Kirby Building Systems India Private Ltd

June 08, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Fund Based Cash [ICRA]AA-(Stable); upgraded from
13.00 13.00
Credit Limits [ICRA]A+(Positive)
Non Fund Based Limits 314.00 314.00 [ICRA]A1+ reaffirmed
[ICRA]AA-(Stable); upgraded from
Unallocated Limits 3.00 3.00
[ICRA]A+(Positive)/[ICRA]A1+; reaffirmed
Total 330.00 330.00

Rating action
ICRA has upgraded the long-term rating assigned to the Rs. 13.00 crore1 fund-based cash credit limits of Kirby Building
Systems India Private Ltd (KBSIPL or the company) 2 from [ICRA]A+ (pronounced ICRA A plus) to [ICRA]AA- (pronounced
ICRA double A minus) and reaffirmed the short-term rating of [ICRA]A1+(pronounced ICRA A one plus) assigned to the Rs
314.00 crore non-fund based limits of KBSIPL. ICRA has also upgraded the long rating assigned to the Rs 3.00 crore
unallocated limits of KBSIPL from [ICRA]A+ to [ICRA]AA- and reaffirmed the short term rating at [ICRA]A1+. The outlook
on the long term rating is revised from Positive to Stable.

Rationale
While arriving at the rating, ICRA has taken a consolidated view of Kirby India(KI) which includes Kirby Buildings Systems
India (Uttaranchal) Pvt. Ltd (KBSIUPL) and its 100% subsidiary Kirby Building Systems India Private Ltd (KBSIPL) as both are
in the same line of business.

The rating upgrade factors in the sizable increase in operating income (OI) to Rs. 1079.9 crore in CY2017 backed by an
improved demand scenario; and the continuing prospects of healthy growth in the near term with the order book
outstanding at ~Rs 1090 crore as on April 30, 2018. The ratings continue to factor in strong parentage by virtue of being a
wholly owned subsidiary of Alghanim Industries which has longstanding experience of 40 years globally in Pre Engineered
Building (PEB) system design, fabrication and supply; diversified client portfolio for supply of PEBs to reputed clients with
KI completing many large projects for companies such as Skoda, Tata Group, Reliance Industries, Hindustan Unilever,
Colgate Palmolive and Renault-Nissan etc; and geographically diversified sales network in India with sales offices in more
than 15 cities. The ratings also consider the comfortable debt coverage indicators and strong liquidity position with cash
& liquid investments of Rs 178.94 crore as on December 31, 2017 backed by a favourable working capital cycle. ICRA also
notes the strong brand image of Kirby in the domestic PEB business and the market leadership of Kirby in the domestic
PEB segment.

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

1
The ratings are however constrained by high Total Outside Liabilities / Tangible Net Worth of 1.71 times as on December
31, 2017 on account of high creditors with company procuring raw material against LC of 120 days; high dependence of
revenues on the capital investments across key user industries, which expose KI to any slowdown in the end user segment
as seen in the past; and risks associated with fluctuations in raw material prices given that majority of the projects are
fixed price contracts. However, quarterly price-fixation with suppliers mitigates the risk to an extent and supported the
profitability margins. Further, high competition with numerous large established players in the PEB manufacturing segment
constraints the profitability margins which has been around 9-11% levels for the past three years. ICRA notes the capex
plans of Rs 120.00 crore towards setting up of a new unit which is expected to be funded through a mix of debt and internal
accruals.

Outlook: Stable
The stable outlook reflects ICRA’s belief that KI will continue to benefit from the extensive experience of its promoters in
the PEB manufacturing industry. The outlook may be revised to 'Positive' if there is substantial growth in revenues,
consistent improved in the profitability margins and further strengthening of the liquidity position. Conversely the outlook
may be revised to ‘Negative’ if there is decline in revenue, dip in operating margins, capex is higher than estimated
deteriorating the capital structure and debt protection metrics and weakening of liquidity position.

Key rating drivers

Credit strengths
• Healthy growth in revenues and strong order-book position: The operating income (OI) increased by 11% to Rs.
1079.9 crore in CY2017 from Rs. 974.0 crore in CY2016; further OI increased by 7% to Rs. 384.2 crore in 4M CY2018
mainly due to improved demand from end-user segments. The order book of KI is strong at ~Rs. 1090 crore as on April
30, 2018 which will support revenue growth in the near term.
• Improved capacity utilization levels and market leader in the domestic PEB industry: Kirby has the largest installed
capacity of 200,000 MT for PEB in India. The capacity utilization of KI has increased from 59% in CY2016 to 63.9% in
CY2017 and further to 65% in 4MCY2018 due to improved order book and execution. Kirby has strong brand image in
the PEB market and is the market leader in India.
• Diversified client portfolio: Kirby India has completed many large projects with cumulative installation of around
600,000 MT in the last five years and has been associated with companies such as Tata Group, Reliance Industries,
Hindustan Unilever, UNICEF, BMW, Renault-Nissan, Asian Paints, ITC Limited, Dr. Reddy’s Laboratories Ltd., etc. and
has consistently been able to get repeat orders from its customers.
• Strong parentage and geographically diversified sales network: KBSIPL & KBSIUPL are part of Alghanim Industries
which has an experience of 40 years globally in the PEB system design, fabrication and supply under Kirby brand. Kirby
has sales offices present in more than 15 cities; outstanding order book is spread across the country.
• Comfortable debt coverage indicators with strong liquidity position: KI doesn’t have any debt outstanding and the
coverage indicators are healthy with interest coverage ratio of 9.38 times. Further, the liquidity position is strong with
free cash balances of Rs 178.94 crore as on December 31, 2017. The working capital intensity is negative at -7% due
to significant credit period availed from suppliers and advances from customers.
Credit weaknesses
• Revenues depend on the capital investments: The revenues for Kirby India are dependent on the capital investments
across key user industries with slowdown in the end-user segment affected the revenues of the company in the past.
The diversified order book mitigates the risk of slowdown to an extent and current order book comprises orders from
diverse sectors such as automobiles, paints, commercial complexes, etc.
• High Total Outside Liabilities(TOL)/Tangible Net Worth(TNW): The TOL/TNW is high at 1.71 times as on December
31, 2017 on account of high trade payables and significant advances from customers. The trade payables are high as
the raw materials are purchased against LC of 120 days and KI receives 20% of the contract value as advance payment
from the clients which is usually backed by bank guarantees of equivalent amount.

