ICRA : re-affirms the long-term rating of BB(Stable) for bank facilities of Kimplas Piping Systems Limited (ISSUER NOT COOPERATING)*

June 08, 2017

Kimplas Piping Systems Limited

Summary of Rated Instruments

Instrument^	Rated Amount (Rs. crore)	Rating Action*
Long Term Fund Based : Cash Credit	23.00	[ICRA]BB(Stable); Re-affirmed
Long Term Fund Based : Term Loan	9.00	[ICRA]BB(Stable); Re-affirmed
Long Term Non Fund Based Limits	8.00	[ICRA]BB(Stable); Re-affirmed
Total	40.00

*Issuer did not co-operate; based on best available information.

^Instrument details captured under Annexure-1

Rating action

ICRA has re-affirmed the long-term rating of [ICRA]BB (pronounced ICRA double B) for the Rs. 23.00 crore1cash credit facility, Rs. 9.00 crore term loan facility and the Rs. 8.00 crore non fund based limits of Kimplas Piping Systems Limited (KPSL / the company)2. The long-term rating has a 'Stable' outlook.

Rationale

The rating action is based on best available information. As part of its process and in accordance with its rating agreement with Kimplas Piping Systems Limited, ICRA has been trying to seek information from the company to undertake a surveillance of the rating; but despite multiple requests, the company's management has remained non-cooperative. In the absence of the requisite information, ICRA's Rating Committee has taken a rating view based on the best available information. In line with SEBI's Circular No. SEBI/HO/MIRSD4/CIR/2016/119, dated November 01, 2016, the company's rating is now denoted as: "[ICRA]BB(Stable); ISSUER NOT COOPERATING". The lenders, investors and other market participants may exercise appropriate caution while using this rating, given that it is based on limited information or no updated information on the company's performance since the time it was last rated.

Key rating drivers Credit strengths

• Experience of the promoters in manufacturing and development of electro-fusion products for the infrastructure and irrigation segments; supported by a well qualified and an experienced management team

• Healthy growth levels posted in last two fiscals, since turnaround in operations from FY14 onwards, supported by judicious shift in product mix

• Demonstrated support extended by the promoters by infusion of funds, limiting external borrowing

1. 100 lakh = 1 crore = 10 million

2. For complete rating scale and definitions, please refer to ICRA's website (www.icra.in) or other ICRA rating publications.

   Credit weaknesses

   • Working capital intensive nature of operations with high inventory holding requirements and an elongated receivable cycle resulting in a stretched liquidity

   • Modest scale of operations as the company manufactures electro-fusion products in the fittings industry Exposure to raw material price risk due to volatile nature of key raw material and absence of long term contracts with suppliers; however the risk in export sales is mitigated given presence of raw material price escalations in its long term contracts

   • Exposure to foreign exchange risk in the absence of a firm hedging policy being adopted

Description of key rating drivers:

The products manufactured by the company are used primarily in four major segments-gas distribution systems, water distribution systems, micro-irrigation, and water and gas distribution systems-in residential buildings. The company had been majorly supplying to the gas distribution and the water distribution segments in the past which together accounted for 80% of its total revenues till June 2011 but has now shifted its focus to the irrigation and the export segments as a result of which the proportion of revenues from the city gas distribution and water distribution segments now account for 29% of the revenues whereas the revenues from the irrigation segment accounted for 24% during FY2015. The company also caters to clients in the UK (mainly large gas utility companies like Scottish & Southern Energy Plc, Wales & West Utilities Ltd and National Grid Gas) through its wholly-owned subsidiary, Kimplas Limited, UK and is one of the key suppliers of electro fusion fittings in the UK market. The key raw material required by KPSL is polyethylene and the company imports particular grade of this product which is not available domestically. Also, the company imports certain fittings not available in the domestic market and the total imports accounted for 18% of its raw material and traded goods cost. Hence, as the company is a net exporter, it remains exposed to foreign exchange fluctuation risk in the absence of a firm hedging mechanism being adopted. Moreover, the company also remains exposed to raw material price fluctuation risk as there are no long term agreements with suppliers. Nevertheless, the price risk is mitigated as far as export sales are concerned given the presence of price escalation clauses in the long term contractors entered into with the gas distribution companies in UK.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria:

Corporate Credit Ratings - A Note on Methodology

About the company:

Kimplas Piping Systems Limited (KPSL) was incorporated on February 8, 1996, as George Fischer Trenton Limited. The company started its manufacturing facilities in 1997 to produce electro-fusion fittings required for polyethylene piped city gas distribution systems used by gas companies like Mahanagar Gas and Gujarat Gas. KPSL has expanded its product line of electro-fusion fittings and added compression fittings, valves and components for micro-irrigation systems. Currently it manufactures a wide range of electro-fusion fittings, compression fittings, transition fittings and specialized housing service connections from polyethylene mains. KPSL also has a wholly-owned subsidiary, Kimplas Limited, UK to tap the UK market.

Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating history for the last three years: Table:

S. No	Name of Instrument	Current Rating			Chronology of Rating History for the past three years
		Type	Rated amount (Rs. crore)	Month-year & Rating in FY2018	Month- year & Rating in FY2017	Month- year & Rating in FY2016	Month- year & Rating in FY2015
June 2017	-	December 2015	May 2014
1	Cash Credit	Long Term	23.00	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)	[ICRA]B+
2	Term Loan	Long Term	9.00	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)	[ICRA]B+
3	Bank Guarantee / Letter of Credit	Long Term	8.00	[ICRA]BB (Stable)	-	[ICRA]BB (Stable)	[ICRA]B+

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1

Instrument Details

Name of the instrument	Date of issuance/ sanction	Coupon rate	Maturity Date	Size of the issue (Rs. crore)	Current Rating and Outlook
Cash Credit	-	-	-	23.00	[ICRA]BB (Stable)
Term Loan	-	-	FY2021	9.00	[ICRA]BB (Stable)
Bank Guarantee / Letter of Credit	-	-	-	8.00	[ICRA]BB (Stable)

Source: Kimplas Piping Systems Limited