Rama Steel Tubes Ltd.

Brickwork Ratings Upgrades the ratings for the Bank Loan Facilities of Rs. 131.75 Crs. of Rama Steel Tubes Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (17 Nov 2020)	Present
Fund Based	70.00	81.75	Long Term	BWR BBB- /Stable Assignment	BWR BBB /Stable Upgrade
Non Fund Based	50.00	50.00	Short Term	BWR A3 Assignment	BWR A3 + Upgrade
Grand Total	120.00	131.75	(Rupees One Hundred Thirty One Crores and Seventy Five lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) has upgraded the long-term rating to BWR BBB with a Stable outlook and short-term rating to BWR A3+ for the bank loan facilities of Rama Steel Tubes Ltd (RSTL or the company).

The rating upgrade factors in significant improvement in the business and financial risk profile of RSTL in FY21 and H1FY22. Business profile has improved via an increase in overall capacity from 1,68,000 metric tonne per annum (MTPA) in FY20 to 2,28,000 MTPA in FY21 which has led to an increase in revenue and EBITDA. Financial risk profile has improved due to retention of profits and infusion of interest free unsecured loan by the promoters which has improved the capital structure and credit ratios (net debt to EBITDA in FY21 2.85x, FY20: 8.16x).

The rating continues to derive comfort from the company’s experienced promoters, established long track record of over four decades with a demonstrated execution capability, diversified product portfolio and geographical presence. However, these strengths are partially offset by the working capital intensive operations, susceptibility to cyclicality and fluctuation in raw material prices and intense competition in industry.

The Outlook is Stable on account of improvement in credit profile and improved demand outlook for various end-user sectors such as infrastructure, irrigation, telecom etc. RSTL has rolling orders from its customers through a distribution and dealership network, which provides revenue visibility in the medium term.

BWR has principally relied on the consolidated audited financial results of RSTL upto 31 March 2021, H1FY22 results and projected financials for FY22 and FY23, and publicly available information/ clarifications provided by the company’s management.

KEY RATING DRIVERS

Credit Strengths:

Substantial improvement in debt protection metrics and financial risk profile :
Debt coverage indicators, the interest service coverage ratio (ISCR) and debt service coverage ratio (DSCR), improved to 2.84x and 2.12x, respectively, in FY21 from 0.94x and 1.01x, respectively, in FY20. The analysed gearing improved to 0.79x in FY21 from 0.91x in FY20. TNW (Analysed) improved to Rs 103.66 crs in FY21 from Rs.89.99 crs in FY20 mainly due to retention of profits and infusion of interest free unsecured loan by the promoters of the company. The total operating income (TOI) improved by ~34.18% to Rs. 473.98 crs in FY21 from Rs. 353.23 crs in FY20. In H1FY22 the TOI stood at Rs. 331.29 Crs with a PAT of Rs. 17.49 crs (H1FY21 TOI-Rs. 177.35 crs and PAT Rs. 1.21 crs).
Established track record of operations and experienced management :
The company commenced its operations in 1974 and has a successful track record of more than four decades in the existing line of business. RSTL’s long track record and the extensive experience of promoters have helped establish relations with various stakeholders for its business. Furthermore, the promoters are assisted by a team of experienced professionals in managing the company’s daily business operations.
Diversified product portfolio and geographical presence :
The company manufactures and sells black pipes and tubes, galvanised pipes and tubes and poles. The products manufactured by the company find end use in real estate, defence, telecom, irrigation and infrastructure. The company has an established network of authorized dealers spread over North, South and West India. Also, the company is exporting its products to countries like Dubai, Ethiopia, Kenya, Ghana, Germany and the United Kingdom.
Moderate but improved profitability margins :
The operating profit margins (OPM) and net profit margins (NPM) improved to 4.61% and 2.61% respectively, in FY21 from 2.57% and 0.12%, respectively, in FY20. The profitability margins have improved due to increased TOI and better margins from steel pipes. The company expects to sustain these margins in coming years because their products find end use in sectors like infrastructure, real estate, telecom, irrigation etc which will grow in future.

Credit Risks:

Working capital intensive operations :
The operations of RSTL remained working capital intensive, supported largely by bank borrowings. The average utilisation of fund based and non fund based working capital limits of the company stood high around 67% and 79% respectively during the last 12 months ending 31st October 2021. The working capital cycle stood at 67 days in FY21 (FY20: 92 days).
Susceptibility to cyclicality and fluctuation in raw material prices :
The profitability is vulnerable to fluctuations in the prices of raw materials as the latter constitutes ~80% of the company’s operating expenses. Further the performance of the company is linked to the steel industry, with cyclical changes in demand and price volatility. The demand for steel products depends on the growth of primary end user segments such as infrastructure, irrigation and real estate. Any slowdown may in turn adversely affect the demand for steel products over the medium term.Low margins in this business does not allow the company to absorb any sudden shocks on the input or end product pricing.
Intense competition in the industry :
The steel industry is highly fragmented with the presence of both organized and unorganized players in the downstream segment providing similar products. Hence, the company faces competition from regional players leading to intense competition and pricing pressures, which in turn affect the profitability margins of the company. Nonetheless, RSTL has been able to mitigate this risk to an extent, benefitting from the established relationships with its customers and gradual adoption of latest technology.

