Rating Rationale
February 18, 2020 | Mumbai
Universal Cables Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.1694.37 Crore (Enhanced from Rs.1444.37 Crore)
Long Term Rating CRISIL A/Positive (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
 
Rs.100 Crore Commercial Paper CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities and commercial paper of Universal Cables Limited (UCL; part of the MP Birla group) at 'CRISIL A/Positive/CRISIL A1'.
 
The ratings continue to reflect the strong technical and financial support that UCL enjoys from the MP Birla group; established track record in the cables business backed by strong market presence in the extra-high voltage (EHV) cables segment; high medium-term revenue visibility and comfortable capital structure. These strengths are partially offset by large working capital requirement, moderate interest coverage ratio, and susceptibility to changes in government policy.

Analytical Approach

To arrive at the ratings, CRISIL has factored in support from the MP Birla group, as it has common promoters and extends financial support when needed. Furthermore, the company is critical to the group as it is one of the largest players in the EHV cables sector and has a strong market position in the electrical cables segment.

Key Rating Drivers & Detailed Description
Strengths
* Technical and financial support from the MP Birla group:
The group manufactures cement, power cables, and optical fiber cables; and undertakes engineering, procurement, and construction (EPC) contracts in the transmission and telecom industry. It holds 62% stake in UCL. During 2012-15, when the power industry was facing headwinds and UCL incurred losses, the group funded the company's losses and incremental working capital requirement. It had extended inter corporate deposits (ICDs) of Rs 175 crore as on March 31, 2015. With improvement in the industry and in UCL's performance, ICDs declined to Rs 78 crore as on March 31, 2017. However, they increased again in fiscal 2019 to Rs 123 crore to fund incremental working capital requirement. The company has also benefitted from the technical support that the group has provided over the years. The ratings centrally factor in the timely support from the MP Birla group, which is likely to continue over the medium term. More-than-expected delay or shortfall in support will remain a key sensitivity factor.
 
* Established track record in cable manufacturing
UCL has been manufacturing power cables and capacitors for five decades across all major segments such as EHV, low-voltage cable, medium-voltage cables, and rubber cables. The company is an approved cable vendor for major state electricity boards and also has presence in Bangladesh and Mauritius. It is a dominant player in the EHV segment and has also entered turnkey contracts from pure-play supply of EHV, which strengthens its market position.
 
* Strong revenue visibility backed by healthy orders
Turnover increased 20% in fiscal 2019 to Rs 1416 crore. Sales were Rs 801.6 crore in the first-half of fiscal 2020, supported by change in government policy regarding power distribution, Smart City projects, and underground cable lines in metro cities. Revenue growth is expected to continue over the medium term with healthy orders of Rs 1552 crore.
 
* Comfortable capital structure
Networth was large at Rs 425 crore and comfortable gearing of 1.28 times, as on March 31, 2019. The company brought in equity of Rs 57.00 crore in fiscal 2016 to support working capital requirement. Total outside liabilities to tangible networth (TOLTNW) ratio increased slightly and remained moderate at 2 times as on March 31, 2019 as compare to 1.7 times two years ago on account of increase in working capital requirement.
 
Weaknesses
* Working capital-intensive operations
Gross current assets were 242 days as on March 31, 2019, because of high receivables of 159 days. This is because majority of the clients (largely state or Central government entities) receive credit of 90 days, and payments are stretched further. The company also maintains inventory of 60 days (30 days for raw material and the rest in finished goods) and some work-in-progress for EPC projects. Though UCL gets supplier credit (95 days as on March 31, 2019), this is not sufficient to meet incremental working capital requirement. Cash flow was negative in four of the past five fiscals, leading to dependence on working capital debt.
 
* Moderate debt protection metrics
Interest coverage ratio was 2.8 times in fiscal 2019 because of working capital debt, interest-bearing corporate borrowings, and bank charges related to non-fund-based facilities. It is expected to improve with better revenue and profitability. Net cash accrual to total debt ratio was comfortable at 0.15 time in fiscal 2019.
Liquidity Strong

Cash accrual of Rs 73-85 crore will be sufficient to repay term debt of Rs 21-27 crore, annually, in fiscals 2020 and 2021. Moderate bank limit utilisation of 86% for the 8 months through December 2019. Current ratio was comfortable at 1.4 times as on March 31, 2019. Unsecured loans from the group (Rs 123 crore as on March 31, 2019, against Rs 93 crore in the previous year) also support liquidity.

