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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 311.87 | ACUITE A- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 350.00 | - | ACUITE A2+ | Reaffirmed |
| Bank Loan Ratings | 60.00 | - | ACUITE A2+ | Assigned |
| Bank Loan Ratings | 78.88 | ACUITE A- | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 800.75 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed and assigned the long term rating of ‘ACUITE A-’ (read as ACUITE A minus) and the short term rating of ‘ACUITE A2+’ (read as ACUITE A two plus) on the Rs. 800.75 crore bank facilities of Utkarsh India Limited (UIL). The outlook remains ‘Stable’.
The rating of UIL factors sustainable growth in turnover and a sustained improvement in capacity utilization, led by continued network expansion and increase in realizations in FY2022. The rating draws comfort from UIL’s strong market position in the steel processing and pipes segments in India and its promoter background with an experience of more than three decades in the industry. The financial risk profile has remained healthy, with gearing below unity and improved debt coverage indicators, because of the consistent increase in the networth, and healthy cash accruals over the years. The adequate liquidity position of the company, which is shown by unutilized lines of fund based limits, also provides further comfort to the rating. The rating also factors in reputed client profile of the company supported by healthy and sustained volume growth in production, coupled with increase in realizations and increasing demand in the industry, providing revenue visibility over the medium term. These strengths are however, partly offset by the working capital intensity in the operations and susceptibility of operating performance to volatility in raw material prices. |
| About the Company |
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UIL (formerly known as Utkarsh Tubes & Pipes Limited), promoted by Kolkata-based Mr. Sadhuram Bansal, commenced operations in 1987. The company initially started with production of mild sheets and galvanised iron ERW pipes. Over the years, the company has diversified its product lines and currently has product profile across seven verticals namely MS, GI pipes, transmission and telecom towers, poles, crash barriers, and PVC and high-density polyethylene (HDPE) pipes. Currently the operations are managed by the second generation led by Mr. Sunil Kumar Bansal and his son, Mr. Utkarsh Bansal.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of UIL to arrive at this rating. |
Key Rating Drivers
| Strengths |
| Experienced management and established relationship with customers
The company has a long track record of over three decades in steel processing and pipes industry. The key promoter, Mr. Sunil Bansal, possesses a vast experience of nearly around three decades in the industry. Currently, he and his son, Mr. Utkarsh Bansal are actively involved in the day to day operations of the company. The long track record and the extensive experience of the promoters have resulted in establishing UIL as a popular brand in the domestic market. The management over the years has diversified its product profile into different segments, with presence in GI pipes, polyvinyl chloride (PVC) pipes, towers, poles, and crash barriers. Acuité believes that its established market presence and the promoter’s vast experience has enabled the company to build healthy relationships with customers and secures repeat orders. The company has exposure in diverse sectors like power, telecom and, Railways and has a wide customer base consisting of reputed and renowned customers such as Power Grid Corporation of India, BCPL Railways Infrastructure Limited, Duferco Asia PTE Ltd, to name a few. Also, companies like Larsen & Toubro Limited, Kalpataru Power Transmission Ltd, Reliance Jio Infocomm Limited have given orders to the company. Hence, there is no client concentration risk. Acuité derives comfort from the long experience of the management and believes this will benefit the company going forward, resulting in steady growth in the scale of operations. Improvement in the scale of operations UIL clocked in strong revenue performance across major business segments in spite of inflationary cost-push during FY22. The strong business profile, together with regular, yet calibrated, capex undertaken over the years for capacity expansion, has helped UIL scale up its revenues as well as improving operational efficiencies along with volume-driven cost efficiencies. The company reported revenue of Rs.1508.41 Cr in FY2022 as compared to Rs. 925.34 Cr in the previous year. Further, the company has already achieved Rs. 771 Cr. till August 2022 (Provisional). The increase in volume (especially in steel pipes, steel poles, W Beam cash barrier) backed by improvement in price realisations led to a significant year-on-year revenue growth of around 63 per cent in FY 2022. Acuité believes company will post strong revenue growth in FY23 on account of strong execution of outstanding orders. However, the operating margin moderated to 6.20 per cent in FY2022 from 7.84 per cent in FY2021, owing to rise in cost of raw materials, particularly during Q4FY22 on account of geopolitical issues. The major raw materials are H.R. Ingot (69%), zinc ingot and PVC resin and the prices of all these materials witnessed a significant spike. Since raw material costs account for ~81 per cent of total production cost, even a slight variation in rates of raw materials drastically impacts the profitability. This is also mitigated to an extent as the company is able to pass on the fluctuations in raw material prices albeit with a time-lag. The PAT margin of the company increased to 1.90 per cent in FY2022 from 1.50 per cent in FY2021, owing to better absorption of depreciation and interest cost. Acuité does not expect any significant deterioration in the company’s operating profits as PVC pipes prices remain remunerative on account of augmented demand in the industry. Above average financial risk profile The company’s above average financial risk profile is marked by healthy networth base, comfortable gearing and moderate debt protection metrics. The tangible net worth of the company improved to Rs.290.11 crore as on March 31, 2022 from Rs.261.66 crore as on March 31, 2021 due to accretion of reserves. Acuité has considered unsecured loans of Rs.48.37 Cr as on March 31, 2022, as quasi-equity as the management has undertaken to maintain the amount in the business over the medium term. Gearing of the company improved to 0.84 as on March 31, 2022 as compared to 0.92 as on March 31, 2021, on account of regular repayment of term loans and improved accruals. The company had undertaken capex to increase the capacity of the crash barrier and steel pipes, mainly funded by internal accruals. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.76 times as on March 31, 2022. The surge in earnings in FY2022 supported by high accruals led to improvement of the debt protection metrics of the company with Interest Coverage Ratio at 2.23 times as on March 31, 2022. The Debt Service Coverage Ratio stood moderate at 1.14 times as on March 31, 2022. Net Cash Accruals/Total Debt (NCA/TD) stood low at 0.17 times as on March 31, 2022. Any sharp improvement in the debt coverage indicators would act a positive bias to the rating. Acuité believes that going forward the financial risk profile of the firm will remain healthy with no major debt funded capex plans. |
| Weaknesses |
| Working capital intensive nature of operations
The working capital management of the company has improved in FY22, although marked by Gross Current Assets (GCA) of 140 days in 31st March 2022 as compared to 176 days on 31st March 2021 with increased efficiencies in receivable cycle and inventory management. The inventory period reduced to 93 days on 31st March 2022 as compared to 114 days on 31st March 2021. However, the company deliberately held high level of RM inventory to mitigate commodity price risk as the prices of key raw materials have gone up by over 30-40% during last quarter of FY22, on account of geo political issues. Further, the inventory levels of the company have been historically high owing to the lengthy order execution cycle, which entails multiple inspections at various stages of execution. Moreover, the debtor period also improved to 45 days as on 31st March 2022 as compared to 62 days as on 31st March 2021. Acuité believes that the working capital operations of the company will remain at same levels as evident from the high inventory level and efficient collection mechanism over the medium term. |
| ESG Factors Relevant for Rating |
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The metal production and processing industry has a substantial environmental impact. The processes are power-intensive and most steel is still produced with blast furnaces, leading to significant GHG and particulate matter emissions. The other material environmental factors in the industry are waste disposal practices, efficient water utilization and minimizing water pollution. Occupation and workforce health & safety management are of primary importance to this industry given the nature of operations. Furthermore, reliable product quality, community relations, inclusive development and human rights concerns are other crucial social factors. From the governance perspective, factors such as ethical business practices, management compensation and board functioning hold primary importance within this industry. Likewise, regulatory compliance, shareholder’s rights and audit control are other material issues to the industry. UIL supports community development through CSR projects mainly aimed at promotion of education, eradication of hunger, malnutrition, poverty and animal welfare. The company is ISO-9001:2015 certified implying adequate quality of products supplied by it. The company’s board has nine directors with one female director and only one independent director, reflecting limited diversity.
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| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Adequate |
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The company’s liquidity is adequate marked by the net cash accruals stood at Rs.42.42 Cr in March 31, 2022 as against long term debt repayment of Rs.31.71 Cr over the same period. The fund based limit remained utilized at ~70.42 per cent over ten months ended July, 2022. The cash and bank balances of the company stood at Rs.20.32 crores as on March 31, 2022. The current ratio stood moderate at 1.36 times as on March 31, 2022 as compared to 1.40 times as on March 31, 2021. However, working capital intensive management of the company is marked by Gross Current Assets (GCA) of 140 days in 31st March 2022 as compared to 176 days in 31st March 2021. The company has Rs. 19-20 Cr capex plans for the FY2023 to further increase its existing capacities in order to cope up with the surge in demand, which will be funded by term loan of Rs. 10 Cr. and balance through internal accruals and surplus cash, yet the liquidity position is expected to remain comfortable. Acuité believes that going forward the company will continue to maintain adequate liquidity position owing to steady accruals backed by improvement in earnings led by high demand.
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| Outlook: Stable |
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Acuité believes the outlook of UIL will remain ‘Stable’ over the medium term backed by its long track record of operations, strong business profile, healthy order book and comfortable financial risk profile. The outlook may be revised to ‘Positive’ if the company is able to stabilize its profitability parameters along with an improvement in its debt protection indices. Conversely, the outlook may be revised to ‘Negative’ in case of deterioration in the company’s financial risk profile and liquidity position or further deterioration in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 1508.41 | 925.34 |
| PAT | Rs. Cr. | 28.60 | 13.89 |
| PAT Margin | (%) | 1.90 | 1.50 |
| Total Debt/Tangible Net Worth | Times | 0.84 | 0.92 |
| PBDIT/Interest | Times | 2.23 | 1.76 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
| https://www.acuite.in/view-rating-criteria-55.htm |
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