Rating Rationale
February 22, 2019 | Mumbai
Universal Cables Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.1444.37 Crore
Long Term Rating CRISIL A/Positive
Short Term Rating CRISIL A1
 
Rs.100 Crore Commercial Paper CRISIL A1
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL ratings on the bank facilities and commercial paper of Universal Cables Limited (UCL; part of the MP Birla group)continue to reflect the strong technical and financial support 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; and high medium-term revenue visibility. These strengths are partially offset by working capital-intensive operations, moderate interest coverage ratio, and susceptibility to changes in government policy.
 
CRISIL had on January 4th 2019, revised the outlook to 'Positive' from 'Stable' while reaffirming the ratings at 'CRISIL A/CRISIL A1' on the bank facilities of UCL.

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 industry 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 fibre cables; and undertakes EPC contracts in the transmission/telecom industry. It holds 62% stake in UCL. From 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 industry scenario and in UCL's performance, ICDs declined to Rs 78 crore as on March 31, 2017. However, they increased in fiscal 2018 to Rs 93 crore to fund incremental working capital requirement. The company has also benefitted from the technical support the group has provided to it over the years. The rating centrally factors 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. It manufactures power cables for 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
Revenue increased 45% in fiscal 2018 to Rs 1,186.4 crore. Sales were Rs 639.2 crore in the first-half of fiscal 2019, supported by change in government policy regarding power distribution, smart city projects, and underground cable lines in metro cities. Turnover growth is expected to continue over the medium term with healthy orders of Rs 1,069 crore.

* Comfortable financial risk profile
Networth was large at Rs 336 crore and comfortable gearing of1.2 times, as on March 31, 2018. The company brought in equity of Rs 57.00 crore in fiscal 2016 to support working capital requirement. Further, though interest coverage was moderate at 2.0 times as on March 31, 2018, CRISIL expects it to improve to 2.2-2.4 times in near term due to revenue growth and improvement of profitability.

Weaknesses
* Working capital-intensive operations
Gross current assets were 231 days as on March 31, 2018, because of stretched receivables of 161 days. This is because majority of 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-day raw material and the rest finished goods) and some work-in-progress for EPC projects. Though UCL gets supplier credit (104 days as on March 31, 2018 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 moderate at 2.0 times in fiscal 2018 because of working capital debt, interest-bearing corporate borrowings, bank charges related to non-fund-based facilities, and moderate profitability. Ratio is expected to improve with better revenue and profitability. Net cash accrual to total debt ratio was comfortable at 0.16 time in fiscal 2018.
Liquidity

Liquidity is adequate, reflected in moderate bank limit utilisation of 69% for the past 8 months ended November 2018. Cash accrual of Rs 65-75 crore will be sufficient to repay term debt of Rs 20-30 crore annually in fiscals 2019 and 2020. Current ratio was comfortable at 1.3 times as on March 31, 2018. Unsecured loans from the group (Rs 93 crore as on March 31, 2018, against 78 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.

Upgrade scenario
* Significant growth in revenue profile while sustaining operating margin
* Improvement in financial risk profile with reduced dependence on outside borrowings
* Any upward revision in group ratings

Downside scenario
* Steep decline in revenue and operating margin
* Sizeable debt-funded capex weakening credit metrics (on net basis)
* Increase in working capital requirement affecting liquidity
* Any downward revision in group ratings.

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.

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 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 2018 2017
Revenue Rs Cr. 1186.4 816.1
Profit After Tax (PAT) Rs Cr. 41.9 29.1
PAT Margins % 3.5 3.6
Adjusted debt/adjusted networth Times 1.2 1.15
Interest coverage Times 2.0 1.7

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 31/12/20 111.87 CRISIL A/Positive
NA Commercial Paper NA NA 7-365 days 100 CRISIL A1
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  100.00  CRISIL A1  04-01-19  CRISIL A1  06-03-18  CRISIL A1  30-12-17  CRISIL A1    --  -- 
            27-02-18  CRISIL A1           
            08-01-18  CRISIL A1           
Fund-based Bank Facilities  LT/ST  525.87  CRISIL A/Positive/ CRISIL A1  04-01-19  CRISIL A/Positive/ CRISIL A1  06-03-18  CRISIL A/Stable/ CRISIL A1    --    --  -- 
            27-02-18  CRISIL A/Stable/ CRISIL A1           
Non Fund-based Bank Facilities  LT/ST  918.50  CRISIL A1  04-01-19  CRISIL A1  06-03-18  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 722 CRISIL A1
Capex Letter of Credit 13.5 CRISIL A1 Capex Letter of Credit 8.5 CRISIL A1
Cash Credit 400 CRISIL A/Positive Cash Credit 392.87 CRISIL A/Positive
Foreign Exchange Forward 14 CRISIL A1 Foreign Exchange Forward 4 CRISIL A1
Inland/Import Letter of Credit 125 CRISIL A1 Inland/Import Letter of Credit 230 CRISIL A1
Long Term Loan 111.87 CRISIL A/Positive Long Term Loan 87 CRISIL A/Positive
Total 1444.37 -- 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

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