Pradeep Metals Ltd. — Audit Report / Information 2020

Jun 23, 2020

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23[rd] June, 2020

The Secretary, BSE Limited

P J Towers, Dalal Street, Mumbai 400 001

Dear Sir,

Sub: Intimation of Revision in Ratings:

Scrip Code : 513532

Dear Sir/Madam,

Pursuant to Part A of Schedule III of Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we hereby inform you that CRISIL LIMITED (‘CRISIL”) has revised its rating on the Bank facilities of the Company (Letter received by the Company today i.e. 23[rd] June, 2020) as follows:

rating on the Bank facilities of the Company (Letter as follows:	received by the Company today i.e. 23rdJune, 2020)
Total Bank Loan Facilities Rated	Rs. 102 Crores
LongTerm Ratings	CRISIL BBB-/Stable(Reaffirmed)
Short Term Rating	CRISIL A3(Reaffirmed)

This is for your information and records

For Pradeep Metals Limited

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Nivedita Nayak Company Secretary & Compliance Officer FCS: 8479

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Rating Rationale

April 09, 2020 | Mumbai

Pradeep Metals Limited

Ratings Reaffirmed

Rating Action

Rating Action
Total Bank Loan Facilities Rated	Rs.102 Crore
Long Term Rating	CRISIL BBB-/Stable(Reaffirmed)
Short Term Rating	CRISIL A3(Reaffirmed)

1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB-/Stable/CRISIL A3' ratings on the bank facilities of Pradeep Metals Limited (PML, part of PML group).

The ratings continue to reflect the promoters' extensive experience in the forging industry and established relations with customers. The ratings also factor in PML's comfortable financial risk profile. These strengths are partially offset by working capital intensive operations and moderate total outside liabilities to adjusted networth (TOLANW).

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of PML; its wholly owned subsidiary, Pradeep Metals Ltd Inc, USA; and its step-down subsidiary, Dimensional Machine works LLC (DMW). The entities are collectively referred to as the PML group.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation .

Key Rating Drivers & Detailed Description

Strengths:

*** Promoters' extensive experience in the forging industry and established relations with customers:** Mr Pradeep Goyal (Chairman and Managing Director) has a B Tech (Metallurgy) from IIT, Kanpur, and MS (Materials Science and Engineering) from Massachusetts Institute of Technology, USA. Benefits from the promoters' experience of over three decades, and healthy relations with customers backed by the ability to ensure just-in-time delivery, and supply customised components in small lots should continue to support the business. Customers include reputed players such as Flowserve US Inc, Rosemount Inc, Alfa Laval, and Emerson, amongst others. Group has reported revenue of Rs 153 crore for 9 months ended December 2019 against Rs 140 crore during previous period.

*** Comfortable financial risk profile:** The profile is comfortable, with networth of over Rs 41.6 crore as on March 31, 2019 which is expected to improve with steady accretion to reserves. Improved cushion between net cash accrual and debt obligation has strengthened debt protection metrics: interest coverage was 3.48 times in fiscal 2019 which is estimated to remain around similar levels for fiscal 2020.

Weakness:

• Working capital-intensive nature of operations: Gross current assets have been high at 190-250 days in the three years ended March 31, 2019, driven by sizeable inventory and moderate debtors. With changes in inventory policy, working capital requirement is expected to moderate over the medium term.

• Moderate TOLANW: Although on improving trend, TOLANW was moderate at 3.19 times as on March 31, 2019. TOLANW is expected to be sub 3 times as on March 31, 2020. However, sustenance of same to remain monitorable.

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Liquidity Adequate

Group has adequate liquidity indicated by expected cash accruals of Rs 14-17 crore per annum over fiscal 2020 and 2021 with repayment obligations in range of Rs 11.5-12 crore per annum. Group also has access to fund based limit of Rs 63 crore utilized at an average of 81% for last 11 months ended December 2019. Group's cash and cash equivalents were at Rs 3.88 crore as on March 31, 2019. Moderate cushion in bank limits (~Rs 11 crore as on March 31, 2020) along with cash and cash equivalents and accruals should be sufficient to meet the working capital and debt servicing for over the medium term.

Outlook: Stable

CRISIL believes the PML group's credit profile will continue to benefit from extensive experience of the promoters, and the group's efforts towards improving operating efficiency.

Rating Sensitivity Factors

Upward factor

Improved scale of operations and operating margin resulting in accruals to remain above Rs. 20 crore Improvement in financial risk profile particularly TOLANW to sub 2.3 times

Downward factor

*Cash accruals lower than Rs 12 crore on account of subdued operating performance

*Higher-than-expected debt-funded acquisitions or capital expenditure, or stretch in working capital cycle weakens key credit metrics.

