From Latest credit ratings
Large Capex Majorly Self-funded: UML is undertaking debottlenecking, modernisation, upgradation and capacity enhancement of the plant at Ranchi, Jharkhand, which shall enhance its overall capacity in India by around 25% to 291,000 tonnes per annum (TPA). UML also plans to enhance capacity at its Thailand plant by 8% to 39,000TPA. The total estimated cost is INR5.390 billion (increased from INR2.856 billion due to increase in scope) and the capacities are likely to become operational in phases over 3QFY24-1QFY26. Around 80% of the project will be funded by internal accruals and the balance by term debt (INR1.00 billion; 100% sanctioned, INR0.55 billion yet to be disbursed as on 31 March 2023). The capacity expansion plan also includes adding new high-value, high-margin niche products to UML’s portfolio, having a significant demand in the export market. Thus, the expanded capacities shall be more EBITDA-accretive than the existing operations once fully operational. Ind-Ra believes the company shall have adequate internal accruals supported by strong operational cash flows (likely to be over INR3 billion per year), free cash balances (FYE23: INR1.569 billion), unutilised working capital lines (end-March FY23: INR3.17 billion) as well as the realisation of pending dues from TSLPL (INR0.8 billion). UML shall remain 100% self-sufficient in terms of power as its existing power plant has surplus capacity. Also, with the modernisation and upgradation of facilities, the total power consumed per unit is likely to reduce, thereby improving the efficiency of operations over the medium term.
Ability to Pass on Raw Material Price Volatility: Despite the absence of backward integration post the sale of its steel division, UML demonstrated strong operational performance over FY20-FY23 with no supply glitches. It now procures key raw material (wire rods) from the open market. However, during the slump-sale, UML had entered into an agreement with TSLPL for the supply of 100,000TPA of wire rods from the Jamshedpur unit up to FYE24; this ensures raw material availability for around 50% of the requirement. For the balance requirement, the company relies on other domestic players in its vicinity and has diversified its supplier base over the last 12 months. As most of the production is order-based, UML has been able to pass on volatility in raw material prices, albeit with a lag, as reflected in its range-bound EBITDA per tonne
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