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Rationale
The assigned ratings
for the bank facilities of Apollo Pipes Limited (APL) note its established
position in the domestic PVC pipes industry under brand name of APL Apollo,
supported by its expansive product profile, strong dealership network and a
comfortable financial profile. The ratings favourably factor in the company's
pan-India manufacturing presence to address demand in various regions, while
keeping the logistic costs under check. Moreover, its product basket comprising
polyvinyl chloride (PVC) pipes, chlorinated polyvinyl chloride (CPVC) pipes and
high density polyethylene (HDPE) pipes addresses requirements in agriculture,
housing, water management segments with agriculture being the highest end-user
segment for the company. APL has recently ventured into value-added products
such as bathroom fittings, water tanks and S.S. kitchen sinks to improve its
product mix and reduce the inherent seasonality of the business. Further, the
ratings consider its steady growth in scale of operation over the past five
years on the back of deeper penetration in the market besides expanding
geographic reach with set up of new capacities in South and Central India,
along with comfortable capital structure with gearing at 0.16 times as on
December 31, 2020, healthy debt coverage metrics and a favourable liquidity
profile. The ratings are, however, constrained by the geographical
concentration with most of its revenue derived from Uttar Pradesh and intense
competition in the PVC pipe industry due to presence of various organised and
unorganised players. The ratings further note the vulnerability of the
company's profitability to raw material price variations, which is a crude oil
derivative. Additionally, APL is exposed to foreign currency fluctuation risk
in light of significant dependence on imported raw material. The Stable outlook
on the [ICRA]A rating reflects ICRA's opinion that APL will maintain its
business position in the PVC pipe industry and would continue to demonstrate
healthy growth in revenues, profits and cash accruals and maintain comfortable
coverage metrics. Key rating drive
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