Outlook: Positive

CRISIL believes UCL will continue to benefit from its strong order book, established presence, improving financial risk profile, and support from the MP Birla group.

Rating Sensitivity Factors
Upward Factor
*Significant growth in revenue with stable operating margin
*Improvement in interest coverage to beyond 3.5 times with reduced dependence on outside borrowings
*Improvement in working capital cycle

Downward Factor
*Steep decline in revenue and operating margin
*Sizeable debt-funded capital expenditure (capex) weakening credit metrics (on net basis)
*Increase in working capital requirement affecting liquidity.

About the Company

Established in 1962, UCL manufactures power cables and capacitors for the power industry and rubber cables for original equipment manufacturers and other industries, such as the Railways, steel plants, petrochemical plants, cement plants, oil rig manufacturers, ship building, and mining. Power cables are sold under the Unistar brand. The company also has a technical collaboration with Furukawa Electric Company Ltd, Japan, in the EHV cable sector and adopts the vertical continuous vulcanisation and pressurised liquid salt bath curing technologies to manufacture power and rubber cables, respectively. UCL has two plants, one each in Satna, Madhya Pradesh, and Goa. It is listed on the Bombay Stock Exchange.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 1416.55 1186.4
Profit After Tax (PAT) Rs crore 69.0 41.9
PAT Margin % 4.87 3.5
Adjusted debt/adjusted networth Times 1.28 1.2
Interest coverage Times 2.8 2.0

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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.Cr)		 Rating assigned with outlook
NA Bank Guarantee NA NA NA 780 CRISIL A1
NA Capex Letter of Credit NA NA NA 13.5 CRISIL A1
NA Cash Credit NA NA NA 400 CRISIL A/Positive
NA Foreign Exchange Forward NA NA NA 14 CRISIL A1
NA Inland/Import letter of Credit NA NA NA 125 CRISIL A1
NA Long Term Loan NA NA 31-Dec-20 50.16 CRISIL A/Positive
NA Commercial paper NA NA 7-365 days 100 CRISIL A1
NA Proposed Short Term Bank Loan Facility NA NA NA 250 CRISIL A1
NA Proposed Long Term Bank Loan Facility NA NA NA 61.71 CRISIL A/Positive
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  100.00  CRISIL A1      22-02-19  CRISIL A1  06-03-18  CRISIL A1  30-12-17  CRISIL A1  -- 
            04-01-19  CRISIL A1  27-02-18  CRISIL A1       
                08-01-18  CRISIL A1       
Fund-based Bank Facilities  LT/ST  775.87  CRISIL A/Positive/ CRISIL A1      22-02-19  CRISIL A/Positive/ CRISIL A1  06-03-18  CRISIL A/Stable/ CRISIL A1    --  -- 
            04-01-19  CRISIL A/Positive/ CRISIL A1  27-02-18  CRISIL A/Stable/ CRISIL A1       
Non Fund-based Bank Facilities  LT/ST  918.50  CRISIL A1      22-02-19  CRISIL A1  06-03-18  CRISIL A1    --  -- 
            04-01-19  CRISIL A1  27-02-18  CRISIL A1       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 780 CRISIL A1 Bank Guarantee 780 CRISIL A1
Capex Letter of Credit 13.5 CRISIL A1 Capex Letter of Credit 13.5 CRISIL A1
Cash Credit 400 CRISIL A/Positive Cash Credit 400 CRISIL A/Positive
Foreign Exchange Forward 14 CRISIL A1 Foreign Exchange Forward 14 CRISIL A1
Inland/Import Letter of Credit 125 CRISIL A1 Inland/Import Letter of Credit 125 CRISIL A1
Long Term Loan 50.16 CRISIL A/Positive Long Term Loan 111.87 CRISIL A/Positive
Proposed Short Term Bank Loan Facility 250 CRISIL A1 -- 0 --
Proposed Long Term Bank Loan Facility 61.71 CRISIL A/Positive -- 0 --
Total 1694.37 -- Total 1444.37 --
Links to related criteria
CRISILs Approach to Financial Ratios
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support
The Rating Process
Understanding CRISILs Ratings and Rating Scales

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

 Nitin Kansal
Director - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2154
nitin.kansal@crisil.com

Himank Sharma
Associate Director - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2152
Himank.Sharma@crisil.com

Kishan Gupta
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2177
Kishan.Gupta@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL