Apar Industries Ltd — Capital/Financing Update 2022

Dec 6, 2022

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SEC/0612/2022 December 6, 2022

	National Stock Exchange of India Ltd. “Exchange Plaza”, C-1, Block G, Bandra- Kurla Complex, Bandra (E), Mumbai – 400 051. Scrip Symbol : APARINDS Kind Attn.: The Manager, Listing Dept.		BSE Ltd. Corporate Relationship Department, 27thFloor, Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai - 400 001. Scrip Code : 532259 Kind Attn. : Corporate Relationship Dept.

Sub. : Intimation of Credit Rating

Ref.: Regulation 30 and all other applicable regulations, if any, of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time.

____________

Dear Sir,

Pursuant to Regulation 30 read with Schedule Ill of Part A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ( "the Listing Regulations" ), as amended from time to time, we would like to inform the Exchanges about re-affirmation of rating at Long Term “A” & Short Term “A1” with Outlook changed from “Stable to Positive” as communicated by CARE Ratings Limited vide their letter dtd. December 5, 2022 (copy enclosed).

Please find below the details of the ratings based on the FY 2022 (Audited) and H1FY23 (Unaudited) financial performances of the Company.

Name of the Company	Credit Rating Agency	Facilities	Rating1	Rating Action
APAR Industries Limited (ISIN – INE372A01015)	CARE Ratings Limited	Long Term Bank Facilities (Term Loans & Fund Based Limits)	CARE A ; Positive (Single A ; Outlook : Positive)	Reaffirmed ; Outlook revised from Stable
		Long Term / Short Term Bank Facilities (Non-fund Based Limits)	CARE A ; Positive / CARE A1 (Single A ; Outlook : Positive / A One)	Reaffirmed ; Outlook revised from Stable

Thanking you,

Yours Faithfully, For APAR Industries Limited

SANJAYA RAJU KUNDER Digitally signed by SANJAYA RAJU KUNDER DN: c=IN, o=Personal, pseudonym=654ca84130d45d8ccf6178950568f38498dcbc68bb82245f0652911e849a1f11, 2.5.4.20=64ab945fcd681f91dc6d7d98c7b9cc199f061674ea015f0ce11b898e2cd7dbb0, postalCode=400083, st=MAHARASHTRA, serialNumber=0cc5c938eb4e54110332d07255e723e3bd1a6849c5d87c4f34e5bec3533aa715, cn=SANJAYA RAJU KUNDER Date: 2022.12.06 11:18:34 +05'30'

(Sanjaya Kunder) Company Secretary

Encl. : As above

APAR Industries Limited

Corporate Office : APAR House, Corporate Park, V. N. Purav Marg, Chembur, Mumbai - 400 071, India +91 22 2526 3400/6780 0400 corporate@apar.com www.apar.com Regd. Office: 301/306, Panorama Complex, R. C. Dutt Road, Alkapuri, Vadodara - 390007, India +91 265 6178 700/6178 709 apar.baroda@apar.com www.apar.com CIN: L91110GJ1989PLC012802

Press Release

Apar Industries Limited

December 05, 2022

Ratings

Facilities/Instruments	Amount (₹ crore)	Rating1	Rating Action
Long Term Bank Facilities	796.00 (Enhanced from 768.00)	CARE A; Positive (Single A; Outlook: Positive)	Reaffirmed; Outlook revised from Stable
Long Term / Short Term Bank Facilities	6,940.00 (Enhanced from 5,500.00)	CARE A; Positive / CARE A1 (Single A; Outlook: Positive/ A One)	Reaffirmed; Outlook revised from Stable
Total Bank Facilities	7,736.00 (₹ Seven Thousand Seven Hundred Thirty-Six Crore Only)

Details of instruments/facilities in Annexure-1.

Detailed rationale and key rating drivers

Care Ratings have revised its outlook on the long-term debt instruments of Apar Industries Limited to ‘Positive’ from ‘Stable’, while reaffirming the ratings at CARE A/CARE A1. The outlook revision factors expected improvement in business risk profile over the medium term. The Total Operating Income (TOI) increased by 46.1% YoY led by 54% increase in domestic revenue and the export revenue increased by 35% accounting for 38% of TOI. The ratings continue to factor company's well-established and dominant position in the Conductors, Transformer, and Specialty Oil (TSO) segment, diversified revenue sources, the promoters' extensive industry knowledge, the capacity to increase its product offering and an improved overall performance led by increase in volume and value.

The aforementioned strengths are constrained by limited value addition, as portion of orders are acquired through tender bidding processes, limiting the potential for profit margin expansion, and the business's dependence on working capital borrowing (in the form of acceptances), which increases leverage indicators. The overall gearing increased marginally to 1.80x in FY22 (PY:1.69x) on a consolidated basis owing to nature of business being high dependency on working capital (non-fund-based limits). The ratings also take cognizance of the inherent business risk on account of its exposure to the raw material price risk, foreign currency volatility, increasing competition in the industry and freight charge volatility.

Rating sensitivities

Positive factors – Factors that could lead to positive rating action/upgrade:

• Improvement in the collection period to 80-85 days on a sustained basis

• Improvement in the operating margins to 6.5%-7% on a sustained basis

Negative factors – Factors that could lead to negative rating action/downgrade:

• Deterioration in the overall gearing to 2.30x on a sustained basis

• Deterioration in PBILDT interest cover to below 2x on a sustained basis

Outlook: Positive

The revision in outlook reflects expected improvement in the business risk profile over the medium term with increase in topline and healthy margins in range of 6.5-7 percent backed by healthy demand and healthy order book. Financial risk profile is expected to remain comfortable with overall gearing in the range of 2-2.3x including LC acceptance. The Outlook may be revised to ‘Stable’ on significant decline in topline and PBILDT margins, or deterioration in capital structure due to increased debt levels or lower cash accruals.

Detailed description of the key rating drivers

Key rating strengths

One of the largest players in conductor segment

APAR is one of the largest companies, engaged in manufacturing of TSO and Transmission & Distribution Overhead Conductors with a total installed capacity of 5,42,000 KL and 1,80,000 MT respectively as on March 31, 2022. In the conductor division, APAR caters to prominent customers like Power Grid Corporation of India Limited (PGCIL; rated CARE AAA; Stable/A1+), various state government entities, Adani Group, and prominent turnkey operators with whom it has a long-standing relationship. APAR also

1Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

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Press Release

exports to major geographies with focus on Middle East, Latin America, North America and Africa among others and has presence in more than 100 countries.

Long standing experience of promoters in business

APAR was established in 1958 by Late Mr Dharamsinh D Desai in the name of Power Cables Private Limited. Mr Dharamsinh D Desai was the founder of Dharamsinh Desai University, Nadiad in Gujarat. APAR over the years has established itself as one of the leading producers of conductors and TSO segments. The promoter group has been in conductor business over six decades and the operations are currently being managed by third generation of the Desai family – namely Mr. Kushal N. Desai who is the Chairman & Managing Director and Mr Chaitanya N. Desai who is the Managing Director (grandsons of Mr Dharmsinh D. Desai). Both are well qualified and have substantial industrial experience of 32 years and 27 years respectively in the TSO and Conductor business. Furthermore, APAR has a qualified management team comprising of industry personnel with over decades of experience.

Well established market position across segments

APAR is amongst the top three producers of conductors and speciality oils in the world. In the transformer oil segment it has a product offering of over 400 products with varied application in the industrial oil sub segment. To cater to the need of growing demand in Middle East and African markets, APAR commissioned its port-based plant at Hamriyah, Sharjah in FY18. It has also entered into a brand and manufacturing alliance for its automotive lubricant segment with the global energy leader ENI S.P.A Italy.

In the conductor segment, APAR enjoys long standing relationship with customers like PGCIL, Kalpataru Power Transmission Limited, KEC International Limited. In the cables segment, APAR is engaged in electrical and telecom cables as well as elastomer cables. This division supplies to various industry segments in India viz., power utilities, petrochemicals, steel, cement, nuclear power, defence, telecommunication, metros and shipbuilding, Railways, Renewable Energy sector etc. Major clients include Adani Group, Tata Power, Larsen & Toubro Limited, BHEL and Sterlite Technologies Limited etc.

Diversified revenue profile

APAR’s business segments comprise Conductors, TSO and Cables. The conductor segment contributed 43% to the gross sales of FY22 (PY: 45%), TSO segment contributed 37% in FY22 (PY: 36%) and the balance was from the cables segment. APAR has a greater proportion of revenue contribution coming from the conventional conductors which typically have lower operating margins especially due to the volatile freight costs, however, freight costs are expected to moderate from H1FY23. The total order book for conductors stood at Rs.4,065 as on Sept 30, 2022, which includes around Rs.850 crore of high-margin conductors (HEC). The TSO segments revenue was up by 51% YoY in FY22 owing to increased exports. The cables segments TOI was also up by 57% YoY in FY22 owing to increased revenue from exports.

