Newage Fire Protection Industries Private Limited

May 30, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Fund Based Limits 6.30 6.30 [ICRA]BB (Stable)/ [ICRA]A4+;
Reaffirmed
Fund Based sub-limits (1.50) (1.50) [ICRA]A4+; Reaffirmed

Non-fund Based Limit 5.50 5.50 [ICRA]A4+; Reaffirmed

Non-fund Based sub-limits (2.00) (1.50) [ICRA]A4+; Reaffirmed

Unallocated Limits 3.05 3.05 [ICRA]BB (Stable)/ [ICRA]A4+;

Reaffirmed

Rating action
ICRA has reaffirmed the long-term rating of [ICRA]BB (pronounced ICRA double B) and the short-term rating of [ICRA]A4+
(pronounced ICRA A four plus) assigned to the fund-based, non-fund based and unallocated limits aggregating to
the Rs. 14.85-crore1 bank facilities of Newage Fire Protection Industries Private Limited (NFPIPL or the company) 2. The
outlook on the long-term rating is Stable.

Rationale
The ratings reaffirmation of NFPIPL continues to factor in the extensive experience of the promoters in the fire fighting
equipment industry along with operational and financial synergy derived from sister concerns engaged in similar
businesses. The ratings also take into consideration the diversified and reputed customer base of the company, which
limits counter-party risk along with the favourable demand scenario, given the growing needs and increasing awareness
about fire safety and security among commercial, industrial segments and real estate projects.
The ratings, however, continue to remain constrained by the company’s moderate scale of operation with volatile
operating income, given the fluctuating revenue from trading activities. Furthermore, in FY2018, the increase in low value-
added trading activities has significantly moderated the operating margin of the company. In addition, the company’s
profitability remains vulnerable to fluctuating raw materials prices and competitive pressures in the fragmented industry
structure, which also restrict its pricing flexibility. While ICRA notes an improvement in the company’s gearing level backed
by repayment of term loans and lower utilisation of working capital limits, higher creditor funding in the business has led
to an elevated TOL/TNW to ~2.76 times as on March 31, 2018.

Outlook: Stable
ICRA expects NFPIPL to continue to benefit from the extensive experience of its promoters in the fire equipment industry,
who will gradually guide the future growth of the company. The outlook may be revised to Positive if significant increase
in scale of operations, along with uptick in profitability levels, is witnessed backed by improvement in capacity utilisation
and operational efficiency, as well as improvement in working capital cycle by reduction in receivable position and
inventory levels. Conversely, the outlook may be revised to Negative if cash accrual is lower than expected due to reduction

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
in revenues or margins, deterioration in capital structure or adverse credit terms with customers and suppliers as well as
increase in high inventory levels, leading to a stretch in the working capital cycle.

Key rating drivers

Credit strengths
Extensive experience of promoters in the fire fighting equipment industry – Key directors of the company, Mr. Bharat
Shah and Mr. Ashok Shah, have experience of around four decades in the manufacturing of fire fighting equipment. This
extensive experience of the promoters will guide the future growth of the company
Operational synergies from sister concerns engaged in related business sectors - The company receives operational
support in terms of client acquisition and competitive raw materials pricing due to its sister concerns, Newage Fire
Protection Engineers Pvt. Ltd. and Fitech Equipments Pvt. Ltd., who are engaged in related businesses of manufacturing
and installing fire safety equipment. The company also receives financial support from other sister concerns, who are
investment companies.
Diversified and reputed customer base - The customer profile of the company consists of the fire fighting departments of
various state governments, corporate offices, industrial units, real estate developers as well as traders and service
providers in the fire fighting industry. The firm’s clientele includes several well-established players from the oil and gas,
engineering and real estate sectors. Further, its top 10 customers contributed ~20% to total revenues during the last two
years, indicating a well-diversified customer base, which reduces counter-party risk.
Growing need and awareness about fire safety and security across industries - The demand for fire and safety equipment
is expected to rise amid the country’s economic growth, rapid industrialisation, as well as the growing commercial sector
and real estate industry. The usage and application of fire safety equipment is expected to increase with corporations and
commercial entities laying more emphasis on fire safety and security.

