Rating Rationale
August 05, 2022 | Mumbai
Roto Pumps Limited
'CRISIL A-/Stable' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.30 Crore
Long Term RatingCRISIL A-/Stable (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has assigned its ‘CRISIL A-/Stable’ rating to the long-term bank facilities of Roto Pumps Limited (RPL; part of the RPL group).

 

The rating reflects the strong business and financial risk profile, driven by extensive experience of the promoters in the high-value industrial pumps segment, the long track record of operations, diversified end user industry base and diversified geographical reach in the domestic and overseas markets. The business risk profile should sustain over the medium term, driven by capacity enhancement, increasing revenue contribution from exports and strong revenue visibility from the order book. The RPL group recorded revenue growth of 38% in fiscal 2022 (Rs 177.4 crore) as compared to fiscal 2021 (Rs 128.58 crore). Revenue is likely to grow by 18-20% in fiscal 2023, supported by ramp-up of the phase-wise capital expenditure (capex), for manufacturing solar pumping systems, downhole pumps, and mud motors. Operating margin should sustain at 20-25% over medium term. Timely stabilization and commercialization of capex remains a key monitorable for ratings.

 

The ratings also factor in the strong financial risk profile, driven by healthy net worth of Rs 133.83 crore, backed by continuous accretion to reserve. Gearing was below 0.20 time over the three fiscals ended March 31, 2022, driven by sufficient cash accrual. Debt protection metrics were marked by interest coverage and net cash accrual to adjusted debt ratio of 21.03 times and 2.48 times, respectively, in fiscal 2022. These strengths are partially offset by improving but modest scale of operations and their working capital-intensive nature.

Analytical approach

To arrive at the ratings, CRISIL Ratings has combined the business and financial risk profiles of RPL, its wholly owned subsidiaries, Roto Pumps America Inc, Roto Pumpen GMBH, Germany, Roto Energy Systems Ltd and Roto Overseas Pte Ltd, along with step-down subsidiaries, Roto Pumps North America, Inc, Roto Pumps (Malaysia) SDN. BHD., Roto Pumps (Africa) Pty Ltd. This is because all these entities, collectively referred to as RPL group, are in the same line of business, with strong business and financial linkages. RPL holds 100% equity in Roto Pumps America Inc, Roto Pumpen GMBH, Germany, Roto Energy Systems Ltd, Roto Overseas Pte Ltd.

 

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 market position and extensive experience of the promoters: Revenue has grown by a healthy compound annual growth rate of 17% over the three fiscals through 2022. Growth was driven by the five-decade-long presence of the promoters in the high value-added industrial pumps industry, along with a geographically diversified revenue profile and established relationships with customers and suppliers, both in domestic and overseas markets. Ability to develop products to cater to upcoming sectors could enhance growth further over the medium term. The company will continue to benefit from the experience and expertise from its management team and leverage its customer relationships.

 

  • Healthy operating profitability: The group has maintained a healthy operating margin of 22-27% over the last two fiscals, backed by its ability to pass on any hike in steel prices entirely to its customers without any major lag. The group follows different pricing mechanisms for its domestic and overseas buyers. Operating profitability stood at 27.1% in fiscal 2022 as against 24.4% in fiscal 2021. The slight moderation was due to increase in logistic cost amid shortage of cargo containers and rise in freight rates. However, the in-house research and development facilities and niche product offerings should help the margin sustain at 22-24% over the medium term. Return on capital employed was healthy around 33% in fiscal 2022.

 

  • Comfortable financial risk profile: Financial risk profile is marked by a moderate networth and low gearing of Rs 133.83 and 0.11 time, respectively, as on March 31, 2022. Networth and gearing will be further aided by healthy profitability and steady accretion to reserves over the medium term. Debt protection metrics are also healthy, as reflected in interest coverage ratio of 20.55 times as on March 31, 2022.

 

Weaknesses:

  • Moderate scale of operations amidst intense competition: Revenue of Rs 177.4 crore in fiscal 2022 reflects the moderate scale. The group faces intense competition from several small and mid-sized players and global entities scale in the industrial pumps industry. Though the scale is likely to improve, the ability of the group to ramp-up operations through planned capex and geographical expansion will remain key sensitivity factors.

 

  • Large working capital requirement: Gross current assets were high at 234 days as on March 31, 2022, driven by large inventory and receivables. The group maintains sizeable inventory, considering its vast product range, high lead time for manufacturing and significant revenue contribution from exports (around 70%). Receivables and inventory have been in the range of 70 to 100 days and 90 to 120 days, respectively, over the past five fiscals through March 2022. Commensurate with increase in scale of operation primarily from overseas markets, working capital requirement would remain intensive over the medium term.

Liquidity: Strong

Liquidity will be marked by healthy cash accrual and low bank limit utilisation. Expected cash accrual of Rs 38-40 crore per fiscal in 2023 and 2024 (Rs 35.98 crore in fiscal 2022) should comfortably meet the yearly debt of Rs 0.23 crore and the incremental working capital expenses. Utilization of the fund-based averaged 29.81% for the 12 months ending June 30, 2022. The group has maintained unencumbered cash and equivalents of around Rs 19.4 crore as on March 31, 2022.

Outlook: Stable

CRISIL Ratings believes the RPL group will maintain a comfortable operating margin over the medium term, backed by its dominant presence in the niche high-value industrial pumps segment.

Rating sensitivity factors

Upward factors

  • Sustained growth in revenue (by 30%) and steady operating margin, leading to higher cash accrual
  • Better working capital management, leading to lower gross current assets below 200 days, along with sustenance of healthy debt metrics and gearing under 0.50 time

 

Downward factors

  • Decline in revenue (by over 20%) and operating margin (below 22%) leading to lower cash accrual
  • Large debt-funded capex or substantial increase in working capital requirement constraining financial risk profile and liquidity.

About the group

RPL manufactures different types of industrial pumps, including the progressive cavity and single- and twin-screw variants. These pumps are specialized and custom-made and used in industries where the fluid viscosity is high. They are also used in waste-water treatment, oil and gas, marine, and sugar industries. RPL is listed on the Bombay Stock Exchange and National Stock Exchange and is based in Noida, Uttar Pradesh.

Key financial indicators

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

177.4

128.58

Reported profit after tax

Rs crore

30.28

17.72

PAT margin

%

16.98

14.26

Adjusted debt/Adjusted networth

Times

0.11

0.12

Interest coverage

Times

20.55

36.6

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 Levels

Rating  assigned

with outlook

NA

Cash Credit

NA

NA

NA

10

NA

CRISIL A-/Stable

NA

Working Capital Facility

NA

NA

NA

20

NA

CRISIL A-/Stable

Annexure – List of entities consolidated

Names of entities consolidated

Extent of Consolidation

Rationale for Consolidation

Roto Pumps North America Inc

Fully Consolidated

Step-down subsidiary

Roto Pumps Ltd

Fully Consolidated

-

Roto Pumps America Inc

Fully Consolidated

Wholly owned subsidiary

Roto Pumpen GMBH, Germany

Fully Consolidated

Wholly owned subsidiary

Roto Pumps (Malaysia) SDN. BHD.

Fully Consolidated

Step-down subsidiary

Roto Energy Systems Ltd

Fully Consolidated

Wholly owned subsidiary

Roto Overseas Pte Ltd

Fully Consolidated

Wholly owned subsidiary

Roto Pumps (Africa) Pty Ltd

Fully Consolidated

Step-down subsidiary
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 30.0 CRISIL A-/Stable   --   -- 27-07-20 Withdrawn 25-04-19 CRISIL BBB+/Positive CRISIL BBB+/Stable
Non-Fund Based Facilities LT   --   --   -- 27-07-20 Withdrawn 25-04-19 CRISIL BBB+/Positive CRISIL BBB+/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 10 Bank of Baroda CRISIL A-/Stable
Working Capital Facility 20 DBS Bank India Limited CRISIL A-/Stable

This Annexure has been updated on 05-Aug-2022 in line with the lender-wise facility details as on 05-Aug-2022 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 Consolidation

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