Improved overall performance led by increase in volume and value

The TOI improved by 46% in FY22 YoY owing to increased volumes of sold and premiumization of product mix. In FY22, revenue from conductor segment reached Rs. 4200 crores led by increased revenue from premium products, revenue from TSO was at Rs. 3560 crores and revenue from cable segment reached Rs. 1,993 crores driven by increased sale of Elasto/E-beam cable subsegment.

Despite moderations in margins caused by volatile freight cost and ongoing geopolitical issues, the company reported a growth in revenue by 70% YoY in H1FY23 for the conductor segment led by higher contribution of HEC and healthy order book. Similar trend has been witnessed in the other segments, the oil segment revenue has gone up by 30% YoY and cable segment grew by 79% YoY in H1FY23.

Key rating weaknesses

Working capital intensity of operations

The operations of the company continue to be very working capital intensive due to the inherent problems in the industry in which it operates, such as delays in order execution, delays in obtaining clearances and in funding arrangements by engineering, procurement, and construction (EPC) players. High working capital utilisation makes this clear. The business uses packing credit limits and Letters of Credit to meet its working capital needs (LC acceptances in the form of supplier credit).

Comfortable debt coverage indicators

Due to increase in LC-backed acceptances in FY22, the overall gearing ratio increased to 1.80x in FY22 (PY: 1.69x). The majority of APAR's raw materials are imported, and they are financed mostly by supplier credit that is guaranteed by LC. The size of operations directly correlates with LC-backed acceptances. Due to stronger PBILDTA and cash accruals, the total debt/GCA and total debt/PBILDT improved in FY22 to 8.65x and 5.19x respectively as compared to FY21.

As the scale of business increased, LC backed acceptance also increased to Rs. 2,756.8 crores. However, other indicators like RONW and ROCE also increased due to effective scaling of operations. Interest coverage improved to 3.48x as on March 31, 2022 (PY: 2.78x).

Susceptibility of margins to volatility in raw material prices

The raw material cost to total operating income stood at 80.13% in FY21 (PY: 78%). The price of aluminium and copper which are a major raw material for conductors, have shown a lot of volatility in the past few years. In order to hedge against the volatility

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in the metal price, APAR books the metal at the LME rates on the day the order is booked for fixed-price orders. In the TSO segment, APAR uses base oil as its raw material. The base oil prices depend on crude oil prices to a certain extent, which are highly volatile. Due to the intense competition in the segment, APAR is not always able to pass on the entire raw material price rise to the customers. Even otherwise, the company can pass on majority of raw material increase to the customers only with a time lag.

Exposure to foreign exchange fluctuation

APAR is exposed to volatility in foreign exchange rates on account of its imports and borrowings in foreign currency. Majority of its raw materials are imported making APAR a net importer. APAR is affected by the price volatility of certain commodities viz. Aluminum, Copper and Oil. Being a net importer, ability of the company to successfully manage its foreign exchange fluctuation risk remains critical from the credit perspective. The company is exposed to currency risk on account of its borrowings and other payables in foreign currency. The company uses forward exchange contracts to hedge its currency risk, most with a maturity of less than one year from the reporting date.

Liquidity: Adequate

The liquidity for APAR is adequate as evinced from Gross Cash Accruals of over ~Rs.350 crore expected to be generated in FY23. Furthermore, APAR had cash and cash equivalents (unencumbered) of Rs.303.15 crore as on Sept 30, 2022. As against the same, the company has debt repayment obligations to the tune of Rs.70 crore (including lease liability) on a consolidated basis for FY23. The company maintains a comfortable of cash balance of Rs. 250-350 crores month-on-month after the committed payments towards LC acceptances

Analytical approach: Consolidated

CARE has considered the consolidated financials of APAR, as its wholly owned subsidiaries have substantial operational and financial linkages with it. The list of subsidiaries is presented in Annexure 6.

Applicable criteria

Policy on default recognition

Consolidation

Financial Ratios – Non financial Sector Liquidity Analysis of Non-financial sector entities Rating Outlook and Credit Watch Short Term Instruments

Manufacturing Companies Policy on Withdrawal of Ratings

About the company

Apar, founded by Mr Dharmsinh D. Desai in 1958, is engaged in three broad business segments-transformer oils and specialty oils (TSO), conductors segment and power/telecom cables. Apart from being a market leader in India, the company has a global presence, exporting to over 100 countries. APAR has total installed capacity of 5,42,000 KL of transformer oils and 1,80,000 MT of conductors as on March 31, 2021. Its manufacturing facilities are located at Rabale (Maharashtra), Silvassa, Athola and Rakholi (Dadra and Nagar Haveli), Umbergaon and Khatalwad (Gujarat), Jharsugoda and Lapanga (Orissa), Hamriyah (Sharjah). Further, APAR has commissioned the Continuously transposed conductors facility, a value-added product, with total installed capacity of 7000 MT for supply of copper conductors to transformer industry.