Credit challenges
Moderate and fluctuating scale of operation - Scale of operations has remained moderate and fluctuating over the last
few years. Operating income declined by ~12% to ~Rs. 67.80 crore in FY2017 from ~Rs. 77.43 crore in FY2016, and later
bounced back with a growth of ~27%, leading to OI of ~Rs. 85.95 crore in FY2018, backed by fluctuations in trading
operations, which contributes ~45-60% to total revenues.
Moderation in operating margin, given the increase in low value-added trading operation in FY2018 - Overall, the
profitability has remained moderate, since low value-added trading operations contribute considerably to total revenues.
Further, fluctuations within the same lead to fluctuations in overall profitability of the company. Decrease in trading
operations and simultaneous increase in manufacturing activities during FY2017 led to an increase in OPM to ~10.76% in
FY2017 from 6.77% in FY2016. However, the OPM moderated to ~5.06% during FY2018 due to significant increase in
revenues from trading operations, while revenues from manufacturing operations remained in line with the previous year.
Fluctuations in OPM has led to fluctuations in NPM of the company during the last two years.
Profitability remains susceptible to variations in raw material prices - The key raw materials required by the company
include rubber, polyesters, gunmetal, copper, stainless steel, and aluminium, which are primarily procured from domestic
markets. The prices of key raw materials have been fluctuating over the last few years, which affect profit margins as the
company holds inventory for a period of around 30-45 days. Furthermore, a large number of players in organised as well
as unorganised segments for the manufacturing and installation of fire fighting equipment leads to stiff competition within
the industry, which limits the pricing flexibility of the company.
Higher creditor funding in the business has led to elevated TOL/TNW to 2.76 times as March 31, 2018 – The capital
structure has improved over the years, backed by repayment of term loans and unsecured loans, lower utilisation of
working capital limits and increase in net worth level. However, higher creditors funding in the business leads to moderate
coverage ratios as represented by elevated TOL/TNW to ~2.76 times as on March 31, 2018.
Presence in fragmented industry structure leading to high competition - The industry consists of a large number of players
in the organised as well as unorganised segments for manufacturing, trading and installation of fire fighting equipment.

2
Furthermore, the market is flooded with counterfeit products and cheap imports from China, which pose a threat to overall
margins in the industry. The company faces stiff competition from the domestic as well as international markets, which
limits its pricing flexibility.
Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.
Links to applicable criteria:
Corporate Rating Methodology

About the company:

Incorporated in 2010, Newage Fire Protection Industries Private Limited manufactures various types of hose pipes,
couplings, hydrant valves, nozzles, and other products required for establishing a fire protection system. The company also
trades in various products required for setting up fire protection systems. Mr. Ashok Shah and Mr. Bharat Shah are the key
directors with an experience of around four decades in this business sector. The company’s corporate office is at Sion in
Mumbai, and its manufacturing facility is at Khopoli, Thane (Maharashtra).

The company has recorded a net profit of ~Rs. 1.77 crore on an operating income of ~Rs. 85.95 crore as per FY2018
provisional financials, against a net profit of ~Rs. 3.38 crore on an operating income of ~Rs. 67.80 crore for FY2017.

Key financial indicators

FY2016 FY2017 FY2018
Audited Audited Provisional
Operating Income (Rs. crore) 77.43 67.80 85.95
PAT (Rs. crore) 1.44 3.38 1.77
OPBDIT/ OI (%) 6.77% 10.76% 5.06%
RoCE (%) 13.35% 22.96% 11.49%

Total Debt/ TNW (times) 1.91 0.87 0.90

Total Debt/ OPBDIT (times) 3.25 1.52 3.01
Interest Coverage (times) 3.88 12.06 8.69
NWC/ OI (%) 12.84% 11.61% 13.96%

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

3
Rating history for last three years:
Chronology of Rating History for the
Current Rating (FY2019) past 3 years
Amount Amount Date Date & Date & Date &
Rated Outstanding &Rating Rating in Rating in Rating in
(Rs. crore) (Rs. crore) FY2018 FY2017 FY2016
May 2018 - March March
Instrument Type 2017 2016
1 Fund Based Long 6.30 - [ICRA]BB - [ICRA]BB [ICRA]BB
Limits Term & (Stable)/ (Stable)/ (Stable)/
Short [ICRA]A4+ [ICRA]A4+ [ICRA]A4+
Term
2 Fund Based sub- Short (1.50) - [ICRA]A4+ - [ICRA]A4+ [ICRA]A4+
limits Term
3 Non-fund Based Short 5.50 - [ICRA]A4+ - [ICRA]A4+ [ICRA]A4+
Limit Term
4 Non-fund Based Short (1.50) - [ICRA]A4+ - [ICRA]A4+ [ICRA]A4+
sub-limits Term
5 Unallocated Long 3.05 - [ICRA]BB - [ICRA]BB [ICRA]BB
Limits Term & (Stable)/ (Stable)/ (Stable)/
Short [ICRA]A4+ [ICRA]A4+ [ICRA]A4+
Term

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
Date of
Issuance / Coupon Maturity Amount Rated Current Rating and
ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook
- Cash Credit - - - 4.80 [ICRA]BB (Stable)
- PC/FBP/FBD/FCBP/FCBD - - - 1.50 [ICRA]A4+
Packing credit (Sublimit
- - - - [ICRA]A4+
of FBP/FBD) (1.50)
- Letter of credit - - - 2.00 [ICRA]A4+
Buyers credit (Sublimit
- - - - [ICRA]A4+
of LC) (1.50)
- Bank Guarantee - - - 3.50 [ICRA]A4+
Unallocated Limited [ICRA]BB (Stable)/
- - - - 3.05
[ICRA]A4+
Source: Newage Fire Protection Industries Private Limited

5
ANALYST CONTACTS
K. Ravichandran Suprio Banerjee
+91 44 4596 4301 +91 22 6114 3443
ravichandran@icraindia.com supriob@icraindia.com

Srinivas Menon Nandan Shah

+91 22 6169 3354 +91 22 6169 3353
srinivas.menon@icraindia.com nandan.shah@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