About the Group

Incorporated in 1982, PML manufactures intricate closed-die stainless, alloy, and carbon steel forgings as finished and semi-finished machined components for multiple sectors, such as oil and gas, petrochemicals, and general engineering. The manufacturing facility is in Navi Mumbai. During 2013-14, PML had set up its 100% subsidiary Pradeep Metals Ltd Inc. USA, in order to identify new potential customers and facilitate growing exports to USA. DMW, which is a step down subsidiary of PML, is engaged in manufacturing of precision machined components.

Key Financial Indicators

Key Financial Indicators
As on/for theperiod ended March 31	Unit	2019	2018
Operating income	Rs crore	191.34	162.12
Reportedprofit after tax(PAT)	Rs crore	7.83	3.02
PAT margin	%	4.1	1.9
Adjusted debt/adjusted networth	Times	2.32	2.6
Interest coverage	Times	3.48	3.08

Any other information: Not applicable

Note on complexity levels of the rated instrument:

CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

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Annexure - Details of Instrument(s)

ISIN NA NA NA NA NA NA NA	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Cr)	Rating assigned with outlook
	Bank Guarantee	NA	NA	NA	3	CRISIL A3
	Bill Discounting	NA	NA	NA	22	CRISIL BBB-/Stable
	Cash Credit	NA	NA	NA	18	CRISIL BBB-/Stable
	Foreign Exchange Forward	NA	NA	NA	1.53	CRISIL A3
	Long Term Loan	NA	NA	Mar-2023	28.59	CRISIL BBB-/Stable
	Packing Credit	NA	NA	NA	28	CRISIL BBB-/Stable
	Proposed Long Term Bank Loan Facility	NA	NA	NA	0.88	CRISIL BBB-/Stable

Annexure - List of Entities Consolidated

Annexure - List of Entities Consolidated
Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Pradeep Metals Ltd	Full	Parent company holding 100% stake along with business and financial linkages with Pradeep Metals Ltd Inc, USA and Dimensional Machine works LLC
Pradeep Metals Ltd Inc, USA	Full	Wholly owned subsidiary of Pradeep Metals Ltd
Dimensional Machine works LLC	Full	Wholly owned step down subsidiary of Pradeep Metals Ltd

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Annexure - Rating History for last 3 Years

		Current		2020 (History)	2020 (History)	2019	2019	2018	2018	2017	2017	Start of 2017
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Fund-based Bank Facilities	LT/S T	99.00	CRISIL BBB- /Stable/ CRISIL A3			05-04-19	CRISIL BBB- /Stable/ CRISIL A3	23-11-18	CRISIL BB+/Posi tive/ CRISIL A4+	12-01-17	CRISIL BBB/Neg ative/ CRISIL A3+	CRISIL BBB/Posi tive/ CRISIL A3+
								06-11-18	CRISIL BB+/Posi tive/ CRISIL A4+
								09-01-18	CRISIL BB+/Neg ative/ CRISIL A4+
								08-01-18	CRISIL BB+/Neg ative/ CRISIL A4+
Non Fund-based Bank Facilities	LT/S T	3.00	CRISIL A3			05-04-19	CRISIL A3	23-11-18	CRISIL A4+		--	--
								06-11-18	CRISIL A4+
								09-01-18	CRISIL A4+
								08-01-18	CRISIL A4+

All amounts are in Rs.Cr.

Annexure - Details of various bank facilities

Current facilities	Current facilities		Previous facilities	Previous facilities
Facility	Amount (Rs.Crore)	Rating	Facility	Amount (Rs.Crore)	Rating
Bank Guarantee	3	CRISIL A3	Bank Guarantee	3	CRISIL A3
Bill Discounting	22	CRISIL BBB- /Stable	Cash Credit	12.5	CRISIL BBB- /Stable
Cash Credit	18	CRISIL BBB- /Stable	Export Bill Purchase	19	CRISIL A3
Foreign Exchange Forward	1.53	CRISIL A3	Foreign Exchange Forward	1.53	CRISIL A3
Long Term Loan	28.59	CRISIL BBB- /Stable	Long Term Loan	39.97	CRISIL BBB- /Stable
Packing Credit	28	CRISIL BBB- /Stable	Packing Credit in Foreign Currency	26	CRISIL A3
Proposed Long Term Bank Loan Facility	.88	CRISIL BBB- /Stable	--	0	--
Total	102	--	Total	102	--

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Links to related criteria

CRISILs Approach to Financial Ratios

- CRISILs Bank Loan Ratings process, scale and default recognition Rating criteria for manufaturing and service sector companies CRISILs Criteria for Consolidation CRISILs Criteria for rating short term debt

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