Brief Financials (₹ crore)	March 31, 2021 (A)	March 31, 2022 (A)	H1FY23 (UA)
Total operating income	6,406.63	9,319.99	6,344.81
PBILDT	437.75	580.34	479.98
PAT	160.50	256.73	225.09
Overall gearing (inc. LC acceptance) (times)	1.69	1.80	0.23*
Interest coverage (times)	2.78	3.48	3.62

A: Audited; UA: Unaudited *Excluding LC Acceptance

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating history for the last three years: Please refer Annexure-2

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Covenants of the rated instruments/facilities: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3

Complexity level of various instruments rated for this company : Annexure-4

Annexure-1: Details of instruments/facilities

Name of the Instrument	ISIN	Date of Issuance (DD-MM-YYYY)	Coupon Rate (%)	Maturity Date (DD- MM-YYYY)	Size of the Issue (₹ crore)	Rating Assigned along with Rating Outlook
Fund-based - LT- Cash Credit		-	-	-	560.00	CARE A; Positive
Non-fund-based - LT/ ST-BG/LC		-	-	-	6940.00	CARE A; Positive / CARE A1
Term Loan-Long Term		-	-	June 2026	236.00	CARE A; Positive

Annexure-2: Rating history for the last three years

Sr. No.	Name of the Instrument/Bank Facilities		Current Ratings	Current Ratings
						Rating	History
		Type	Amount Outstanding (₹ crore)	Rating	Date(s) and Rating(s) assigned in 2022- 2023	Date(s) and Rating(s) assigned in 2021- 2022	Date(s) and Rating(s) assigned in 2020- 2021	Date(s) and Rating(s) assigned in 2019- 2020
1	Non-fund-based - LT/ ST-BG/LC	LT/ST*	6940.00	CARE A; Positive / CARE A1	-	1)CARE A; Stable / CARE A1 (07-Oct-21)	1)CARE A; Stable / CARE A1 (18-Dec- 20)	1)CARE A; Stable / CARE A1 (01-Oct-19)
2	Fund-based - LT- Cash Credit	LT	560.00	CARE A; Positive	-	1)CARE A; Stable (07-Oct-21)	1)CARE A; Stable (18-Dec- 20)	1)CARE A; Stable (01-Oct-19)
3	Term Loan-Long Term	LT	236.00	CARE A; Positive	-	1)CARE A; Stable (07-Oct-21)	1)CARE A; Stable (18-Dec- 20)	1)CARE A; Stable (01-Oct-19)

*Long term/Short term.

Annexure-3: Detailed explanation of the covenants of the rated instruments/facilities: Not Applicable

Annexure-4: Complexity level of various instruments rated for this company

Sr. No.	Name of Instrument	Complexity Level
1	Fund-based - LT-Cash Credit	Simple
2	Non-fund-based - LT/ ST-BG/LC	Simple
3	Term Loan-Long Term	Simple

Annexure-5: Bank lender details for this company

To view the lender wise details of bank facilities please click here

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Annexure-6: List of subsidiaries which are consolidated

Name of the subsidiary	Country	% holding
Petroleum Specialties Pte. Limited(PSPL)	Singapore	100%
Petroleum SpecialtyFZE	UAE	100% subsidiaryof PSPL
Apar Transmission and Distribution Projects Pvt. Ltd	India	100%
Apar Distribution & Logistics Private Limited	India	100%
Ampoil Apar Lubricants Private Limited (Associate from 19thSeptember 2020)	India	APAR holds 40% of equity share capital of the JV

Note on complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis of complexity. Investors/market intermediaries/regulators or others are welcome to write to care@careedge.in for any clarifications.

Contact us

Media contact

Name: Mradul Mishra Phone: +91-22-6754 3596 E-mail: mradul.mishra@careedge.in

Analyst contact

Name: Arti Roy Phone: 9819261115 E-mail: arti.roy@careedge.in

Relationship contact

Name: Saikat Roy Phone: +91-98209 98779 E-mail: saikat.roy@careedge.in

About us:

Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital and enable investors to make informed decisions. With an established track record of rating companies over almost three decades, CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.

Disclaimer:

The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor. The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and triggered, the ratings may see volatility and sharp downgrades.

For the detailed Rationale Report and subscription information, please visit www.careedge.in

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