Rating Advisory

August 24, 2020 | Mumbai Adarsh Bir mechaOri ginal Te mplate123

RR Kabel Limited
Advisory as on August 24, 2020

This rating advisory is provided in relation to the rating of RR Kabel Limited

The key rating sensitivity factors for the rating include:

 Timely servicing of debt

CRISIL Ratings has a policy of keeping its accepted ratings under constant and ongoing
monitoring and review. Accordingly, it seeks regular updates from companies on business and
financial performance. CRISIL is yet to receive adequate information from RR Kabel Limited (RR
Kabel) to enable it to undertake a rating review. CRISIL is taking all possible efforts to get the
rated entity to cooperate with its rating process for enabling it to carry out the rating review.

CRISIL views information availability risk as a key factor in its assessment of credit risk. (Please
refer to CRISIL Ratings publication dated April 30, 2012 - 'Information Availability - a key risk
factor in credit ratings')

If RR Kabel continues to delay the provisioning of information required by CRISIL to undertake a

rating review then, in accordance with circulars SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dt.Nov
1, 2016, SEBI/HO/MIRSD/ MIRSD4/CIR/P/2017/71dt.June 30,2017 and
SEBI/HO/MIRSD/CRADT/CIR/P/2020/2 dt January 3, 2020 issued by Securities and Exchange
Board of India, CRISIL will carry out the review based on best available information and issue a
press release.

About the company

RR Kabel Ltd is the flagship company of the Ram Ratna Group. The company is primarily into
manufacture of low density electric cables (LDEC) and House Wires. It is among the larger organized
players in the market, and holds around 9% in the domestic cables market.

Please note: This advisory should not be construed as a rating reaffirmation.

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 Rating Rationale
May 06, 2019 | Mumbai

RR Kabel Limited
'CRISIL A+/Positive/CRISIL A1+' assigned to bank debt

Rating Action
Total Bank Loan Facilities Rated Rs.473 Crore
Long Term Rating CRISIL A+/Positive (Assigned)
Short Term Rating CRISIL A1+ (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL has assigned its 'CRISIL A+/Positive/CRISIL A1+' ratings to the bank loan facilities of RR Kabel Limited
(RR Kabel).

The ratings reflect the extensive experience of the promoters, strong market position in the home wires and cables
industry in India and healthy financial risk profile. These rating strengths are partially offset by vulnerability of
profitability to volatility in raw material prices, to economic downturns, and exposure to intense competition.

The positive outlook reflects CRISIL's belief that RR Kabel's operating performance may continue to improve
(operating income had grown at a CAGR of 15% over the past 5 years) at a healthy pace over the medium term
driven by sustained growth in the wires and cables industry, focus on diversifying cash flows and strong distribution
network. The operating margins, though reduced in fiscal 2019 to around 9% on account of higher marketing
expense, may steadily return to earlier levels of 10-12%. Moreover, capital structure has improved in fiscal 2019 with
TPG Asia infusing Rs 315 crore equity. The capital raised is expected to be utilised for growth opportunities that may
arise in the medium term.

Analytical Approach
CRISIL has treated Rs 400 crore of preference share capital as part of equity as the preference share are fully
convertible and do not carry any preference dividend.

1
Key Rating Drivers & Detailed Description
Strengths:
* Extensive experience of the promoters: The promoters of RR Kabel, the Kabra family, have been trading in and
manufacturing various types of copper wires and cables (such as enameled copper winding wires) for more than 40
years. Furthermore, the promoters have extensive experience in the electrical accessories business through other
group companies such as Ram Ratna Wires Ltd (CRISIL BBB+/Stable/CRISIL A2). The management and experience
is expected to be bolstered by on-boarding of private equity investors, TPG Asia. TPG Asia has invested Rs 615
crore in RR Kabel (including primary and secondary issue) and will have presence on the board. The management
will be further strengthened by appointment of professional management personnel in fiscal 2020.

* Strong market position in the home wires and cables industry in India: The organized home wires and cables
industry in India has a market size of around Rs 20,000'25,000 crore, of which RR Kabel is estimated to have 9%
market share and is the fourth largest player. In fiscal 2018 the industry is estimated to have grown at 15% and is
expected to continue to grow at a healthy rate over the medium term. RR Kabel's market position is facilitated from its
strong dealer-distributor network of over 1200 entities and 5 depots across the country. RR Kabel is the largest
exporter of housing wires in India, which contributes around 30% to its revenue share. The company is also
aggressively spending to increase its brand awareness to further strengthen its market position in the industry.

* Healthy Financial Risk Profile: Financial risk profile is healthy driven by large networth of over Rs 800 crore and
healthy capital structure as reflected by total outside liabilities to total networth (TOL/TNW) of 0.60 times estimated as
on March 31, 2019. The capital structure is expected to improve further over the medium term on the back of steady
cash accrual in absence of any major debt funded capex plan over the medium term. Debt protection metrics are
strong as reflected in interest coverage ratio of 6.71 times and net cash accruals to total debt of 0.34 times estimated
for fiscal 2019. Working capital intensity is in line with industry peers as reflected in gross current asset days in the
range of 120-140 days, however, the company has the lowest inventory cycle in the industry. Further, vendor
financing will also aid in improving the debtor cycle of the company.

