| Long track record of operations with experienced management
The group has long operational track record with experienced management in the iron and steel industry for more than decades.
The group's operations are semi-integrated, encompassing the backward integration from sponge iron to rolled products, which enhances operational efficiency and ensures a consistent raw material supply to IIL from ACL. ACL met ~50% of IIL’s raw material requirement in FY25. ACL's sponge iron is predominantly consumed internally for billet production, with any surplus sold to other billet producers in the market. The billets produced by ACL are primarily utilized by IIL for manufacturing rolled products, including TMT bars and wire rods. The proximity of both plants provides a locational advantage, contributing to operational efficiencies and mitigating risks associated with the cyclicality of the steel industry. Acuité believes the semi-integrated nature of operations of the group and locational advantage on account of the close proximity of both the plants, provides efficiency in terms of operations and mitigates the risks arising from the cyclical nature of steel industry to some extent.
Increase in operating income
The group achieved revenue of Rs.826.10 Cr. in FY24 as against Rs.700.85 Cr. in FY2023. Further, IIL and ACL have achieved Rs. 756.14 Cr. and Rs.532.58 Cr. respectively in FY25. The increase in the revenue was driven by decrease in price realization and increase in sales volume of rolled products and billets buoyed by better capacity utilization. The integrated nature of operations of the group enhances the operating efficiencies with presence in steel value chain right from sponge iron to rolled products. It provides the group with a flexibility to sell intermediate products and use them for captive consumption. Acuite expects the scale of operations to improve over the medium term.
Healthy Financial Risk Profile
The group’s financial risk profile is marked by healthy networth, gearing below unity and comfortable debt protection metrics. The tangible networth of the group stood at Rs.293.06 Cr. as on March 31, 2024, as against Rs.281.34 Cr. as on March 31, 2023, due to accretion of reserves. Gearing of the group stood comfortable at 0.23 times as on March 31, 2024, as against 0.28 times as on March 31, 2023. The group will undertake additional debt levels of Rs.105.00 Cr. to fund a part of their capex plans. The debt protection metrics of the group is marked by Interest Coverage Ratio (ICR) at 3.41 times and Debt Service Coverage Ratio (DSCR) at 1.21 times as on March 31, 2024. Acuite believes that going forward, the financial risk profile of the group will remain moderate backed by steady accruals and debt funded capex plans.
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| Decrease in profitability margins
The EBITDA margin stood at 4.07% in FY2024 as against 4.76% in FY2023 due to increase in the raw material prices which the group could not fully pass it on to its customers. However, the PAT margin stood at 1.42 % in FY2024 as against 1.47% in FY2023. Acuite believes that the group will maintain profitability margins on similar levels over the medium term backed by high interest costs and depreciation.
Intensive Working capital Cycle
The working capital cycle of the group is intensive marked by Gross Current Assets (GCA) of 152 days as on March 31, 2024, as against 171 days as on March 31, 2023. The inventory days improved to 48 days as on March 31, 2024, from 86 days as on March 31, 2023, as the group maintains inventory of raw materials and finished goods to mitigate the risk of price volatility. The group maintains 40-45 SKUs. The debtor days stood at 32 days as on March 31, 2024, as against 7 days as on March 31, 2023. The credit terms are 10 days to 30 days on an average. The other current assets majorly include advance payment to suppliers, advances recoverable in cash or kind and security deposits. Against this, creditor days stood at 15 days as on March 31, 2024. the credit terms with suppliers are mostly on advance basis. Acuite believes that the working capital cycle will remain on similar levels over the medium term.
Inherent cyclical nature of the steel industry
The group's performance remains susceptible to cyclicality within the steel industry, due to the strong correlation between demand for steel products and the overall health of the domestic and global economies. End-user sectors such as real estate, civil construction, and engineering also exhibit cyclical patterns. Additionally, operating margins are vulnerable to fluctuations in input costs, particularly iron ore and coal, as well as variations in price realization of finished goods. Changes in the prices and availability of key raw materials like iron ore directly influence the profitability of the group's finished products. Any substantial decline in demand and prices that negatively affect operating margins, and cash flow will continue to be a key monitorable factor.
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