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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 161.50 | ACUITE BBB | Stable | Upgraded | - |
| Bank Loan Ratings | 21.50 | - | ACUITE A3+ | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 183.00 | - | - |
| Rating Rationale |
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Acuité has upgraded its long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) from ‘ACUITE BBB-’ (read as ACUITE triple B minus) and its short term rating of ‘ACUITE A3+’ (read as ACUITE A three plus) from ‘ACUITE A3’ (read as ACUITE A three) on the Rs.183.00 Cr bank facilities of Anjani Steels Limited (ASL). The outlook is 'Stable'.
Rationale for the rating The rating upgrade takes into cognizance the augmentation in business risk profile of the company majorly driven by improvement in scale of operations. The revenue from operations of the company increased to Rs. 635.32 Cr. in FY2023 compared to Rs. 486.85 Cr. in FY2022 on account of increased volume sales which was further supported by increased in average realization per unit of TMT Bars and Wire rods during the period. Although the Company’s operating profit margin have reduced to 6.06% as on March 31, 2023, but the Company is undertaking regular capex to bring about operating efficiencies in the plants to better absorb the fixed cost and bring down variable costs. The operating profit margin of the company witnessed improvement to 6.96% during H1FY2024. However, the sustainability of the profitability margins will remain a key rating monitorable factor going ahead. The rating also factors the healthy financial position of the company characterized by a healthy net worth base, modest gearing levels and comfortable debt protection metrices. The rating also draws comfort from established track record and experience management with location advantage along with integrated nature of operations. The rating takes into account the moderate working capital management marked by improving Gross Current Assets (GCA) to 133 days for FY2023 compared to 170 days for FY2022. The rating is further constrained by cyclical nature of the steel industry and the vulnerability of the margins to the volatility in commodity prices. |
| About the Company |
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In 1994, ASL was established by Mr. Shiv Dhari Yadav, Mr. Vijay Kumar Yadav and Mr. Girdhari Yadav as a private limited company. Subsequently, in 2007, it was transformed into a public limited company. The company’s primary focus lies in the production of steel and alloy steel castings, ingots, billets, and various re-rolled sections, such as flats, angles, rounds, squares, hexagons, octagons, and rail joints, among others. ASL erected an integrated steel plant in Raigarh (Chhattisgarh), housing a sponge iron division, induction furnace division, and a 12 MW thermal power plant. As of March 31, 2023, the integrated steel plant boasts capacities of 108,000 MT for sponge iron manufacturing, 108,000 MT for the furnace division, and 125,000 MT for rolling mill production.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of ASL to arrive at this rating. |
Key Rating Drivers
| Strengths |
Established in 1994, Anjani Steels Limited is backed by the promotion of Mr. Shiv Dhari Yadav and Mr. Sanjay Kumar Yadav. Since 1996-97, the company has been actively involved in the steel industry, with its current product line-up consisting of billets used in the production of long products, specifically TMT bars. These TMT bars serve the increasing demands of various sectors, including the power sector, infrastructure construction, steel and cement plant construction, as well as commercial and residential housing, among others. ASL is under the guidance of Mr. Shiv Dhari Yadav and Mr. Sanjay Kumar Yadav, both possessing over two decades of experience in this field. Their extensive experience is evident in the strong relationships they have built with the company’s customers and suppliers. The company’s key customers do not account for a significant concentration of its revenues. The company has a locational advantage as the plants are located in the industrial area of Raigarh, Chattisgarh, which is in close proximity to various steel plants and sources of raw materials. Further the plants are well connected through road and rail transport which facilitates easy transportation of raw materials and finished goods.
Acuité believes that the experience management with established presence of its operations will continue to benefit the company over the medium term.
The company boasts integrated operations covering the entire steel value chain, spanning from sponge iron to billets and TMT Bars. This integration affords the flexibility to both sell intermediate products and utilize them for in-house consumption. Notably, a significant portion of billets are consumed internally for TMT bar production, minimizing logistics costs. The company’s facilities are complemented by captive power plants, enhancing cost efficiencies throughout the value chain.
