Key Rating Drivers & Detailed Description

Strengths:

• Experienced Management and Long-standing Relationships with the clients: The top management consisting of the promoters Mr. Megharam Chaudhary, Mr. Jayantiram Chaudhary, Mr. Arun Kothari and Mr. Dhruv Patel has extensive experience of over a decade in the industry of steel pipes and tubes manufacturing. This has given them a strong understanding of the market dynamics and enabled them to establish healthy relationships with suppliers and customers. The same has also helped the company to grow its scale of operations significantly in the recent years. The company will continue to benefit from the established relationship with customers which in turn help the company to grow strongly going ahead.

• Improving scale of operations and healthy operating margins: The company’s scale of operations stood moderately healthy at Rs. 387 crores in fiscal 2022 increasing from modest Rs. 138 crores in fiscal 2019 supported by increasing capacity, successful ramp up in operations and increasing demand for its products. The company has already booked revenues of around Rs. 114 crores in Q1FY23 aided by stable demand and realisations. The company is planning to more than double its existing capacity along with addition of hollow pipe manufacturing unit in current fiscal which will support the growth in revenues going ahead over medium term. However, timely completion of capex and successful ramp up in operations will continue to remain monitorable.

The operating profitability has also improved significantly over fiscal 2022 and fiscal 2021 to around 11.7-13% from a low of around 6-6.7% during fiscal 2019 and fiscal 2020. The same has been supported by increasing scale of operations and better margin orders executed by the company. Also, with installation of hollow tune manufacturing unit, company will benefit from backward integration leading to sustenance of healthy operating margins going ahead.

• Healthy financial risk profile: The capital structure of the company is supported by comfortable gearing and total outside liabilities to total networth of 0.53 times and 0.93 times respectively as on March 31, 2022 aided by healthy networth of around Rs. 128 crores in fiscal 2022. The networth has increased significantly in Q1FY23 aided by successful raising of funds from recently concluded Initial Public Offering (IPO).

Also, the debt protection metrics are comfortable supported by interest coverage and net cash accrual to adjusted debt of 7.18 times and 0.48 times respectively as on March 31, 2022. The interest coverage has improved over past two fiscals aided by healthy growth in scale of operations and improving operating profitability.

The company has large capex plan over medium term for expanding its capacity and to manufacture new products. The same will be funded through funds raised through IPO, internal accruals and moderate external debt. The same will aid the company in increasing scale of operations going ahead. Despite the capex, the financial risk profile will continue to remain healthy over medium term as well aided by steady and healthy accretion to reserves and moderate debt levels. The debt protection metrics will also remain comfortable over medium term.

Weaknesses

• Competitive and fragmented nature of the industry: The industry constituting of steel pipes and manufacturing is highly fragmented and has very low entry barrier which makes it a very competitive industry. Both organized as well as the unorganized players are competing for the market share. This tends to reduce the pricing capability of the company as the market decides the price of the product.

• Large working capital requirement: The company has large working capital requirement with gross current assets (GCA) of 189 days on back of debtors and inventory of 69 days and 101 days respectively as on March 31, 2022. The company receives moderate credit period from its suppliers leading to higher dependence on bank limits for meeting its working capital requirement. However, with healthy accretions and expected increase in sanctioning of working capital limits will help the company to manage its increasing working capital requirement with increasing scale of operations. The efficient management of the same will remain key monitorable factor.

Key Financial Indicators

Annexure - Details of Instrument(s)

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