Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 12.00 ACUITE BB+ | Stable | Reaffirmed -
Bank Loan Ratings 23.00 - ACUITE A4+ | Reaffirmed
Total Outstanding Quantum (Rs. Cr) 35.00 - -
 
Rating Rationale

­Acuité has reaffirmed its long-term rating of ‘ACUITE BB+’ (read as ACUITE double B plus) and the short term rating of 'ACUITE A4+' (read as ACUITE A four plus) on the Rs.35.00 crore bank facilities of Grip Engineers Private Limited (GEPL). The outlook is 'Stable'.

Rationale for rating reaffirmation:
The ratings reaffirmation factors in the stable  operating performance of GSTPL marked by improving revenue and range bound operating margins. The company's revenue has recorded 35 percent YOY growth during FY23(Provisionals) as it stood at Rs.61.43Cr as against Rs.45.98Cr in FY22. EBITDA margin of the company has been declining over the past three years, EBITDA margin stood at 4.52 percent during FY23 (Prov.) against 4.87 percent in FY22. The financial risk profile of the company continues to be moderate with moderate networth position, capital structure and coverage indicators. The ratings are, however  constrained by  intensive working capital operations and susceptibility of profitability margins  to the raw material changes and price negotiations. Going forward, the company's ability to sustain the growth in revenue while improving its operational margins and working capital operations will be a key rating monitorable.

About the Company

­GEPL was set up in 1982 as a partnership firm and commenced business as a trader for selling various types of cranes, electric hoists, elevators among others. Subsequently, it is converted into private limited in 1988 and started its manufacturing unit at Faridabad in 1992. GEPL is engaged in manufacturing items like EOT cranes, goliath cranes, jib cranes, different types of electric hoists, among others. These cranes are majorly used in the steel, power, construction, ports, cement industries among others. GEPL has two manufacturing units one in Faridabad (Haryana) and one in Medchal (Telangana)
 
Analytical Approach

­Acuité has considered the standalone business and financial risk profile of GEPL to arrive at the rating
 

Key Rating Drivers

Strengths

­Experienced management and long operational track record
GEPL was established in 1982 by the promoters, Mr. Hemant Lajpal, Mr. M Mani, Mr. Dwarakesh Lajpal, and Mr. Ranjit Arya. All the promoters have over three decades of experience in the crane manufacturing industry. The directors are well supported by the other professional team. Longstanding presence of nearly three decades, which helped to build healthy relationships with its suppliers and customers to ensure a steady raw material supply and repeat business. The company has a reputed customer base like Tata Projects Ltd, Megha Engg & Infrastructure Ltd, and Bharat Heavy Electrical Ltd among others. Acuité believes that the promoter's experience, vintage of operations, reputed clientele are expected to support in improvement of its business risk profile over the medium term.

Moderate Financial Risk Profile
The financial risk profile of GEPL is moderate marked by moderate capital structure and debt protection metrics. Company’s Net worth stood at Rs.14.25Cr as on March 31, 2023 (Prov.) against Rs.13.70Cr during previous year. Growth in net worth is primarily due to accretion of profits to reserves. The capital structure is moderate as observed from the gearing of 0.81 times as on March 31, 2023 (Prov.) against 0.65 times during the previous year. Total outside liabilities to total net worth was at 1.77 times as on March 31, 2023 (Prov.) against 1.49times during the previous year. Debt protection metrics improved slightly during FY23. Interest coverage ratio (ICR) stood at 1.83 times as on March 31, 2023 against 1.65times during the previous year.  Debt service coverage ratio (DSCR)improved to 1.16 times as on March 31, 2023 (Prov.) against 0.83 times during the previous year. Total outside liabilities to tangible networth stood at 1.77 times during FY23 (Prov.) against  1.49 times during previous year. Debt to EBITDA slightly deteriorated to 4.18 times as on March 31, 2023 from 3.99 times of previous year. Acuite believes that financial risk profile of the company is expected to remain moderate in absence of major capex plans in medium term.

Weaknesses

Moderate intensive working capital operations:
The working capital operations of the company are moderately intensive marked by GCA days of 181 days in FY23 (Prov.) improved from 207 days in FY22. Improvement in GCA days is primarily attributable to decline in inventory holding period. Inventory days stood at 82 days during FY23 against 120 days in previous year. Inventory mainly includes work-in-progress. Debtor days stood at 93 days during FY23 against 81 days during FY22. Generally, GEPL allows 60-90 days of credit period for its customers, the credit period allowed varies among customers. Further, the company also has to maintain retention money of 10% which takes 6 months to 2 years for realization. Creditor days stood at 67 days for FY23 against 92 days during previous year. GEPL enjoys 60 -90 days of credit period with its suppliers. Acuite believes that ability of the company to efficiently manage its working capital cycle will remain a key rating sensitivity.

