ICRA reaffirms ratings of Tube Investments; assigns 'Stable' outlook

Tube Investments of India said that the credit rating agency ICRA has reaffirmed the long-term rating at '[ICRA] AA+' and the short-term rating at '[ICRA]A1+' in respect of the bank fund based and non-fund based limits of the company.

The long-term rating has been removed from watch with developing implications and 'Stable' outlook has been assigned.

ICRA has also reaffirmed the short-term rating to the company's commercial paper programme at '[ICRA]A1+'.

Offering the rating rationale, ICRA said that the long-term rating has been removed from watch with developing implications, following the successful completion of initial integration process of the acquired entity, CG Power and Industrial Solutions (CG Power) with Tube Investments of India (TIIL, the company).

Post the takeover by TIIL, CG Power's performance has witnessed a sharp turnaround in H1 FY2022, with the latter's revenues improving by 144% on a YoY basis to approximately Rs 2,504 crore in H1 FY2022 (vis-vis Rs 1,026.6 crore in H1 FY2021) and net profits of Rs 236.1 crore (net profit margin of 9.4%).

This was primarily aided by adequate working capital, post the fund infusion by TIIL and focussed marketing initiatives by TIIL's business development team.

With elimination of operational bottlenecks, CG Power's strong brand and its healthy orderbook position, ICRA expects the performance improvement to remain sustainable going forward.

Further, with the completion of one-time debt restructuring, execution of agreements for settlement of the liabilities of overseas subsidiaries (which are under liquidation) and TIIL expecting minimal cash outflows of less than Rs 100 crore towards the payment of the same in H2 FY2022, ICRA believes majority of the financial integration has been completed.

While TIIL's net debt levels have increased post the takeover of CG Power, the same is expected to reduce going forward, with healthy cashflows from TIIL (excluding CG Power), CG Power's improving cashflows and proceeds from the likely sale of land parcel at Kanjurmarg, Mumbai before 31 March 2022.

Any adverse developments on account of findings from the ongoing Serious Fraud Investigation Office's (SFIO) investigation or continuing income tax litigations (from the pre-acquisition period) would remain a key monitorable.

The ratings also draw comfort from TIIL's diverse product profile, its strong, well-entrenched market position across all its operating segments and products, which has been further strengthened through CG Power's acquisition.

TIIL reported revenue growth of approximately 246% on a YoY basis in revenues in H1 FY2022 to Rs 5,700.2 crore, aided by additional revenues from CG Power, lower base in the previous year, higher realisations as a result of commodity price pass through, better demand from domestic markets and strong export demand. ICRA expects the revenue growth to remain healthy going forward.

While rising commodity prices remain a concern, the company's demonstrated ability to pass on raw material price increases to its customers mitigates the risk to a large extent. The margins are also supported by various cost-saving initiatives across heads and consolidation exercise undertaken by the company. Consequently, the margins have remained stable in H1 FY2022 at 11.5%, despite a sharp increase in commodity prices over the past few months.

Tube Investments of India (TII), a Murugappa Group company, manufactures fabricated metal products. The company specializes in cycles, steel tubes, strips, chains, and metal formed items.

The scrip was currently trading 0.08% higher at Rs 1706.75 on the BSE.

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