Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A/Stable/Crisil A1’ ratings to the bank loan facilities of Man Industries India Limited (MIIL).

 

During 9M fiscal 2025, operating income of MIIL remained flattish at Rs 2,318 crores against Rs 2,332 crores during 9M fiscal 2024. In fiscal 2024, the revenue grew by 39% y-o-y to Rs 3,154 crores from Rs 2,267 crores during fiscal 2023, backed by improved order execution supported by an increase in order book. The company currently has healthy revenue visibility for fiscal 2025 and fiscal 2026 with an order book of Rs 2,900 crores to be executed in the next 6-12 months. Additionally, operating margins during 9M fiscal 2025 improved to 9.1% from 8.9% in fiscal 2024 and 7.1% in fiscal 2023, due to higher margin orders executed during the 2024 and 9M fiscal 2025, along with better product mix. During fiscal 2025, revenue growth is expected to remain flattish with a healthy operating margin between 9-10% backed by higher margin order expected to be executed during Q4 fiscal 2025.

 

MIIL is in the process of increasing its product offerings in India and overseas. The company has added already new ERW (Electrical Resistance Welding) pipes capacity and the same was operationalized in March 2024. API (American Petroleum Institute) certification for this facility was received in September 2024. Furthermore, a capex of Rs 550 crores is planned towards setting up a new stainless-steel pipes plant of 20,000 tons of capacity in Jammu which is expected to be completed by Q4 of fiscal 2026. Along with it, MIIL will also be incurring capex of Rs 600 crores in Saudi Arabia, towards setting up a new HSAW/ LSAW plant of ~5 lakhs tons of capacity which is expected to be completed by fiscal 2027. The capex, being towards value-added products, is expected to boost the profitability of the company upon commissioning.

 

The financial risk profile of the company remains comfortable, as reflected in adequate debt coverage and healthy capitalisation ratios. The debt coverage was adequate, as reflected by interest coverage ratio of 3.34 times and net cash accrual to total debt (NCA/TD) ratio of 0.48 times in fiscal 2024 (interest coverage ratio was 4.31 times and NCA/TD ratio was 0.34 times in fiscal 2023). The total outside liabilities to tangible net worth (TOL/TNW) ratio was 0.75 times and total debt to earnings before interest, tax, depreciation and amortisation (TD/ EBITDA) ratio was 1.07 times as on March 31, 2024 (TOL/TNW ratio was 0.72 time and TD/ EBITDA ratio was 1.68 times as on March 31, 2023). The debt coverage and capitalisation ratios are expected to remain comfortable over the medium term as well, in-spite of the debt funded planned capex. 

 

MIIL had received a show cause notice from SEBI in the month of August 2022, as a conclusion to the forensic audit conducted by them. MIIL had decided to settle the matter with SEBI and as per the management of the company no further communication has been received. MIIL took the matter to High Court in May 2024, however the matter is sub-judice. As confirmed by the management, the final settlement amount will be borne by promoters and hence will not have an impact on the financial risk profile of the company. Further, the liquidity profile of the company continues to remain comfortable with cash and cash equivalents of approximately Rs 514 crores as on January 31, 2025. Nevertheless, Crisil Ratings will continue to monitor the outcome of the forensic audit and its impact on the company, if any. The forensic audit, as per the company, was conducted primarily because of the non-consolidation of Merino Shelters Pvt Ltd (MSPL; a fully owned subsidiary) in the books-of-accounts of MIIL. MIIL is at advance talks with a perspective buyer for monetization of assets at MSPL. 

 

The ratings continue to reflect the established market position of MIIL in the submerged arc welding (SAW) pipes industry along with a healthy financial risk profile. These strengths are partially offset by the working capital-intensive nature of operations and the susceptibility of the company to cyclicality in end-user industries along with volatility in raw material prices and foreign exchange (forex) rates.

Analytical Approach

For arriving at its ratings, Crisil Ratings has consolidated MIIL and its wholly owned as there are financial fungibilities between the companies. The entities are collectively referred to as the Man group. The subsidiaries are strategic to MIIL in view of their strong integration with its operations.

 

Crisil Ratings consolidates the financials of Merino Shelters Private Limited with MIIL.

 

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 position in the SAW pipes industry: The domestic pipes industry is consolidated, with the top four players accounting for 80% of capacity. Limited competition is due to large capital requirement and the necessity to have critical accreditations and customer approvals. MIIL is amongst the largest SAW pipe players in India and produces both helically submerged arc welded (HSAW) and longitudinal submerged arc welded (LSAW) pipes. It has been manufacturing SAW pipes, branch pipes and coatings since 1995. 

