Oswal Pumps Ltd

Brickwork Ratings reaffirms the ratings with a change in outlook for the enhanced Bank Loan Facilities of Rs. 90.50 Crs. of Oswal Pumps Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (20 Jan 2021)	Present
Fund Based	53.25	55.00	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Stable to Positive Reaffirmation and change in Outlook
	(5.00)	(0.00)	Short Term	BWR A3 Reaffirmation	_
	(5.00)	(0.00)
	(1.25)	(0.00)
Non Fund Based	3.00	35.50	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	56.25	90.50	(Rupees Ninety Crores and Fifty 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 reaffirmed the rating assigned to the long-term bank facilities at BWR BBB-, while changing the outlook from ‘Stable’ to ‘Positive’; and also reaffirmed the rating assigned to the short-term bank facilities at BWR A3, for Oswal Pumps Limited (OSL or the company).The reaffirmation of the ratings takes into account the experienced management team, improved profitability margins and solvency position in FY21, coupled with an increase in scale of operations. The ratings are, however, constrained by the working capital intensive nature of operations, susceptibility of its profitability margins to volatile raw material prices & forex rates, and intense competition in the pumps manufacturing industry.

Outlook: Positive

The ‘Positive’ outlook indicates a high likelihood of positive rating change over the medium term owing to the association of the company with TATA Powers (TATA) for supply of pumps for its projects to be executed in India. In FY21, the revenue contribution from TATA stood at Rs.47 Crs (~23% of the total operating income), while it remained at Rs.50 Crs. in FY22 (till Q3FY22; 25% of the total operating income). Tie-up with TATA (done in FY21) and possible associations with other prominent players in the market are expected to result in a substantial increase in the operating income and cash accrual generation of the company, which shall also result in its improved solvency and liquidity profile. The outlook may be revised to ‘Stable’ in case of lower than envisaged improvement in its total operating income and profitability or any major increase in debt levels, resulting in deterioration in the leverage or debt coverage indicators of the company.

KEY RATING DRIVERS

Credit Strengths:

• Experienced Management :

  The promoters of the company i.e. Rajev Gupta, Vivek Gupta and Padam Sen Gupta have more than a decade of experience in the business of pumps and electrical motors. Long experience in the market has led to healthy business relationships with the customers and the suppliers.

• Increase in revenues :

  The total operating income of the company has improved to Rs.204.48Crs in FY21 from Rs.190.70Crs in FY20 registering a YOY growth 7.22% driven by increased orders from the newly added customers (especially TATA). In 8MFY22 (Prov.), the company has achieved an operating income of ~Rs.200 Crs on the back of healthy orders from new and existing customers. The company has entered into an exclusive tie-up with TATA, wherein the company shall cater to the complete requirement of pumps for the projects executed by TATA. The company is also in discussions with another prominent player in the market to supply pumps. Increased orders from TATA and other customers is expected to lead to significant growth in the operating income of the company in the medium term.

• Improvement in the profitability margins :

  The company has started focussing more on its manufacturing vertical rather than sales from the traded goods. The contribution of the income achieved from the traded segment reduced to less than 1% in FY21 (from 12.59% in FY20). This, along with better sales realizations during FY21 has resulted in improved profitability margins for the company. The PBILDT and PAT margins of the company have improved to 10.25% and 1.61%, respectively, in FY21 (PY: 8.85% and 0.54%, respectively).

• Improved solvency position :

  The ISCR of the company improved to 2.37x in FY21 (from 1.88x in FY20). This was on the back of improved PBILDT and a slight decline in the interest expenses. Furthermore, on the back of accretion of profits to the networth, the overall gearing ratio of the company also improved from 3.15x as on March 31, 2020 to 2.84x, as on March 31, 2021; though the same continued to remain leveraged.

Credit Risks:

• Susceptibility of margins to volatility in raw material prices and forex rates :

  The primary raw materials used for the manufacturing of pumps include stainless steel, copper and solar modules/panels. The prices of these materials are inherently volatile and are driven largely by global as well as local demand and supply conditions. Raw material accounts for around 60-70% of the total manufacturing cost of OPL and hence any volatility in the prices of these materials may impact the profitability of the company.