In FY2023, the company achieved revenues of Rs. 635.32 Cr, a notable increase from the Rs. 486.85 Cr in FY2022 which was primarily driven by higher volume sales and an improved average realization per unit of TMT Bar and Wire Rods. Additionally, by September 2023, the company had already recorded revenues of Rs. 294.31 Cr. The company’s operating profit margin decreased to 6.06 percent in FY2023, compared to 6.79 percent in FY2022. The Company undertakes back –to-back orders without providing any credit to its customers or taking any credit from its suppliers. The necessity to offer discounts to customers for advance payments results in the absorption of these discounts affecting the overall margins. Also during Covid times, the Company had to provide some discounts to the customers to manage its working capital cycle, in past 2 years. Further, the company undertakes regular capex towards improving the manufacturing facilities a part of which has been taken in operational expenses about Rs. 1 Cr. During H1FY2024, the Company has been able to attain an operating profit margin of 6.96% brought about by reducing the charge time in heating in Steel Melting Shop facility and improved movements of work-in-progress stocks in the integrated facilities due to automising a part of the conveyor belts which was earlier done manually. Furthermore, the PAT margins also decreased to 1.46 percent in FY2023, down from 1.65 percent in FY2022, primarily due to deferred tax of earlier years. The ROCE levels stood at a comfortable level of about 10.24 per cent in FY2023 as against 8.49 per cent in FY2022. Acuité believes that the company operations of the company will continue to remain healthy. However, the sustainability of the profitability margins will continue to remain a key monitorable going ahead.
The company’s financial risk profile is marked by healthy net worth, modest gearing and comfortable debt protection metrics. The tangible net worth of the company stood at Rs.142.26 Cr as on March 31, 2023 as compared to Rs.135.29 Cr as on March 31, 2022 due to accretion to reserves. The gearing of the company stood modest at 1.06 times as on 31 March 31, 2023. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.28 times as on March 31, 2023. The debt protection matrices of the company remain comfortable marked by Interest coverage ratio (ICR) of 2.49 times and debt service coverage ratio (DSCR) of 1.39 times for FY2023. The net cash accruals to total debt (NCA/TD) stood healthy at 0.12 times in FY2023.
Going forward, Acuité believes that going forward the financial risk profile will continue to remain healthy over the medium term, supported by healthy internal accrual generation and absence of any debt funded capex plans. |
| Weaknesses |
The company’s working capital management is moderate in nature marked by improving Gross Current Assets (GCA) of 133 days for FY2023 as compared to 170 days for 2022. The improvement in GCA days is majorly on account of low receivables during the period. The debtors stood similar levels at 4 days in FY2023 and in FY2022. The company has minimal debtors since the payment from customers is received in advance. However, the inventory period remained high despite witnessing improvement to 119 days for FY2023 as compared to 147 days for FY2022.The inventory days is improving on account of improving operating efficiency in movement of WIP leading to lesser inventory stocking for the company. Moreover, the GCA days of the company has also emanates from the other current asset, which mainly consists of loans and advances. Against this, the company has minimal creditors, which stood at 5 days as on March 31, 2023. The company relies on its bank lines to meet its working capital requirement which utilised at ~83.65% over last 6 months ended Sep 2023.
Acuité believes that the working capital operations of the company will remain at same level over the medium term.
The steel rolling sector continues to lack organization and cohesion. The company faces strong competitive forces from both organized and unorganized participants, compounded by the cyclicality inherent in the steel industry. Moreover, the government’s emphasis on steel-intensive sectors like railways and infrastructure increases vulnerability; any prolonged drop in demand would negatively affect steel companies’ performance. Furthermore, the fluctuation in prices of raw materials and goods is considerably unstable. The business also contends with rivalry from more affordable imports from Indonesia and China. A substantial rise in imports could detrimentally affect earnings and quantities, making this a crucial aspect to watch.
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| Rating Sensitivities |
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| All Covenants |
| None |
| Liquidity Position |
| Adequate |
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The company’s liquidity is adequate marked by steady net cash accruals of Rs.18.17 Cr as on March 31, 2023 as against long term debt repayment of Rs.8.63 Cr over the same period. Moreover, the current ratio stood at 1.62 times as on March 31, 2023. However, the fund based limit remained utilized at ~83.65 per cent over the six months ended September, 2023. Further, the company’s working capital management is moderate in nature marked by improving Gross Current Assets (GCA) of 133 days for FY2023 as compared to 170 days for FY2022. Acuité believes that the company will maintain adequate liquidity position due to steady accruals.
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| Outlook: Stable |
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Acuité believes that ASL will maintain a ‘Stable’ outlook and will continue to derive benefit over the medium term due to its extensive experience of promoters. The outlook may be revised to ‘Positive’, if the company demonstrates substantial and sustained growth in its revenues from the current levels while maintaining its capital structure. Conversely, the outlook may be revised to ‘Negative’ if the company generates lower-than-anticipated cash accruals, most likely as a result of sharp decline in operating margins, or deterioration in working capital leading to higher reliance on external borrowings thereby impacting its financial risk profile, particularly its liquidity.
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| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 635.32 | 486.85 |
| PAT | Rs. Cr. | 9.30 | 8.03 |
| PAT Margin | (%) | 1.46 | 1.65 |
| Total Debt/Tangible Net Worth | Times | 1.06 | 1.18 |
| PBDIT/Interest | Times | 2.49 | 1.98 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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