| Kirloskar Pneumatic Company Limited | ||||||
| Rated amount enhanced; NCD withdrawn | ||||||
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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 AA-/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of Kirloskar Pneumatic Company Ltd (KPCL). CRISIL Ratings has withdrawn its rating on the Rs 75 crore non-convertible debentures of KPCL at the company’s request and in line with its rating withdrawal policy.
The company reported revenue of Rs 408 crore in the first nine months of fiscal 2021, down 30% year-on-year due to plant closure for two months on account of the nationwide lockdown to control the Covid-19 pandemic. KPCL’s road-railer operations were suspended for four months amidst the pandemic, and revenue from this business is expected to remain flat at Rs 5 crore in fiscal 2021. Despite the moderation in revenue, operating margin improved to 10% for the first nine months of fiscal 2021 from 8.7% a year earlier because of lower raw material costs.
The ratings continue to reflect the company’s strong financial risk profile and established market position. These strengths are partially offset by susceptibility to cyclicality in demand from end-user sectors and volatile input prices. |
Key Rating Drivers & Detailed Description Strengths * Strong financial risk profile: Financial risk profile is strong, supported by healthy capital structure and liquid surplus and prudent working capital management. As on February 15, 2021, liquid surplus (comprising marketable securities and cash and bank balance) was healthy at Rs 180 crore.
* Established market position: KPCL has an established market position in each product segment (air compressors, refrigeration and gas compressors, and transmission products) through technological collaboration and strong after-sales support services. Revenue is derived from diverse industries, such as oil and gas, power, cement, steel, automobiles, textiles, refinery, petrochemicals, city gas distribution, cold storage, and food, besides the defence and railway departments of the Government of India.
Weaknesses * Vulnerability to inherent cyclicality in demand from end-user industries: KPCL's customers are mainly from the engineering and other capital-intensive industries, wherein demand is cyclical. Addition of new facilities or expansion of current facilities by the industries is dependent on the country’s economic performance. KPCL's fortunes are, therefore, tied to the capital expenditure (capex) cycle in end-user industries.
* Susceptibility to volatile input prices and competitive pressure: Operating margin is susceptible to volatile input prices. The gestation period of projects in the compressor systems segment is 3-18 months, rendering profitability susceptible to volatile input prices. Also, in the air compressor segment, KPCL faces competition from domestic and major international players and their Indian subsidiaries, with players having access to strong technological and managerial support from their parents. |
Liquidity: Strong Cash accrual is expected to be more than Rs 50 crore annually, which should be adequate to fund capex requirement of Rs 20-30 crore annually, and support working capital requirement in the absence of any long-term debt obligation. Cash and cash equivalent stood at Rs 180 crore as on February 15, 2021. KPCL also has access to fund-based limit of Rs 40 crore which remains unutilised thus far. |
Outlook Stable CRISIL Ratings believes that KPCL's business risk profile will likely improve over the medium term, driven by healthy orders, increased demand from end-user industries, and the company’s established market position in the compressor segment. The financial risk profile should remain strong, supported by healthy liquidity. |
Rating Sensitivity factors Upward factors:
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About the Company Incorporated in 1958, KPCL is a part of the Pune-based Kirloskar group. It has three divisions: air compressors, refrigeration and gas compressors, and transmission products. Manufacturing facilities of all divisions are integrated and are located in and around Pune. End users include the oil and gas, steel, power, railways, and defence sectors.
KPCL entered into an agreement with the Indian Railways to operate road-railers, including the pilot project between New Delhi and Chennai, Tamil Nadu. The company has acquired the technology required to build road-railers from Wabash Inc, USA, which is a leading North American manufacturer of semi-trailers. The Indian Railways' Research Design and Standards Organisation (RDSO) has inspected and cleared the prototype and conducted the Emergency Brake Distance (EBD) test. |
Key Financial Indicators
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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)
# Yet to be issued |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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