Rating Rationale
March 23, 2022 | Mumbai
Mangal Industries Limited
 
Rating Action
Total Bank Loan Facilities RatedRs.419.01 Crore
Long Term RatingCRISIL A/Positive
Short Term RatingCRISIL A1
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings on the bank facilities of Mangal Industries Limited (MIL) continues to reflect the healthy business risk profile of MIL supported by strong business linkages with ARBL and adequate financial risk profile. These rating strengths are partially offset by high customer concentration and exposure to business cyclicality in end user industries.

 

On October 05, 2021 CRISIL Ratings had revised the outlook to ‘Positive’ following the improving business risk profile of MIL due to its association with Amara Raja Batteries Ltd (ARBL, rated 'CRISIL AA+/Stable/CRISIL A1+') and scale up of newer products added in the past few years resulting in increasing orders from external customers. The financial risk profile is also expected to improve notwithstanding capacity expansion plans, driven by progressive debt repayments, healthy cash accruals and prudent working capital management.

 

Revenue increased by 12% in fiscal 2021 driven by stable orders from ARBL, growth in revenues in Auto components segment and contribution of revenues from trading segment. Profitability improved marginally to 14% in fiscal 2021 (compared to 13.7% in fiscal 2020) driven by cost savings due to reduced travel & employee costs and increase in capacity utilisation in H2’21. In fiscal 2022, the revenues are expected to grow by 7-8% driven by stable orders from ARBL and higher orders from external customers. The improvement in offtake for batteries from automobile sector and healthy prospects for storage solutions from warehousing sector will aid growth for MIL.

 

Over the medium term, the revenue growth is expected to be driven by growth in new products including auto components and storage solutions and continued healthy offtake from ARBL. MIL is expected to invest in capex of Rs 200 crore over a period of 2 years to expand the current capacity, mainly in battery and auto components product categories. Despite sizeable addition of debt for the capex, the debt protection metrics are not expected to be significantly affected and financial profile is expected to be healthy over the medium term. Timely completion of capex and subsequent monetization of capex will however remain key monitorable.

Analytical Approach

For arriving at its rating, CRISIL Ratings has considered the standalone business and financial risk profiles of MIL.

Key Rating Drivers & Detailed Description

Strengths:

  • Healthy business risk profile, supported by strong business linkages with ARBL: MIL derives about 76% of its revenue from ARBL, the flagship company of the Amara Raja group. ARBL is the second-largest player in the storage batteries segment in India, with diverse revenue streams. ARBL generated net sales of Rs.7,150 crore in fiscal 2021 and MIL is a key supplier of battery and metal fabrication components to ARBL. Over the medium term, ARBL has outlined further plans to expand capacity for its two wheeler, four wheeler and industrial batteries, which bodes well for MIL’s incremental volumes. CRISIL Ratings believes that MIL will continue to benefit from the strong business linkages with ARBL over the medium term.

 

  • Adequate financial risk profile: MIL’s financial risk profile is marked by adequate capital structure, healthy debt protection metrics, and is supported by steady cash flows from operations. Progressive debt repayment and healthy cash accruals have improved the gearing to 0.4 times as of March 2021(from 0.51 times in March 2020). Interest coverage and net cash accrual to debt ratios also remain healthy at about 10.7 times and 0.6 times respectively in fiscal 2021. MIL is expected to take Rs.150 crore of debt to fund capex plans of Rs.200 crore over the next two years. Despite the debt addition, debt protection metrics are expected to be healthy driven by healthy cash accruals.

 

Weaknesses:

  • High customer concentration in revenue profile: Over the past four years, MIL has focussed on diversifying its customer base, which increased contribution of customers outside the Amara Raja group to around 20 per cent of MIL’s revenue in fiscal 2020 as against less than 10 per cent during 2008-09. In fiscal 2021, the share of external orders remained at 20% driven by COVID-19 pandemic. However, over the medium term, the company is expected to add new external orders which will mitigate the customer concentration risk to a certain extent. While CRISIL Ratings believes that the Amara Raja group will continue to increase its off-take from MIL considering ARBL’s expansion plans, it nevertheless continues to expose MIL to customer concentration risk. 

 

  • Exposure to cyclicality in the end user industries: MIL’s business cycle is exposed to business cyclicality with respect to demand from original equipment manufacturers as well as after-market sales. The monetization of expanded capacity is contingent on sustained off-take from these end user industries.