ANALYTICAL APPROACH - Consolidated

For arriving at its ratings, BWR has applied its rating methodology as detailed in the rating criteria below (hyperlinks provided at the end of this rationale).BWR has analysed RSTL’s credit profile by considering consolidated financial statements of the company owing to financial and operational linkages between the parent and subsidiaries and common management. The entities considered in the consolidated financial statements are Lepakshi Tubes Private Limited and RST International Trading FZE. They are wholly owned subsidiaries of RSTL and are into a similar line of business.

RATING SENSITIVITIES

Upward: BWR may revise the ratings upward in the case of a sustained improvement in EBITDA alongwith sustenance of comfortable credit profile, and liquidity.

Downward: BWR may revise the rating downward in the case of a significant reduction in the scale of operations, operating margins, and/or deterioration in debt protection metrics.

LIQUIDITY INDICATORS - Adequate

The company has an adequate liquidity position. There are long-term secured borrowings from banks, amounting to Rs. 25.93 Crs, as on 31 March 2021. Against a current portion of long term debt (CPLTD) of Rs 3.42 Crs in FY21, the company had a cash accruals of Rs. 11.75 Crs in FY21. The company projected to generate cash accruals of Rs. 25.61 Crs in FY22 against a CPLTD of Rs. 3.59 Crs, thereby indicating an adequate liquidity position.

ABOUT THE ENTITY

Rama Steel Tubes Ltd (RSTL) was incorporated in 1974 by the late Shri. Harbans Lal Bansal and is currently managed by his son Mr. Naresh Kumar Bansal and grandson Mr. Richi Bansal. The company started its commercial operations in 1981 with an installed capacity of 10,000 metric tonnes per annum (MTPA) for the manufacturing of ERW steel tubes/ pipes in Sahibabad. It is engaged in manufacturing of Black Pipes and Tubes, Galvanised pipes and tubes and poles. It is also involved in trading of steel pipes through its subsidiary RST International Trading FZE. The company has a total production capacity of 2,28,000 MTPA as on September 30, 2021. It has three manufacturing facilities at Sahibabad, UP with installed capacity of 60,000 MTPA, Khopoli, Maharashtra with installed capacity of 1,32,000 MTPA and Anantapur, Andhra Pradesh with installed capacity of 36,000 MTPA. The company products find application in various industries such as real estate, defence, telecom, irrigation and infrastructure. It is listed on BSE and NSE. The promoter group holds 62.33% equity stake in the company and the remaining 37.67% is with the public, as on September 30, 2021.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	325.78	292.14
EBITDA	Rs.Crs.	11.08	6.31
PAT	Rs.Crs.	5.38	1.37
Tangible Net Worth	Rs.Crs.	88.45	83.02
Total Debt/Tangible Net Worth	Times	0.86	0.83
Current Ratio	Times	1.49	1.31

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

ANY OTHER INFORMATION

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	81.75	BWR BBB/Stable (Upgrade)	17Nov2020	BWR BBB- Stable (Assignment)	NA	NA	NA	NA
Non Fund Based	ST	50.00	BWR A3+ (Upgrade)	17Nov2020	BWR A3 (Assignment)	NA	NA	NA	NA
Grand Total		131.75	(Rupees One Hundred Thirty One Crores and Seventy Five lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Shivam Bhasin Senior Rating Analyst shivam.b@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Rama Steel Tubes Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Axis Bank Ltd.	Cash Credit - Sanctioned	20.00	_	20.00
2	Axis Bank Ltd.	Bank Guarantee - Sanctioned	_	11.00	11.00
3	Axis Bank Ltd.	Emergency Credit Line Guarantee Scheme (ECLGS) - Sanctioned	3.60	_	3.60
4	Axis Bank Ltd.	ILC/FLC - Sanctioned	_	14.00	14.00
5	Canara Bank	ILC/FLC - Sanctioned	_	8.00	8.00
6	Canara Bank	Term Loan - Sanctioned	4.33	_	4.33
7	Canara Bank	GECL - Sanctioned	2.99	_	2.99
8	Canara Bank	GECL - Sanctioned	1.50	_	1.50
9	Canara Bank	Bank Guarantee - Sanctioned	_	7.00	7.00
10	Canara Bank	Cash Credit - Sanctioned	15.00	_	15.00
11	HDFC Bank	Cash Credit - Sanctioned	25.00	_	25.00
12	HDFC Bank	Bank Guarantee - Sanctioned	_	10.00	10.00
13	HDFC Bank	GECL - Sanctioned	4.65	_	4.65
14	Others	GECL - Proposed	4.68	_	4.68
Total			81.75	50.00	131.75
TOTAL (Rupees One Hundred Thirty One Crores and Seventy Five lakhs Only)

ANNEXURE-III

List of entities consolidated

Name of Entity	% Ownership	Extent of consolidation	Rationale for consolidation
Lepakshi Tubes Pvt Ltd	100	Full Consolidation	Due to financial and operational linkages between the parent and subsidiaries, common management and fungible cash flows.
RST International Trading FZE	100	Full Consolidation	Due to financial and operational linkages between the parent and subsidiaries, common management and fungible cash flows.

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports 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 Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR 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 Rating Rationales or Rating Reports. Each BWR Party disclaims 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 BWR Party be liable to any one 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 Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR 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 BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.