2
• Highly competitive industry: The company faces competition from other large established players in the PEB-
manufacturing segment in India constraining margins for Kirby. The operating margins are in the range of 9-11% over
the last three years despite established presence of Kirby; further, the operating margin has reduced from 11.61% in
CY2016 to 9.58% in CY2017 owing to increase in raw material prices.
• Exposed to fluctuations in raw material prices: The company is exposed to fluctuation in raw material prices given
that most of the orders are fixed-price in nature; however, quarterly price-fixation with suppliers mitigates the risk to
an extent and supported the profitability to an extent.
• Moderate Capex Plans: The company is planning to set up a new plant in western part of India with an estimated cost
of Rs 120.00 crore and same is expected to be funded by a mix of debt and internal accruals.

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

Links to applicable criteria:

Corporate Credit Rating Methodology

About the company:

Incorporated in 1998, Kirby Building Systems India Private Ltd (KBSIPL) is into manufacturing and erection of pre-
engineered buildings (PEBs). The company is a wholly-owned subsidiary of Kirby Building Systems India (Uttaranchal)
Private Ltd (KBSIUPL), which is also into manufacturing and erection of PEBs. KBSIUPL is a wholly-owned subsidiary of
Alghanim Industries (AI), based out of Kuwait, which has more than 30 businesses with operations in 40 countries. KBSIPL
was earlier wholly-owned subsidiary of AI however in CY2017, KBSIUPL has acquired 100% stake from AI and KBSIPL is now
step down subsidiary of AI. KBSIPL has its manufacturing facilities at Pashamylaram, Telangana near Hyderabad with an
installed capacity of 100,000 MT per annum while KBSIUPL has its manufacturing facilities at Haridwar, Uttarakhand with
an installed capacity of 100,000 MT per annum

Key Financial Indicators (KBSIPL & KBSIUPL Consolidated)

CY2016 CY2017 4MCY2018*
Operating Income (Rs. crore) 973.96 1079.89 384.20
PAT (Rs. crore) 76.52 61.37
OPBDIT/ OI (%) 11.61% 9.58% 13.28%
RoCE (%) 28.81% 28.37%

Total Debt/ TNW (times) 0.00 0.00

Total Debt/ OPBDIT (times) 0.00 0.00
Interest coverage (times) 9.50 8.66
*Provisional; Source: Annual Reports and ICRA Research

Status of non-cooperation with previous CRA: KBSIPL and KBSIUPL are listed under the ‘Non Co-operation
by the issuer’ category by CARE ratings due to inadequate information provided by the company.

Any other information: None

3
Rating history for last three years:
Chronology of Rating History for the past 3
Current Rating (FY2019) years
Amount Date & Date & Date &
Rated Amount Date & Rating in Rating in Rating in
(Rs. Outstanding Rating FY2018 FY2017 FY2016
Instrument Type crore) (Rs Crore) June 2018 Aug 2017 Oct 2016 -
1 Fund Based Long term 13.00 - [ICRA]AA- [ICRA]A+ [ICRA]A+ -
– Cash (Stable) (Positive) (Stable)
Credit
Limits
2 Non Fund Short term 314.00 - [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ -
Based-
Bank
Guarantee
3 Unallocated Long 3.00 - [ICRA]AA- [ICRA]A+ [ICRA]A+ -
Limits Term/Short (Stable)/ (Positive)/ (Stable)/
term [ICRA]A1+ [ICRA]A1+ [ICRA]A1+

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

4
Annexure-1: Instrument Details
Instrument Date of Issuance / Coupon Maturity Amount Rated Current Rating and
ISIN No Name Sanction Rate Date (Rs. crore) Outlook
NA Cash Credit 13.00 [ICRA]AA- (Stable)
NA Non Fund Based [ICRA]A1+
314.00
Limits
NA Unallocated [ICRA]AA-
3.00
Limits (Stable)/[ICRA]A1+
Source: Kirby Building Systems India Private Ltd

5
ANALYST CONTACTS
K. Ravichandran R Srinivasan
+91 44 4596 4301 +91 44 4596 4315
ravichandran@icraindia.com r.srinivasan@icraindia.com

Vinay Kumar G Kushal Kumar B

+91 40 4067 6533 +91 40 4067 6521
Vinay.g@icraindia.com kushal.kumar@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

6
ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in

Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87

Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294,
Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008,
Bangalore + (91 80) 2559 7401/4049
Ahmedabad+ (91 79) 2658 4924/5049/2008
Hyderabad + (91 40) 2373 5061/7251
Pune + (91 20) 6606 9999

© Copyright, 2018 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance,
which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to
timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest
information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and
reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable
care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in
particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA
or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely
as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents