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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 18.00 | ACUITE BB- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 18.00 | - | ACUITE A4 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 36.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BB-’ (read as ACUITE double B minus) and reaffirmed the short-term rating of ‘ACUITE A4’ (read as ACUITE A four) on the Rs. 36.00 Crore bank facilities of Arjun Enterprises Private Limited (AEPL). The outlook is ‘Stable’.
Rationale for Reaffirmation Acuite factors in experienced management, comfortable working capital profile of the AEPL for the reaffirmation of rating. The revenue from operations of the AEPL witnessed improvement to Rs.~ 326.13 crore in FY2023 (Provisional) as against Rs. 218.06 crore in FY2022 however operating profit margin of the company moderated to 1.42 percent in FY2023 (Provisional) as against 1.78 percent in FY2022. Further, the company has company has comfortable working capital operations. However these strengths are underpinned by moderation in coverage Indicators in FY 23. Coupled to these Liquidity profile of the company is poor. Acuité believes that the company’s ability to grow its scale of operations and improve profitability while maintaining a healthy capital structure remains a key rating monitorable. |
| About the Company |
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The Mumbai based AEPL was incorporated in 2008 and currently being managed by Mr. Anil Anand, Mr. Ashish Anand, Mr. Achala Anand and Mr. Arjun Anand. The company is engaged in the business of import and trading of copper scrap, wire and allied products in the domestic market.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of AEPL to arrive at this rating
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Key Rating Drivers
| Strengths |
| Experienced management
AEPL was incorporated in 2008. It is engaged in the business of import and trading of copper scrap, wire and allied products in the domestic market. The promoters have over a decade of experience in copper industry. They are ably supported by other key managerial personnel who are professionally running the company. Acuité believes that the company will benefit from its experienced management to maintain healthy relations with its customers and suppliers Business risk profile AEPL’s operation witnessed improvement which is apparent from growth in revenue from operations by ~50% in FY2023 (Prov.) to Rs 326.13 crore as against Rs. 218.06 crore for FY2022.(improved by ~192 percent over the last three years FY 21 to FY 23).Operating Profit margin of the company decreased by 36 bps and stood at 1.42 percent in FY 23 (Prov.) as against 1.78 percent in FY 22. Working capital operations- comfortable Company has comfortable working capital requirements as evident from gross current assets (GCA) of 98 days in FY2023 (Prov.) as compared to 142 days in FY2022. Debtor days improved by 7 days and stood at 30 days in FY2023 (17 days in FY2022). Inventory days came down by 35 days in FY 23(Prov.). Inventory days stood at 58 days in FY2023 (Prov.) as against 93 days in FY2022.(210 days in FY 21) Fund based working capital limits are utilized at ~98 per cent during the last twelve months ended July 23 while the non fund based limit utilization was 65 percent. |
| Weaknesses |
| Financial Risk Profile
Company’s financial risk profile remained average marked by moderate growth in net worth, high gearing and moderate debt protection. The Net worth of the company stood at Rs.15.13 Cr in FY2023 (Prov.) as against Rs.14.49 Cr in FY2022. The gearing ratio moderated from 2.87 times in FY2022 to 2.96 times in FY2022. The interest coverage ratio improved and stood at 1.26 times in FY2023 (Prov.) as against 1.19 times in FY2022. Further the DSCR of the company has deteriorated and stood at 0.84 in FY23 as against 1.14 in FY22.Expected Cash accruals in next 2 year is Rs 1.5 crore to 2.25 crore and unencumbered fixed deposits will support the company for debt repayment. Susceptible to fluctuations in prices of raw material and forex rates The major raw material of the company is copper scrap. The company’s performance remains vulnerable to cyclicality in the copper sector as demand for copper depends on the performance of the end user.Moreover, the prices of the same are fluctuating in nature, therefore the operating profit margins of the company is susceptible to raw material price fluctuation |
| Rating Sensitivities |
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Significant improvement in the operating performance of the company Substantial improvement in the coverage indicators of the company Company's ability to improve profitability resulting into improved liquidity profile |
| All Covenants |
| None |
| Liquidity Position |
| Poor |
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Company has poor liquidity marked by net cash accruals to its maturing debt obligations, current ratio, cash and bank balance. Company generated cash accruals of Rs. 0.71 crore for FY2023 (Prov.) as against obligations of Rs. 1.53 crores for the same period. Current Ratio stood at 1.45 times as on 31 March 2023(Prov.) as against 1.51 times in the previous year. Fund based working capital limits are utilized at ~98 per cent during the last twelve months ended July 23 while the non fund based limit utilization was 65 percent. Cash and Bank Balances of company stood at Rs 0.17 crores. Company has fixed deposits of Rs 1.96 crore and out of which Rs ~1 crore is unencumbered.
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| Outlook:Stable |
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Acuité believes AEPL will maintain a 'stable' business risk profile in the medium term on account of its experienced management. The outlook may be revised to 'Positive' in case the company registers higher than-expected growth in revenues and net cash accruals while maintaining healthy debt protection metrics. Conversely, the outlook may be revised to 'Negative' in case the company registers lower-than-expected growth in revenues and profitability, or in case of deterioration in the company's financial risk profile or deterioration in the working capital management resulting into further stretch on liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 326.13 | 218.06 |
| PAT | Rs. Cr. | 0.67 | 0.43 |
| PAT Margin | (%) | 0.21 | 0.20 |
| Total Debt/Tangible Net Worth | Times | 2.96 | 2.87 |
| PBDIT/Interest | Times | 1.26 | 1.19 |
| Status of non-cooperation with previous CRA (if applicable) |
| CIRSIL vide its press release dated 13th March 2023, had rated the company to CRISIL B+/Stable/A4; Issuer Not Cooperating. |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.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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