Liquidity: Adequate

Liquidity will remain adequate driven by steady improvement in cash accruals and prudent working capital management. MIL's working capital bank lines of Rs 94.5 crore, are utilised at an average of 67% (of drawing power) over the 12 months period ended June 2021. MIL is expected to invest in capex of Rs 200 crore over the medium term to align its production capacity to demand requirement of ARBL and for expanding machine lines for new customers. This will be funded by Rs.150 crore of term debt. Healthy accruals of about 100 crores is expected to remain adequate to fund the repayment obligations of Rs.30-35 crore over the medium term.

Outlook: Positive

CRISIL Ratings believes the business risk profile of MIL will benefit from its linkage with ARBL and addition of new external orders in fiscal 2022. The financial risk profile is also expected to improve notwithstanding capacity expansion plans, driven by progressive debt repayments, healthy cash accruals and prudent working capital management.

Rating Sensitivity factors

Upward factors:

  • Significant improvement in business performance along with sustained operating profitability above 14% resulting in higher cash accruals
  • Substantial improvement in financial risk profile through material reduction in debt leading to gearing below 0.5 times.

 

Downward factors:

  • Additional large debt-funded capex resulting in weakening of key credit metrics (e.g. gearing above 1.5 times).
  • Delay in favourable monetization of expanded capacities leading to sub optimal utilization and decline in profitability below 10%.

About the Company

MIL, incorporated in 1996 as part of the Amara Raja group of companies, manufactures metal fabrication, battery and auto components. These products are used in home inverters, trickle chargers, switch mode rectifier cabinets, and batteries. The company also manufactures auto components and has also ventured into the storage solutions segment where it provides customised solutions to manage storage needs of clients. During fiscal 2019, it has expanded to Tool Works segment which is involved in manufacture of industrial tools and moulds. In fiscal 2021, the company has ventured into trading business in which it supplies substitute chemicals to customers. The company has two manufacturing facilities near Tirupati and Chittoor in Andhra Pradesh. ARBL and other Amara Raja group companies remain its largest customers.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

925

821

Profit after tax (PAT)

Rs crore

57

44

PAT margin

%

6.1

5.4

Adjusted debt/ adjusted networth

Times

0.40

0.52

Interest coverage

Times

10.69

6.87

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 crore) Complexity Level Rating assigned with outlook
NA Bank Guarantee NA NA NA 3.5 NA CRISIL A1
NA Cash Credit NA NA NA 134.5 NA CRISIL A/Positive
NA Letter of Credit NA NA NA 36.5 NA CRISIL A1
NA Long Term Loan NA NA Dec-2028 220 NA CRISIL A/Positive
NA Proposed long term bank loan facility NA NA NA 12.01 NA CRISIL A/Positive
NA Proposed working capital facility NA NA NA 12.5 NA CRISIL A/Positive
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 379.01 CRISIL A/Positive   -- 05-10-21 CRISIL A/Positive 08-07-20 CRISIL A/Stable 26-11-19 CRISIL A/Stable CRISIL A1 / CRISIL A/Stable
      --   --   --   --   -- CRISIL A1
Non-Fund Based Facilities ST 40.0 CRISIL A1   -- 05-10-21 CRISIL A1 08-07-20 CRISIL A1 26-11-19 CRISIL A1 CRISIL A1
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 3 State Bank of India CRISIL A1
Bank Guarantee 0.5 Union Bank of India CRISIL A1
Cash Credit 5 Citibank N. A. CRISIL A/Positive
Cash Credit 30 Axis Bank Limited CRISIL A/Positive
Cash Credit 40 ICICI Bank Limited CRISIL A/Positive
Cash Credit 44.5 State Bank of India CRISIL A/Positive
Cash Credit 15 Union Bank of India CRISIL A/Positive
Letter of Credit 9.5 Union Bank of India CRISIL A1
Letter of Credit 27 State Bank of India CRISIL A1
Long Term Loan 220 State Bank of India CRISIL A/Positive
Proposed Long Term Bank Loan Facility 12.01 Not Applicable CRISIL A/Positive
Proposed Working Capital Facility 12.5 Not Applicable CRISIL A/Positive

This Annexure has been updated on 23-Mar-2022 in line with the lender-wise facility details as on 05-Oct-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Engineering Sector
CRISILs Criteria for rating short term debt

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