, high dependency on guarantor's performance, and intense competition in the domestic and international market.

Analytical Approach

The rating on the bank facilities guaranteed by IHEL are based on CRISIL's criteria for rating structured obligations.

Key Rating Drivers & Detailed Description
Strengths
* Unconditional and irrevocable corporate guarantee
IHEL has provided an unconditional and irrevocable guarantee to ITMFPL's bank facilities. The guarantee covers the entire principal and interest obligation. ITMFPL is also likely to receive operational support from IHEL.
 
* Established market position of parent
IHEL is an engineering procurement contractor (EPC)/manufacturer for various machinery in the capital goods sector both in India and abroad. Divisions such as boilers, presses, sugar plant machinery, process equipment and air pollution control equipment are aided by long-term technical tie-ups with a number of recognised global heavy engineering companies as well as IHEL's in-house design and manufacturing capability. The parent has geographically diversified operations and has been providing engineering solutions to customers around the world for the past 80 years.
 
* Parent's healthy financial risk profile
IHEL had a strong networth of Rs 1525 crore as on March 31, 2019, driven by a large scale of operations and hence steady accretion to reserves. Total outside liabilities to adjusted debt ratio was moderate at 2.3 times. Debt protection metrics were strong reflected in interest cover at 6.5 times and net cash accruals to adjusted debt of 0.7 times in fiscal 2019. Large unencumbered cash and bank balance and liquid investment of more than Rs 127 crore and Rs 150 crore respectively as on March 31, 2019, support liquidity.
 
Weaknesses
* Initial stage of operations
Though revenue doubled in fiscal 2019 to Rs 29.3 crore, and scale is expected to improve owing to operational and financial support from parent, operations are still in the early stages.
 
* High dependence on guarantor's performance
The rating primarily reflects the credit strength of the guarantor. Hence, any adverse movement in the performance of the guarantor may affect rating on ITMFPL's facilities.
 
* Intense competition in domestic and international market
Intense competition and the overall weak market scenario restrict inflow of orders. However, IHEL has a healthy track record of booking orders despite a difficult external environment.
Liquidity

Liquidity is adequate, undergirded by the strong financial support of IHEL, backed by an unconditional and irrevocable guarantee. Bank limit utilisation was a low 27% in the 12 months ended April 2019. Cash accrual is expected to exceed Rs 1.6 crore while maturing term debt remains nil.

Outlook: Stable

CRISIL believes ITMFPL will continue to benefit over the medium term from the experience of the promoters and the support of the parent. The outlook may be revised to 'Positive' if there is better-than-expected cash accrual, scale of operations, and capital structure, or improvement in the parent's rating. Conversely, the outlook may be revised to 'Negative' if cash accrual is lower than expected, or performance of the parent weakens.

About the Company

Incorporated in 2015, ITMFPL is a joint venture of IHEL (51%) and TITAN (49%) and was formed to manufacture corrosion-resistant process equipment and provide the next generation of reactive alloy equipment to global customers in the chemical, petrochemical, oil and gas, fertiliser, mining, power generation, pharmaceutical, and steel manufacturing industries.
 
IHEL (formerly, Saraswati Industrial Syndicate Ltd), a public company under the ISGEC group, is listed on the Bombay Stock Exchange. It was established in 1946 by Puri family. Initially, the main business activity was manufacturing of spares for sugar mills to complement the sugar mills operations. Later, the company diversified into a range of engineering products, and in 1964 it established a JV with UK-based John Thompson to form Isgec John Thompson to manufacture boilers. In 1981, it acquired majority shares in UP Steels. Both these entities were subsequently amalgamated into Isgec Heavy Engineering Ltd.
 
This company is currently manufacturing heavy engineering equipment and providing related EPC/turnkey services. Its product portfolio comprises pressure vessels, heat exchangers, mechanical and hydraulic presses, iron and alloy steel castings, boilers, power plant, sugar plants & machinery and air pollution control equipment.
 
Titan is a US-based company that has fabrication and designing technology to manufacture corrosion resistant process equipment made from reactive metals and high nickel alloys.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 29.26 14.73
Reported profit after tax Rs crore 1.58 0.84
PAT margins % 5.4 5.7
Adjusted Debt/Adjusted Net worth Times 2.01 1.91
Interest coverage Times 4.55 3.81
 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity date Issue size
(Rs cr)		 Rating assigned with outlook
NA Cash Credit & Working Capital demand loan NA NA NA 10 CRISIL AA(SO)/Stable
NA Letter of credit & Bank Guarantee NA NA NA 30 CRISIL A1+(SO)
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  10.00  CRISIL AA(SO)/Stable      18-04-18  CRISIL AA(SO)/Stable    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  30.00  CRISIL A1+(SO)      18-04-18  CRISIL A1+(SO)/ CRISIL A2    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit & Working Capital demand loan 10 CRISIL AA(SO)/Stable Cash Credit & Working Capital demand loan 5 CRISIL AA(SO)/Stable
Letter of credit & Bank Guarantee 30 CRISIL A1+(SO) Letter of credit & Bank Guarantee 25 CRISIL A1+(SO)
-- 0 -- Proposed Non Fund based limits 10 CRISIL A2
Total 40 -- Total 40 --
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings

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