• Working capital intensive nature of operations :

  OPL’s operations are working capital intensive in nature, with significant investment required in both receivables as well as inventories, resulting in a long cash conversion cycle (136 days, as on March 31, 2021). OSPL’s revenue model is a mix of institution sales, order based and cash and carry via distributors, with around 50-60% of its revenue contributed by sales under the distribution model. As the volume, value and time of such sales is difficult to predict, OSPL maintains enough inventory of finished goods to cater to any immediate requirement of its customers. Further, with more than 90% backward integration, the total inventory has a high holding of raw material and WIP (work in progress) inventory. All this has resulted in a high inventory holding period of 150 days, as on March 31, 2021.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology on a standalone basis, as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positives: The ratings may be upgraded if the company is able to achieve the projected sales revenues, improved profitability margins and solvency position, with satisfactory liquidity parameters.

Negatives: An adverse rating action may be taken if the company’s operating income and profitability margins deteriorates significantly from the current levels, and there is substantial moderation in the solvency and liquidity profile of the company.

LIQUIDITY INDICATORS - Adequate

The liquidity position of the company continues to remain adequate as indicated by the current ratio of 1.37x in FY21 (PY: 1.29x). The company had generated cash accruals of Rs 10.93 Crs in FY21 against long term repayment obligation of Rs.5.91Crs in FY21. Further the average EBITDA generated for FY 18~21 stood at 16.61Crs against the average interest cost of Rs.8.82Crs for the same period. For FY22, the company has a repayment obligation of Rs.10.39 cr., which is expected to be met through the cash accruals. Due to working capital intensive nature of business operations, the cash conversion cycle of the company stood elongated at 136 days as on March 31, 2021, though it improved from 161 days, as on March 31, 2020. The average utilization of the fund based working capital remained at a satisfactory level of ~70% (in the 10 months till Dec-2021. The working capital requirements of the company are also funded by need based unsecured loans availed from promoter from time to time.

ABOUT THE ENTITY

Oswal Pumps Limited (OPL) was incorporated in 2003 by Mr. Rajeev Gupta. It is engaged in the manufacturing of pumps, electrical motors, pipes and cable & wires. Its manufacturing facilities are set up over an area of about 4.5 hectares at Karnal with integrated manufacturing facilities. Oswal Pumps Limited sells its products directly to institutions and through distributors and dealers to retailers, households & other end-users across north and west India.The company is an ISO 9001:2015 and BIS certificatied company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	204.48	190.70
EBITDA	Rs.Crs.	20.97	16.89
PAT	Rs.Crs.	3.30	1.02
Tangible Net Worth	Rs.Crs.	32.88	29.59
Total Debt/Tangible Net Worth	Times	2.84	3.15
Current Ratio	Times	1.37	1.29

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Acuite Rating has moved the rating to Issuer Non Cooperating category for rated debt of Rs.50Crs and has assigned rating of ACUITE BB/Stable/A4+ under Issuer Non Cooperating on 15 Oct 2020.

ANY OTHER INFORMATION

Nil

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

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	55.00	BWR BBB-/Stable to Positive (Reaffirmation and change in Outlook)	20Jan2021	BWR BBB- Stable (Reaffirmation)	NA	NA	26Nov2019	BWR BBB- Stable (Reaffirmation)
FB SubLimit	ST	NA	NA	20Jan2021	BWR A3 (Reaffirmation)	NA	NA	NA	NA
Non Fund Based	ST	35.50	BWR A3 (Reaffirmation)	20Jan2021	BWR A3 (Reaffirmation)	NA	NA	26Nov2019	BWR A3 (Reaffirmation)
Grand Total		90.50	(Rupees Ninety Crores and Fifty 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

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt

Analytical Contacts
Neha Jain Senior Rating Analyst Board : +91 11 2341 2232 neha.j@brickworkratings.com	Sudeep Sanwal Associate Director - Ratings sudeep.s@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	HDFC Bank	Cash Credit - Sanctioned	25.00	_	25.00
2	HDFC Bank	BG/LC/ILC - Sanctioned	_	21.50	21.50
3	Kotak Mahindra Bank	BG/LC/ILC - Sanctioned	_	14.00	14.00
4	Kotak Mahindra Bank	Cash Credit - Sanctioned	30.00	_	30.00
5	Punjab National Bank	Bank Guarantee - Sanctioned	_	_	0.00
6	Punjab National Bank	CECL - Sanctioned	_	_	0.00
7	Punjab National Bank	ILC/FLC - Sanctioned	_	_	0.00
8	Punjab National Bank	Cash Credit - Sanctioned	_	_	0.00
	Sub-Limit (Bills Discounting ) - Sanctioned		(0.00)
	Sub-Limit (FOBNLC/FOUBNLC within PCL) - Sanctioned		(0.00)
	Sub-Limit (PCL with in CC) - Sanctioned		(0.00)
Total			55.00	35.50	90.50
TOTAL (Rupees Ninety Crores and Fifty lakhs Only)