Weaknesses:
* Exposure to intense competition: The house wires and electrical cables segment is highly fragmented with a
large number of unorganised players, constraining the pricing power of organised sector players. Apart from
unorganised sector, RR Kabel also faces competition from organised sector players such as Polycab India Ltd
(CRISIL AA/Positive/CRISIL A1+), Havells India Ltd, Finolex Cables Ltd (CRISIL AA+/Stable/CRISIL A1+), and Kei
Industries Ltd. Some of the larger players also have backward integrated capabilities which support there operating
efficiency. CRISIL believes that though the domestic electrical market is becoming more quality conscious and there
would be some pressure on the unorganised players for GST compliance with the share of unorganised sector
expected to decrease to 26% over next 5 years from existing 34%, however, competition from organised and
unorganised players in the market will continue to impact RR Kabel's operating performance.

* Susceptibility to economic downturns: RR Kabel is susceptible to the economic environment in India. Domestic
wires contribute more than 70% to RR Kabel's revenue, and end-users of the product include construction (real
estate), power, and automobile industries. Growth in these industries is, in turn, linked to the economic environment,
any slowdown in gross domestic product growth could lead to moderation in demand for electrical cables over the
near term.

* Vulnerability to fluctuations in raw material prices: RR Kabel is susceptible to volatility in raw material prices.
Copper and aluminum are the primary raw material used in the manufacture of cables and accounts for 70-80% of
PWPL's product value. Though the company revises the prices every month on basis of last month (M-1) LME prices,
however, the profitability would be impacted if the company is unable to pass on the price increase to its customers.
Liquidity
RR Kabel has strong liquidity driven by expected cash accruals of more than Rs 100 crore per annum in fiscal 19 and
fiscal 20. RR Kabel also has access to fund based limits of Rs 460 crore, which were moderately utilized at 70% over
the past year. The company has long term repayment obligations around Rs 7-8 crore each in fiscal 19 and fiscal 20.
CRISIL expects internal accruals, and unutilized bank lines to be sufficient to meet its repayment obligations as well
as incremental working capital requirements.

2
Outlook: Positive
RR Kabel's business risk profile may improve driven by its market leadership position in Wires and cables and
established distribution network.

Upward Scenario
* Significant improvement in market share leading to sustained cash accruals.
* Diversification of product portfolio while maintaining strong financial risk profile

Downward Scenario
* Lower than expected operating performance.
* Higher than expected debt funded capex leading to deterioration of capital structure.

About the Company

RR Kabel, is the flagship company of the Ram Ratna Group. The company is primarily into manufacture of low
density electric cables (LDEC) and House Wires. It is among the larger organized players in the market, and holds
around 9% in the domestic cables market.

For the 9 months ended December 2018, the company reported a PAT of Rs 81 crore on operating income of Rs
1,737 crore, as against a PAT of Rs 49 crore on operating income of Rs 1,132 crore for the same period of previous
fiscal.

Key Financial Indicators

As on/for the period ended March 31 2018 2017
Revenue Rs crore 1931 1548
Profit after tax Rs crore 121 87
PAT margins % 6.3 5.6
Adjusted debt/Adjusted networth Times 0.97 1.12
Interest coverage Times 8.48 6.49

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.

3
Annexure - Details of Instrument(s)
Date of Coupon Maturity Issue size Rating assigned
ISIN Name of instrument
allotment rate (%) date (Rs crore) with outlook
NA Fund Based Facilities NA NA NA 100.00 CRISIL A+/Positive
NA Fund Based Facilities* NA NA NA 275.00 CRISIL A+/Positive
Proposed Long Term Bank
NA NA NA NA 16.50 CRISIL A+/Positive
Loan Facility
NA Term Loan NA NA Sep-20 60.00 CRISIL A+/Positive
NA Non-Fund Based Facilities NA NA NA 21.50 CRISIL A1+
*Interchangeable with CC/OD/WCDL/EIF/CBN/EBD/IIF/WCDL/PCFC/PSFC/EPC /EBD/PBD/PIF/LC/BG

Annexure - Rating History for last 3 Years

Start of
Current 2019 (History) 2018 2017 2016
2016

Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount
CRISIL CRISIL CRISIL
Fund-based Bank LT/S
451.50 A+/Positi -- -- 28-07-17 Withdrawn 20-06-16 BBB+/Sta BBB/Stab
Facilities T
ve ble le

Non Fund-based LT/S CRISIL CRISIL CRISIL

21.50 -- -- 28-07-17 Withdrawn 20-06-16
Bank Facilities T A1+ A2 A3+
All amounts are in Rs.Cr.

Annexure - Details of various bank facilities

Current facilities Previous facilities
Amount Amount
Facility Rating Facility Rating
(Rs.Crore) (Rs.Crore)
CRISIL
Fund-Based Facilities 100 Bank Guarantee 10 Withdrawn
A+/Positive
Non-Fund Based Limit 21.5 CRISIL A1+ Cash Credit 125 Withdrawn
Proposed Long Term CRISIL
16.5 Letter of Credit 20 Withdrawn
Bank Loan Facility A+/Positive
CRISIL
Term Loan 60 Standby Line of Credit 8 Withdrawn
A+/Positive
CRISIL
Fund-Based Facilities* 275 Term Loan 82.56 Withdrawn
A+/Positive
Working Capital
-- 0 -- 141 Withdrawn
Demand Loan
Total 473 -- Total 386.56 --
*Interchangeable with CC/OD/WCDL/EIF/CBN/EBD/IIF/WCDL/PCFC/PSFC/EPC /EBD/PBD/PIF/LC/BG

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 rating short term debt

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5
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“Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not
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services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this
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We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into
consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment
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otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision
within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any
securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as
of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its
opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors
and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional
advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

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6
or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other
applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available
for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and
undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business
units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have
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information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing
conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument
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