Susceptibility of margins to fluctuations in raw material prices and Stiff Competition:
The operating cycle/inventory conversion period for manufacturing crane (including designing) is around three to twelve months. The lengthy operating cycle keeps the margins vulnerable to fluctuations in steel prices due to the fixed-price nature of contracts with its customers. Though the company has a diversified customer base across industries, the performance is susceptible to cyclicality in investments by the end user industries. The diversification protects the company to some extent from a slowdown in demand prospects of any particular industry. Further Indian crane industry is largely fragmented and faces stiff competition from established foreign as well as domestic players which sometimes results in lower price quotations for the customers and yeilds less margins.

Rating Sensitivities

  • ­Significant improvement in scale of operations, while maintaining profitability margins

  • Any large debt-funded capital expenditure, resulting in deterioration of financial risk profile

  • Improvement in working capital management and liquidity position
 
Material covenants
­None
 
Liquidity Position : Adequate

GEPL’s liquidity position is adequate which is evident from the sufficient net cash accruals (NCA) against moderate debt repayment obligations and moderate- healthy current ratio. The company has reported NCA’s of Rs.1.01Cr during FY23 (Prov.) against debt repayment obligations of Rs.0.65Cr for the same period. Going forward NCA’s are expected to be in the range of Rs.2-3.5Cr in the medium term with relatively lower repayment obligations of Rs.0.62Cr to 0.15Cr for the same period.  The company’s working capital operations are moderately intensive which is reflected by GCA days of 181 days as on March 31, 2023 (Prov.), current ratio of the company stood at1.36 times during FY23 (Prov.).  Unencumbered cash and bank balances stood Rs.0.41Cr as on March 31, 2023 (Prov.). The average bank limits utilization for the past 12 months stood at ~64 percent ending May, 2023.
Acuite believes that liquidity position is expected to be adequate on account of sufficient cash accruals against repayment obligations
 
Outlook: Stable

­Acuité believes that GEPL will maintain a stable outlook over the medium term owing to its experienced management and established relationship with customers. The outlook may be revised to 'Positive' in case the company registers healthy growth in revenues while achieving sustained improvement in profitability. Conversely, the outlook may be revised to 'Negative' in case of high debt-funded capex than expectation leading to deterioration in the financial risk profile and elongation of the working capital cycle impacting its liquidity profile.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 23 (Provisional) FY 22 (Actual)
Operating Income Rs. Cr. 61.43 45.98
PAT Rs. Cr. 0.55 0.22
PAT Margin (%) 0.90 0.48
Total Debt/Tangible Net Worth Times 0.81 0.65
PBDIT/Interest Times 1.82 1.65
Status of non-cooperation with previous CRA (if applicable)

GEPL has not cooperated with  Crisil ratings, which has rated the company to CRISIL B/Stable/A4 as Non- cooperative through a press release dated 21-04-2023. The reason provided by Crisil Rating is non furnishing  of information for monitoring of ratings.
 
Any other information
­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm
• Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Complexity Level Of Financial Instruments: https://www.acuite.in/view-rating-criteria-55.htm
Note on complexity levels of the rated instrument

­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
28 Apr 2022 Letter of Credit Short Term 19.00 ACUITE A4+ (Reaffirmed)
Cash Credit Long Term 9.00 ACUITE BB+ | Stable (Reaffirmed)
Working Capital Demand Loan Long Term 0.15 ACUITE BB+ | Stable (Reaffirmed)
Proposed Bank Facility Long Term 1.63 ACUITE BB+ | Stable (Reaffirmed)
Bank Guarantee Short Term 4.00 ACUITE A4+ (Reaffirmed)
Working Capital Term Loan Long Term 1.22 ACUITE BB+ | Stable (Reaffirmed)
04 Sep 2020 Working Capital Term Loan Long Term 1.59 ACUITE BB+ | Stable (Assigned)
Letter of Credit Short Term 19.00 ACUITE A4+ (Assigned)
Cash Credit Long Term 9.00 ACUITE BB+ | Stable (Assigned)
Working Capital Demand Loan Long Term 0.90 ACUITE BB+ | Stable (Assigned)
Bank Guarantee Short Term 4.00 ACUITE A4+ (Assigned)
Proposed Bank Facility Long Term 0.51 ACUITE BB+ | Stable (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Canara Bank Not Applicable Bank Guarantee/Letter of Guarantee Not Applicable Not Applicable Not Applicable 4.00 Simple ACUITE A4+ | Reaffirmed
Canara Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 9.00 Simple ACUITE BB+ | Stable | Reaffirmed
Canara Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 19.00 Simple ACUITE A4+ | Reaffirmed
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 1.41 Simple ACUITE BB+ | Stable | Reaffirmed
Canara Bank Not Applicable Working Capital Term Loan Not available Not available Not available 1.59 Simple ACUITE BB+ | Stable | Reaffirmed

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