ICRA has assigned an IPO Grade 2 indicating below average fundamentals, to the proposed initial public offering of Hilton Metal Forging Limited (HMFL).

ICRA assigns IPO gradings on a scale of IPO Grade 5 through IPO Grade 1,with Grade 5 indicating strong fundamentals and Grade 1 indicating weak fundamentals.

The assigned grading takes into account the track record of profitable operations,established relationship with key intermediaries in the export market and buoyant demand outlook for the key end user industries The grading alsotakes into consideration promoter’s experience and past track record in this business line.

The grading is however constrained by the large size of the proposed project in relation to the existing asset base and accruals of the company,project implementation risks inherent in a project of this magnitude and the limited financial flexibility available to the promoters to fund any contingencies that may arise.The company’s ability to market the increased volumes of the product after the project is commissioned also remains to be seen, even though the
promoter’s established relationship in the export markets is a comfort factor .

ICRA notes that the lack of any backward linkage exposes the company to volatility inherent in prices of critical raw material like stainless steel. While the  company’s operations have been profitable, cash flow from operations have been mostly negative, primarily on account of high working capital. The rating is also cons trained by the overriding dependence on the current CMD in the operations of the company.