 

• Healthy financial risk profile: The financial risk profile is expected to remain healthy with a sizeable adjusted networth of Rs 1,459 crores and gearing of 0.14 time as on September 30, 2024. Interest coverage ratio is adequate at 3.35 times during 9M fiscal 2025. Liquidity is expected to remain healthy, as cash accrual is expected to comfortably meet the yearly debt obligation. The company’s ability to manage the incremental working capital requirement while maintaining comfortable debt coverage ratios remains crucial, given the moderate-to-high utilisation of the fund-based limit.

 

Weaknesses:

• Susceptibility to cyclicality in end-user industries and to volatility in raw material prices and forex rates: The Man group has historically derived majority of the revenue from the oil and gas segment and the remaining from the water and irrigation segment. Slowdown in the oil and gas industry because of a significant decline in crude prices impacted operations in the past. Strong demand from new projects in the oil and gas segment in key markets of India and the Middle East is critical for improvement in overall operations. Any major and continued slowdown in end-user industries will weaken demand for line pipes and impact performance.

 

Furthermore, operations remain exposed to government policies and preferences with respect to factors such as local supply and trade duties. Consequently, the group’s order inflow and operating performance are highly linked to the demand prospects from these sectors. Moreover, there is a lead time of 2-4 months between the application and the final award of a tender. Because these contracts are of a fixed-priced nature, the Man group cannot pass on increases in input costs to customers after applying for the tender.

 

The company is also exposed to forex functions as reflected by the forex losses incurred by the company during fiscal 2023. In case the company becomes a net importer in any given fiscal, the forex rate will adversely impact the company.

 

• Working capital-intensive operations: Gross current assets have been around 200 days in the past, driven by debtors of over 100 days. Over the medium term, the working capital requirement is expected to rise with an increase in the order book. Also, concentration in receivables renders MIIL susceptible to steady increase in the working capital requirement, and hence, remains a key monitorable.

 

Out of the total debtors of Rs 493 crores as of September 30, 2024, Rs 95 crores remained under arbitration, which as per company, has high chances of recoverability.

Liquidity: Strong

Liquidity is aided by moderate fund-based working capital lines utilization and internal cash accruals; the company also avails need-based project-specific limits. MIIL is expected to earn NCA of Rs 170 crores to Rs 280 crores against repayments of Rs 45-110 crores each year in the next 3 fiscals. The fund based working capital limit of over Rs 300 crore was utilized ~18% on average over the 6 months through December 2024. The non-fund-based limits of Rs 1,700 crores remained almost fully utilized, the company sometimes uses ad hoc limits NFB limits using margins, if required. However, with enhancement in limits, utilizations levels are expected to moderate. Cash and cash equivalents were around Rs 514 crores as on January 31, 2025 (including encumbered cash of Rs 225 crores). Crisil Ratings expects internal accrual, cash & cash equivalents, and unutilized bank lines to be sufficient to meet repayment obligations as well as incremental capex requirements.

Outlook: Stable

Crisil believes that MIIL's credit profile will sustain in the medium term driven by healthy order book position and operating margins.

Rating sensitivity factors

Upward factors:

• Improved operating performance leading to operating margin of above 10%.
• Business risk profile improves with significant growth in outstanding order book along with diversification of product profile.
• Considerable improvement in liquidity on account of realization of non-current assets / non-core investments.

 

Downward factors;

• Weak operating performance resulting in a fall in operating margins below 7.5%.
• Business risk profile weakens as reflected in substantial outstanding order book reduction.
• Deterioration in financial risk profile due to higher-than-expected debt funded capex or any support provided to non-business-related entities.
• Any liability due to SEBI audit observations impacting the business or financial risk profile of the company.

About the Company

About the Company MIIL is one of the largest SAW pipe players in India with combined capacity of 10 lakh tonne per annum, distributed equally between HSAW and LSAW. Incorporated in 1988, it commenced operations with the production of aluminum extrusion products. In 1995, it diversified into manufacturing SAW pipes. In March 2008, MIIL bought 55% stake in Man Infraprojects Pvt Ltd (Man Infraprojects), which undertook real estate development and increased its stake to 100% after acquiring the promoter shareholding in September 2011. In September 2013, MIIL announced a restructuring of its businesses. As part of the arrangement, with effect from April 1, 2014, Man Infraprojects was hived off from MIIL.

 

On November 22, 2021, SEBI appointed V Singhi & Associates as MIIL’s forensic auditor. As per the company, the last clarification was sought in March 2022. SEBI had responded to the forensic audit with a show cause notice to the company in August 2022, the settlement of which is sought by the company currently and is at its final stages. However, no revert from SEBI has been received as yet by the company.

Any other information: Not Applicable