Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 100.00 ACUITE BBB+ | Stable | Reaffirmed -
Total Outstanding Quantum (Rs. Cr) 100.00 - -
Total Withdrawn Quantum (Rs. Cr) 0.00 - -
 
Rating Rationale

Acuité has reaffirmed the long-term rating of ‘ACUITE BBB+’ (read as ACUITE triple B Plus) on the Rs. 100.00 Cr bank facilities of NR Steel and Ferro Private Limited (N R). The outlook is ‘Stable’.

The rating continues to reflect healthy business profile of the group marked by its long operational record with integrated operation. The group had registered strong operational performance during FY22 driven by rise in sale volume and average realization of steel products. The rating also considers the group’s comfortable financial risk profile marked by healthy net worth, sound debt protection metrics and modest leverage ratios. The ongoing debt funded capital expenditure programmes in the group would remain a rating sensitivity factor. The ratings are further constrained by moderation in operating margin during FY22 on account of rise in commodity prices.


About the Company
­NR Steel and Ferro Private Limited(NR Steel) was incorporated in August 2020. The company has undertaken a greenfield project to set up a manufacturing unit that will produce pig iron and billet. The proposed installed capacity for pig iron division is 164,000 MT per annum and 164,160 MT per annum for billet division. The proposed unit is expected to be operational by Q4FY22.
 
About the Group

­NR Ispat & Power Private Limited (NR Ispat), the flagship company of the group was incorporated in 2008 and is engaged in the manufacturing of sponge iron, billet and TMT. The company has installed capacity of 60,000 MT per annum for sponge iron, 96,000 MT per annum for MS billet, 96,000 MT per annum of rolled steel products and 8 MW of captive power plant. The company sells TMT under the brand name ‘Dollar Gold’.

NR TMT India Pvt Ltd (NR TMT) was incorporated in 2010. The company has a billet unit with a capacity of 113,400 MT per annum. In FY19, company had added a rolling mill with an installed capacity of 110,000 MT per annum. The company sells TMT under the brand name NR TMT.

Seleno Steels Limited was acquired by the NR group in FY18 and the name was changed to NRVS Steels Limited (NRVS). The company is engaged in the manufacture of sponge iron and billet. The company has installed capacity of 180,000 MT per annum for sponge iron. Recently in FY21 the company has added billet capacity of 51600 MT per annum along with 15 MW captive power plant. Moreover the company has undertaken a capex for setting up a rolling mill with an installed capacity of 150,000 MT per annum which is expected to be complete by Q3FY22.

All manufacturing units are located in Raigarh, Chhattisgarh.

 
Analytical Approach

Acuite has taken a consolidated view of NR Ispat & Power Private Limited (NR Ispat), NR TMT India Private Limited(NR TMT) and NVRS Steels Limited(NVRS), NR Steel and Ferro Private Limited(NR Steel) as all the 4 companies are in the same line of business, share a common management and have strong operational and financial linkages (NR TMT India procures sponge iron from NRVS) and NR Ispat & Power Private Limited holds around 42 percent of shares in NRVS Steels Limited. In addition, NR Ispat and NR TMT hold around 61 percent stake in NR Steel. The group herein is referred to as NR Group. Extent of consolidation: Full

 

Key Rating Drivers

Strengths

Integrated operation with large operational capacity
The NR group is promoted by the Agrawal family of Raigarh (Chattisgarh). The group is managed by Mr. Sanjay Agarwal, who has two decades of experience in the steel business. The group has integrated operations with capacities to produce sponge iron, steel billets and long products across three companies – NR Ispat, NR TMT and NRVS. The aggregate installed capacity of the NR Group is 240,000 MT of sponge iron, 476,760 MT of billets, 164,000 MTPA of ferro alloys/Pig iron and 356,000 MT of rolled steel products. In the current fiscal, the group has commissioned 164,000 MT of pig iron and 164,160 MT per annum for billet capacities in NR Steel.
The group has undertaken large capex plan to enhance existing capacities in NRVS and NR TMT. The project cost of ongoing capex is around Rs 292 Cr which will be funded through a mix debt and equity in 2:1 ratio. The expansion capex will enhance the existing sponge iron capacity to 395,000 MTPA, billet capacity to 761,760 MTPA and captive power source to 48 MW. The project is expected to complete by Q2FY24.

The group has registered sustained growth as revenue stood at Rs 1130 Cr in FY22(Provisional) as against Rs 768 Cr in FY21 and Rs 598 Cr in FY20. The improvement is driven by rise in  sale volume and average realization of steel products. Moreover, the growth is also driven by capacity addition during last 2FYs. The group has posted a revenue of Rs 345 Cr in Q1FY23(Provisional). The scale of operation expected to improve over the medium term backed by capacity addition.

Healthy financial risk profile
The financial risk profile of the group is marked by healthy net worth, comfortable gearing and strong debt protection metrics. The net worth of the group stood at Rs.250.64 Cr in FY2022 (Provisional) as compared to Rs.193.51 Cr in FY2021.The gearing of the group increased to 1.25 times as on March 31, 2022(Provisional) as compared to 0.86 times as on March 31, 2021 due to debt funded capex plan. TOL/TNW stood at 1.72 times in FY22(Provisional) as against 1.14 times in FY21.The group had witnessed significant rise in debt level because of continuous debt funded capex plan. Interest coverage ratio (ICR) stood strong at 8.20 times in FY2022(Provisional) as against 7.42 times in FY 2021. The debt service coverage ratio (DSCR) also stood comfortable at 2.41 times in FY22(Provisional) as against 2.40 times in FY2021. The improvement in interest coverage is driven by rise in absolute EBITDA backed by increased turnover levels. The net cash accruals against total debt (NCA/TD) stood at 0.27 times in FY22(Provisional) as compared to 0.39 times in previous year. Acuité believes the financial risk profile of the group will remain comfortable over the medium term backed by steady accruals and comfortable profit margin even though they might witness some moderation in FY’22 due to the ongoing capex in NRVS Steel.
                                                                                                                                       
Stable profitability margin
The group has reported steady operating margin as EBITDA margin stood at 10.00 percent in FY22(Provisional) as compared to 11.59 percent in FY21.The moderation is due to high power and raw material costs. Acuite expects the profitability margin of the group will remain at comfortable level in medium term backed by increase in operational efficiencies due to addition of 25 MW captive power source.

 
Weaknesses

Continuous capex
The group has incurred a cape of Rs. 255 crs in the past 3 years till FY’22 towards capacity expansion and modernization. The capex has been mainly in NRVS. The overall project cost for their ongoing capex is around Rs 275 Cr which will be funded through Rs 195 Cr of external debt and remaining from internal accrual & unsecured loan. The proposed facilities are likely to be operational by Q2FY24.Acuité believes the coverage and leverage ratios of the group will witness slight moderation over the medium term because of the rise in the debt levels.

Stabilization in operation

NR Steel has commenced its operation since August 2022. Currently the company is catering to needs of associate concerns. Going forward the stabilization in commercial operation would be key monitorable.

Rating Sensitivities

­

  • Timely completion of ongoing capital expenditure

  • Any unplanned debt funded capex

  • Improvement in profitability margins with sustained revenue growth

 
Material covenants
­None
 
Liquidity profile: Adequate

The NR group has adequate liquidity reflected from low utilization of working capital limits which stood at 58 percent during last 12 months ended June 2022. In addition, the group has healthy net cash accrual of Rs. 86 Cr during FY21(Provisional) as against current maturity of 33.47 Cr. Going forward, the net cash accruals are expected to be in the range of Rs 86-89 Cr as against current maturity of around Rs.38 Cr from FY23-FY24. Current ratio stood at 1.05 times during FY22(Provisional) as against 1.18 times in FY21.The working capital requirement of the group stood efficient level as reflected from GCA days of 99 days as on 31 March 2022.Acuite believes the liquidity position of the group will remain adequate, backed by steady accruals over the medium term.

 
Outlook : Stable

Acuite believes that NR group will maitain a 'stable' outlook and benefit over the medium term from the promoters’ vast experience in the steel industry. The outlook may be revised to ‘Positive’ if NR group is able to expand the profitability margin with sustained revenue growth. Conversely, the outlook may be revised to ‘Negative’ if the group witnessed a significant deterioration in financial risk profile or liquidity profile due to any significant time or cost overruns in their planned or unplanned capital expenditure.

 

Particulars Unit FY 22 (Provisional) FY 21 (Actual)
Operating Income Rs. Cr. 1130.99 768.56
PAT Rs. Cr. 60.32 37.47
PAT Margin (%) 5.33 4.88
Total Debt/Tangible Net Worth Times 1.25 0.86
PBDIT/Interest Times 8.20 7.42
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any other information
­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm
• Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm

Note on complexity levels of the rated instrument
https://www.acuite.in/view-rating-criteria-55.htm

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
27 Aug 2021 Term Loan Long Term 35.00 ACUITE BBB+ | Stable (Assigned)
Proposed Cash Credit Long Term 15.00 ACUITE BBB+ | Stable (Assigned)
Term Loan Long Term 35.00 ACUITE BBB+ | Stable (Assigned)
Cash Credit Long Term 15.00 ACUITE BBB+ | Stable (Assigned)
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Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Rating
HDFC Bank Ltd Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 15.00 ACUITE BBB+ | Stable | Reaffirmed
Punjab National Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 15.00 ACUITE BBB+ | Stable | Reaffirmed
Not Applicable Not Applicable Proposed Cash Credit Not Applicable Not Applicable Not Applicable 2.70 ACUITE BBB+ | Stable | Reaffirmed
Punjab National Bank Not Applicable Term Loan 30-09-2021 10.55 30-06-2028 32.30 ACUITE BBB+ | Stable | Reaffirmed
HDFC Bank Ltd Not Applicable Term Loan 30-09-2021 10.55 30-06-2028 35.00 ACUITE BBB+ | Stable | Reaffirmed
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