Rationale

 The rating action for Oswal Cable Products Pvt. Ltd. (OCPPL) factors in the sustained moderate operating margins, low cash accruals and debt coverage metrics in FY2025. Its revenue is estimated to grow by 4-5% YoY and its operating margins are likely to be 3-4% resulting in low cash accruals (Rs. 2-2.5 crore) and moderate debt coverage metrics with interest cover of 1.5- 1.6 times in FY2025. While OCPPL’s operating income (OI) stood at Rs. 206 crore in FY2024 (FY2023: Rs. 209 crore and FY2022: Rs. 225 crore), the operating profitability declined to 2.3% in FY2024 (FY2023: 3.1% and FY2022: 6.8%), largely on account of increase in raw material costs and inability of the company to pass on the same to customers. Consequently, the net accruals stood at Rs. 1.5-2 crore in FY2023-FY2024 against Rs. 8.5-9.5 crore in FY2021-FY2022, while the interest cover reduced to 1.4 times for FY2024 (1.5 times in FY2023 and 3.2 times in FY2022). This has led to weakening of cash accruals and debt protection metrics on a sustained basis. However, the company does not have any external debt and has interest-bearing promoter debt of Rs. 43.5 crore as on March 31, 2024. The ratings are constrained by its exposure to raw material price fluctuation risk and intense competition in the industry, which limits the pricing flexibility of the company. The ratings factor in the exposure of OCPPL’s margins to foreign exchange fluctuation risk due to the absence of a strong hedging policy, as about 44% in FY2024 (FY23: 46%) of its total material requirements are met through imports. Further, any sizeable non-core investment in the medium term adversely impacting its liquidity position will remain a key monitorable. The ratings factor in the extensive experience of promoters with an established track record of operations in the trading of polymers and additives, along with continuing debt-free status (excluding unsecured loans from promoters). The capital structure is likely to remain comfortable with no capex plans in the medium term. The ratings takes into consideration the wide variety of products offered by OCPPL with application across multiple sectors and the diversified clientele with top five customers contributing to around 9% in 9M FY2024 (FY2023: 14%), reflecting its low client concentration risk. The company is also expected to get Rs. 0.5-1 crore of rental revenues in FY2025 from the leased properties. The Stable outlook on the long-term rating reflects ICRA’s opinion that OCPPL will benefit from its comfortable working capital cycle, no external debt and adequate liquidity position.