Rating Rationale
July 04, 2023 | Mumbai
Roto Pumps Limited
Rating outlook revised to 'Positive''; 'CRISIL A2+' assigned to Bank Debt; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.52.5 Crore (Enhanced from Rs.30 Crore)
Long Term RatingCRISIL A-/Positive (Outlook revised from 'Stable' Rating Reaffirmed)
Short Term RatingCRISIL A2+ (Assigned)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Roto Pumps Ltd (RPL; part of the RPL group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A-’ and has assigned its ‘CRISIL A2+' rating on the short-term bank facility.

 

The outlook revision reflects the improvement in the business risk profile of the group, with expected annual revenue growth of more than 30% over the medium term driven by the extensive experience of the promoters in the high-value industrial pumps segment, the group’s long track record of operations, diversified industry base and geographical reach and successful ramp up of phase-wise capital expenditure (capex), for manufacturing solar pumping systems, downhole pumps, and mud motors. Revenue increased to around Rs 227.55 crore in fiscal 2023 from Rs 177.4 crore in fiscal 2022 backed by increased sales through existing product line. Operating margin is expected to sustain at 20-25% over the medium term supported by high value addition products in the portfolio. Timely stabilisation and commercialisation of capex will remain a key monitorable.

 

The ratings also factor in the strong financial risk profile, driven by healthy networth of Rs 160.3 crore, backed by continuous accretion to reserve. Gearing was below 0.25 time over the three fiscals ended March 31, 2023. Debt protection metrics were comfortable, as indicated by interest coverage and net cash accrual to adjusted debt ratios of 13.21 times and 0.96 time, respectively, in fiscal 2023. These strengths are partially offset by modest scale of operations and large working capital requirement.

Analytical approach

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; Roto Overseas Pte Ltd and Roto Pumps Mena, FZE; and its 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 the RPL group, are in the same business and have strong business and financial linkages. RPL holds 100% equity in Roto Pumps America Inc, Roto Pumpen GMBH, Roto Energy Systems Ltd and 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 and detailed description

Strengths:

  • Established market position and extensive experience of the promoters: Revenue increased at compound annual growth rate of 19% over the three fiscals through 2023 driven by the five-decade-long presence of the promoters in the high value-added industrial pumps industry, geographically diversified revenue profile and established relationships with customers and suppliers. Ability to develop products to cater to upcoming sectors may enhance growth over the medium term. The group will continue to benefit from the expertise of its management team and healthy customer relationships.

 

  • Healthy operating profitability: The operating margin of the group was stable at 25-27% over the two fiscals through 2023 backed by its ability to pass on hike in steel prices to customers without major lag. The group follows different pricing mechanisms for its domestic and overseas markets. The operating margin stood at 25.51% in fiscal 2023, as against 27.11% in fiscal 2022. In-house research and development facilities and niche product offerings should help the margin sustain at 20-22% over the medium term. Return on capital employed was healthy at 28.86% in fiscal 2023.

 

  • Comfortable financial risk profile: Networth and gearing were strong at Rs 133.83 crore and 0.11 time, respectively, as on March 31, 2023, and are expected at Rs 190-200 crore and less than 0.2 time, respectively, as on March 31, 2024. Capital structure will be aided by healthy profitability and steady accretion to reserve over the medium term. Debt protection metrics were healthy, as reflected in interest coverage ratio of 13.21 times in fiscal 2023.

 

Weaknesses:

  • Modest scale of operations amid intense competition: Intense competition from several small and mid-sized players and global entities restricts scalability, as reflected in revenue of Rs 227.5 crore in fiscal 2023. Though the scale is likely to improve through multiple product offerings by venturing into new end-user industries, 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 (GCAs) were sizeable at 249 days as on March 31, 2023, 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 export (around 70%). Receivables and inventory were in the range of 70-100 days and 90-120 days, respectively, over the five fiscals through 2023. Commensurate with increase in scale of operations, the working capital cycle will remain intensive over the medium term.

Liquidity: Strong

Expected cash accrual of Rs 48-58 crore per annum will comfortably cover yearly debt obligation of Rs 0.96 crore and working capital requirement over the medium term. Fund-based limit was utilised 61% on average during the 12 months through March 2023. Unencumbered cash and equivalent stood at Rs 23 crore as on March 31, 2023.

Outlook: Positive

The RPL group will continue to benefit from its established track record, increasing scale of operations and extensive experience of its promoters.

Rating sensitivity factors

Upward factors:

  • Steady growth in revenue (by 25%) and stable operating margin leading to higher cash accrual
  • Efficient working capital management with GCAs below 200 days, along with sustenance of healthy debt metrics and gearing under 0.5 time

 

Downward factors:

  • Decline in revenue (by over 20%) and operating margin (below 18%) leading to lower cash accrual
  • Large, debt-funded capex or further stretch in the working capital cycle weakening the financial risk profile and liquidity

About the group

RPL manufactures different types of industrial pumps, such as progressive cavity and single- and twin-screw variants. These pumps are specialised 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 the National Stock Exchange and is based in Noida, Uttar Pradesh.

Key financial indicators (Consolidated)

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

227.5

177.4

Reported profit after tax (PAT)

Rs crore

33.11

30.28

PAT margin

%

14.55

16.98

Adjusted debt / adjusted networth

Times

0.24

0.11

Interest coverage

Times

13.21

20.55

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit NA NA NA 20 NA CRISIL A-/Positive
NA Working capital facility NA NA NA 30 NA CRISIL A-/Positive
NA Bank guarantee NA NA NA 2.5 NA CRISIL A2+

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

Roto Pumps Mena, FZE

Fully Consolidated

Wholly owned subsidiary
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 50.0 CRISIL A-/Positive   -- 05-08-22 CRISIL A-/Stable   -- 27-07-20 Withdrawn CRISIL BBB+/Positive
Non-Fund Based Facilities ST 2.5 CRISIL A2+   --   --   -- 27-07-20 Withdrawn CRISIL BBB+/Positive
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 2.5 Bank of India CRISIL A2+
Cash Credit 10 Bank of Baroda CRISIL A-/Positive
Cash Credit 10 Bank of Baroda CRISIL A-/Positive
Working Capital Facility 20 DBS Bank India Limited CRISIL A-/Positive
Working Capital Facility 10 DBS Bank India Limited CRISIL A-/Positive
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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