Press Release Vijay Tanks and Vessels Private Limited

1 1 CARE Ratings Limited Press Release Vijay Tanks and Vessels Private Limited February 01, 2018 Ratings Facilities Amount (Rs. crore) Rating1 Rating Action Long Term Bank Facilities CARE A+; Stable (Single A Plus; Outlook: Stable) Reaffirmed Long Term/Short Term Bank Facilities CARE A+; Stable/CARE A1+ (Single A Plus; Outlook: Stable / A One Plus) Reaffirmed Total Facilities (Rupees Four Hundred Sixteen Crore and Thirty Lakh Only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The ratings for the bank facilities of Vijay Tanks and Vessels Pvt.

2 Ltd. (VTV) continue to derive strength from its established market position in the Engineering, Procurement and Construction (EPC) business for oil and gas storage terminals and manufacturing of heavy process equipment with proven execution capabilities and its reputed clientele. The ratings further continue to derive strength from VTV s stable profitability, comfortable leverage and debt coverage indicators, healthy liquidity and expected improvement in demand for company s business in the medium term. The ratings, however, continue to be constrained by VTV s working capital intensive operations, susceptibility of its profitability to volatility in raw material prices and foreign exchange rates and its moderate order book amidst a challenging industry scenario.

3 The ratings are also tempered on account of decline in company s total operating income (TOI) during FY17 (refers to the period April 1 to March 31) and H1FY18. VTV s ability to increase its scale of operations through greater product diversification, and manage its working capital efficiently while maintaining its comfortable capital structure would be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Established market position in EPC of storage terminals along with strong clientele VTV has an established position in the domestic market for various types of storage terminals and process equipment.

4 VTV s products find application largely in the oil & gas, petrochemical, fertilizers, chemical and other process oriented industries. In its project division, VTV undertakes EPC/Lump Sum Turn Key (LSTK) work for various storage products including atmospheric, low temperature and cryogenic storage Tanks , high pressure storage spheres, mounded storage bullets, silos and gas holders. VTV s manufacturing division is engaged in production of specialized process equipment including pressure Vessels , process columns, reactors, heat exchangers and pipe spools.

5 During FY17, project division contributed 85% of its revenue while manufacturing division contributed 15% of its revenue. VTV s clientele comprises of leading players in these industries including leading domestic players such as Oil & Natural Gas Corp. Ltd. (ONGC; rated CARE AAA; Stable/CARE A1+ ), Reliance Industries Ltd. (rated CARE AAA; Stable/CARE A1+ ), Indian Oil Corp. Ltd. (IOCL), Bharat Petroleum Corp. Ltd. (BPCL; rated CARE AAA; Stable), GAIL (India) Ltd. (GAIL; rated CARE AAA; Stable/CARE A1+ ) and Petronet LNG Ltd. (PLL). It has also established its presence in the Middle East Asia and Africa for these businesses with projects undertaken for various clients in these regions.

6 Moderate order book translating into fair revenue visibility VTV had an outstanding order book of crore ( FY17 TOI) as on December 31, 2017, which declined from crore as on December 31, 2016. Out of the total order book, 51% was for storage Tanks and terminals and the balance was for equipment supply, including exports. Majority of the outstanding orders were from government owned oil & gas utilities and large Private refiners translating into a minimal credit risk. 1 Complete definition of the ratings assigned are available at and other CARE publications 2 CARE Ratings Limited Press Release Comfortable leverage and debt coverage indicators along with healthy liquidity VTV s leverage remained comfortable as on March 31, 2017, with no long-term loans and nil utilization of fund based working capital limits.

7 However, it has sanctioned non-fund based bank guarantee/letter of credit limits of crore which it utilizes for providing performance, advance payment and bid bond guarantees to its clients as well as for procurement of raw material. It also had free cash and bank balance (incl. liquid investments) of crore as on September 30, 2017, underlining its strong liquidity. Key Rating Weaknesses Risk associated with volatility in raw material prices and foreign exchange rate fluctuation and working capital intensive operations VTV s major production cost comprises of various grades of steel.

8 As majority of VTV s contracts are on fixed price basis, its profitability is exposed to any adverse movement in the prices of steel. The company, however, tries to mitigate the risk with back-to-back quotations from its suppliers for its bids, minimizing the price mismatch to that extent. Further, VTV imports certain raw material, specifically certain qualities of steel. This exposes it to any adverse movement in forex rates for its purchases. The level of imported material, however, varies and depends on the quality of steel required by its customers.

9 VTV s operations are working capital intensive in nature on account of high receivable days. The payment for VTV s project division orders is generally linked to project progress and the clients also retain a certain percentage which is paid on completion of the contract or in certain cases on completion of client s overall project. However, comfort is derived from company s healthy liquidity and most of the company s working capital requirements are funded through internal accruals. Reduction in TOI during FY17 and H1FY18; albeit with improvement in profitability The TOI of the company declined from crore during FY16 to crore during FY17 on account of lower execution of orders.

10 Furthermore, the TOI declined from crore during H1FY17 to crore during H1FY18. However, PBILDT margins increased from during FY16 to during FY17. Improvement in PBILDT margins also led to company s PAT growing from crore during FY16 to crore during FY17. Industry Prospects The performance of the capital goods industry has largely remained subdued during last few years on account of slowdown in the global economy impacting demand, high interest rates, investment deferrals by key players, low credit sanctioned, environmental and procedural delays, collectively affecting the credit quality and liquidity of the players translating into pressure on their profitability and working capital cycles.