ICRA has reaffirmed the 'A1' rating for Rs 36.50 billion non-fund based limits of Jindal Saw (JSL).
The reaffirmation of the rating takes into account JSL’s experienced promoters; its long track record of operations and established position in the manufacturing of Submerged Arc Welded (SAW) pipes, Ductile Iron (DI) pipes and seamless pipes. JSL is one of the largest players in SAW pipes and DI pipes segment and among the major players in seamless pipes segment in the country. Its presence across these products offers diversity to the product and revenue profile.
The rating also takes into consideration JSL’s established customer base, and the requisite approvals in both domestic and international markets. Moreover, the completion and commissioning of various capital expenditures like iron ore pellet plant, DI manufacturing in Abu Dhabi, and new DI facility in Mundra is expected to provide a fillip to the turnover and profitability going forward. In the short term, the company also benefits from the back-ended repayments of debt.
The rating however remains constrained by continued slowdown in demand, which, along with the high competitive intensity has resulted in slowdown in volume off-take, primarily for the SAW pipes which is the highest contributor to the operating income of the company. Consequently, the company has witnessed slowdown in revenue generation (turnover of Rs. 41.46 billion in 9MFY2014 vis-à-vis Rs. 46.50 billion (in 9MFY2013) and continued pressure on profitability.
Further, the rating is constrained by time and cost overruns in the capex programme, thereby increasing the funding requirement and delaying the anticipated EBITDA accretion. At the same time, the working capital intensity of operations remains high leading to lower operating cash flow generation and high reliance on working capital debt. Pressures on profitability and consistently high leveraging have led to weakening of debt coverage indicators. At consolidated level as well, the financial indicators are impacted by weaker than anticipated performance of the subsidiary Jindal ITF which has seen slower ramp-up in revenue and EBITDA generation.
Going forward, the anticipated improvement in order book, completion of the capex program within time and cost estimates, improvement in cash flow generation from the recently commissioned capacities, and improvement in performance of Jindal ITF would remain the key rating sensitivities.
Shares of the company gained Rs 0.85, or 1.46%, to trade at Rs 58.90. The total volume of shares traded was 72,752 at the BSE (2.04 p.m., Thursday).
