Detailed Rationale

CRISIL Ratings has revoked the suspension of its ratings on the bank facilities of Kritika Wires Limited (KWL) and assigned its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings to the bank facilities of the company. CRISIL Ratings had suspended its ratings on May 28, 2014, on account of non-cooperation by KWL with the efforts of CRISIL Ratings to undertake a review of the ratings. KWL has now shared the requisite information, enabling CRISIL Ratings to assign its ratings.

 

The ratings reflect KWL’s established market position, the extensive experience of its promoters in the wires industry and strong financial risk profile. These strengths are partially offset by exposure to intense competition and vulnerability to volatility in raw material prices.

Analytical Approach:

CRISIL Ratings has evaluated the standalone business and financial risk profile of Kritika Wires Limited (KWL)

Key Rating Drivers & Detailed Description

Strengths:

• Established market position and extensive industry experience of the promoters: The promoters have been manufacturing various types of galvanised and non-galvanised iron wires for more than five decades. The company is a registered supplier for multiple state electricity boards and also caters to diverse private players. Extensive experience of the promoters and healthy relationship with its established customer base has led to smooth order flow over the years. Furthermore, with healthy demand scenario in the cables and conductors business driving demand for galvanised and non galvanised wires, the overall improvement in the business profile of the company is expected to be sustained over the medium term. Backed by the company’s well established presence and healthy demand scenario in the end-user segment leading to healthy capacity utilisation, revenue is expected to grow to over Rs 700 crore in fiscal 2025 from Rs 437 crore in fiscal 2024, at a growth rate of over 59%. Robust demand scenario led to volumetric growth which coupled with steady realisations resulted in healthy overall growth in the scale of operations.

 

Backed by the company’s well established presence, company has recorded an estimated turnover of Rs 323 crore in the first half of fiscal 2025 on the back of healthy outstanding order book, steady flow of new orders and ramped up execution. Healthy growth in revenue with revenue of about Rs 800-1000 crore over the medium term on the back of sustained demand. The company currently has orders worth Rs 172 crore in hand as on November, 2024 (to be executed over the next six months), along with sizeable orders in the pipeline. Growing orders in EPC and higher demand for power conductors are driven by capital expenditure (capex) incurred under various government schemes to boost T&D (transmission and distribution) under Rural Electrification Corporation, to increase electrification coverage in rural areas. Favourable industry scenario with higher investments envisaged in end-user industries over the medium term should continue to support business risk profile.

 

Buoyant demand, healthy product diversity and increased capacities with operationalisation of hired aluminium rolling mill unit and favourable sales realisations driven by higher share of value-added products should support the revenue profile. Also, expected stabilisation in raw material prices (especially wire rods) going forward and diversified product profile will support operating profitability with EBITDA margins are expected to remain sustained around 4.50-5% over the medium term.

 

Further, healthy capacity utilisation levels shall also support operating efficiencies resulting in steady profitability and Return on Capital Employed (RoCE) for the company. The strong accrual generation ability and prudent working capital management should continue to support the business risk profile over the medium term.

 

• Strong financial risk profile: Financial risk profile should remain supported by healthy accretion to reserves. Networth is healthy estimated around Rs 88.89 crore as on September 30th, 2024, as against Rs 84.34 crore as on March 31st, 2024. Networth is further expected to increase over the medium term backed by steady accretion to reserves. Capital structure also has improved over the years with negligible term debt obligation, moderate reliance on working capital debt and absence of any significant debt-funded capital expenditure (capex) plans thereby enhancing financial flexibility. As such, gearing and Total Outside Liabilities to Tangible Networth (TOL/TNW) ratio is expected to remain below unity and around 0.80-1 times respectively over the medium term. Debt protection metrics should also remain comfortable with interest coverage ratio expected around 5 times and net cash accrual to total debt (NCA/TD) ratio around 0.30-0.40 time going forward.

 

Weakness:

• Vulnerability to volatility in the prices of raw material and finished goods and exposure to inherent cyclicality and slowdown in end-user industry: The company's performance remains vulnerable to cyclicality in the steel sector given the close linkage between the demand for steel products and the domestic and global economy. The end-user segments such as real estate, civil construction and engineering and power and distribution sector also display cyclicality. Further, operating margins are vulnerable to volatility in the input prices (steel wire rods, aluminium and zinc ) as well as realisation from finished goods. The prices and supply of the main raw material, steel wire rods directly impacts the realisations of finished goods. Further, the steel sector remains exposed to steel prices globally. While most of the players in the unorganised sector have marginal capacities and do not meet any stringent quality standards, they continue to cater to small regional buyers in price sensitive markets. Therefore, the ability to command a premium for products is restricted for organised players such as KWL. Moreover, the company tries to manage the price risk by placing back-to-back orders for raw materials. Also, expected stabilisation in raw material prices (especially wire rods) going forward and diversified product profile will support operating profitability. As such, operating profitability has remained range bound 4-5% over the years with EBITDA margin of 4.38% in fiscal 2024. Sustenance of operating profitability around 4.50-5% over the medium term amid volatility in raw material and finished goods prices shall remain a key monitorable.

Liquidity: Adequate

Bank limit utilisation has remained moderate around 49% over the past twelve months ending October, 2024 leaving sufficient cushion for exigencies. Cash accruals are expected over Rs 20-25 crore per annum over the medium term against nil debt repayment obligations thereby aiding financial flexibility. Current ratio is expected to be healthy around 1.70-1.80 times over the medium term. Healthy unencumbered cash and bank balance of around Rs 4-5 crore as on September, 2024 and management’s intention of maintaining liquid investments further support liquidity.  The promoters have ability to extend unsecured loans if needed. Negligible gearing and healthy networth further support liquidity.

Outlook: Stable

CRISIL Ratings believes KWL will continue to benefit from the extensive industry experience of its promoters and established market position.

Rating sensitivity factors

Upward factors

• Substantial growth in scale of operations driven by volumetric growth with sustenance of operating profitability leading to higher cash accruals of over Rs 30 crore on a sustained basis.
• Sustenance of healthy financial risk profile along with healthy operating cash accruals along with healthy liquidity levels and prudent working capital management.

 

Downward factors

• Any significant and sustained decline in revenue, leading to cash accrual falling below Rs 10 crore per fiscal
• Larger-than-expected capex or any unprecedented stretch in working capital management adversely impacting financial and liquidity risk profile, on a sustained basis

About the Company

Incorporated in 2004, Kritika Wires Limited (KWL) manufactures galvanised and non-galvanised steel wires, which are used as earth wires, stay wires, barbed wires, steel core wires for aluminium conductors and  steel-reinforced  conductors, and other such products. Their product range includes GI Wires, Welding Electrodes, Aluminum Conductors, Galvanized Stranded Wires, Galvanized Steel Wires, High Carbon Steel Wire, Deformed Steel Bars, covered conductors etc which contributes about ~95-98% of the total turnover. The company also trades in wire rods, aluminium and zinc ingots in the domestic market which forms about ~2-5% of the total turnover. It is promoted by Mr. Hanuman Prasad Agarwal and his brothers Mr Sushil Kumar Agarwal and Mr. Naresh Kumar Agarwal.

Key Financial Indicators*

As on / for the period ended March 31		2024	2023
Operating income	Rs crore	436.84	284.90
Reported profit after tax (PAT)	Rs crore	10.40	5.99
PAT margin	%	2.38	2.10
Adjusted debt/adjusted networth	Times	0.48	0.30
Interest coverage	Times	5.25	4.05

*CRISIL Ratings’ adjusted financials

Status of non cooperation with previous CRA:

KWL has not cooperated with Acuite Ratings and Research Limited (Acuite) which has classified it as non-cooperative vide release dated 12-Jun-2020. The reason provided by Acuite is non-furnishing of information for monitoring of ratings

Any other information: Not Applicable