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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 35.00 | ACUITE BBB- | Stable | Assigned | - |
| Bank Loan Ratings | 70.00 | ACUITE BBB- | Stable | Reaffirmed | - |
| Total Outstanding | 105.00 | - | - |
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Rating Rationale |
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Rating Rationale
Acuité has reaffirmed the long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) to the Rs.70.00 Cr bank facilities of Bhawani Industries Private Limited. Also, Acuité has assigned the long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) to the Rs.35.00 Cr bank facilities of Bhawani Industries Private Limited. The outlook is ‘Stable’. Rationale for Reaffirmation The rating 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.658.37 Cr in FY2023 as against Rs.579.08 Cr in FY2022 on account of increase in both average realisation and sales volume of billet and foundry unit. Furthermore, the company’s operating profit margin has increased marginally to 2.86 per cent in FY2023 as 2.73 per cent in FY2022 due to cost rationalization. The rating also factors the healthy financial risk profile of the company characterized by a healthy net worth base, low gearing levels and comfortable debt protection metrices. The rating also draws comfort from established track record of experienced promoters. The rating takes into account the efficient working capital management marked by improving Gross Current Assets (GCA) to 66 days for FY2023 compared to 87 days for FY2022. However, these strengths are partially offset by strong competitive pressure and inherent cyclical patterns in the steel sector. |
| About the Company |
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Established in 1999, Bhawani Industries Private Limited (BIPL) specializes in producing a wide range of products including steel billets and rolling mill like cast iron castings, alloy steel castings. The company, led by Mr. Sanjiv Sood and Mr.Jatin Sood are the promoters of BIPL in Fatehpur, Punjab. Their production capabilities include an installed capacity of 160,000 MTPA for billets, 112,000 MPTA for the rolling mill unit, and 15,000 MTPA for the foundry unit.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuite has considered the standalone business and financial risk profile of BIPL to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
Mr. Sanjiv Sood, the company’s promoter, boasts thirty-five years of expertise in the steel manufacturing sector. The other Directors similarly possess substantial experience in the steel industry which further supports the business profile. The company has been able to garner healthy relationship with both its customers and suppliers. Acuité believes that the experience of the management is expected to support the business risk profile over the medium term.
The scale of operations of the company had witnessed improvement in FY2023 marked by significant increase in revenue of Rs.658.37 Cr in FY2023 as against Rs.579.08 Cr in FY2022. This growth in revenue is majorly due to increase in both average realisation and sales volume of billet and foundry unit. The company has booked a revenue of Rs.318.52 Cr till September 2023. Furthermore, the operating margin of the company has increased moderately to 2.86 per cent in FY2023 as 2.73 per cent in FY2022 due to cost rationalization. The profit after tax (PAT) margin marginally decreased to 1.09 per cent in FY 2023 as compared to 1.48 per cent in FY2022, primarily due to deferred tax considerations. The return on capital employed (ROCE) levels stood at about 8.28 per cent in FY2023. Acuite expects that the operating margins shall remain range bound at similar levels over the medium term backed by steady demand, increased realization coupled with rising infrastructure activity would continue to drive steel demand in India.
The company’s financial risk profile is marked by healthy networth, low gearing and comfortable debt protection metrics. The tangible networth of the company stood at Rs.110.57 Cr as on March 31, 2023 as against Rs.103.48 Cr as on March 31, 2022 due to accretion of reserves. The gearing of the company stood low at 0.61 times as on 31st March 2023. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.02 times in FY2023. The debt protection metrices of the company remain comfortable marked by Interest coverage ratio (ICR) of 2.79 times and Debt Service Coverage Ratio (DSCR) of 2.80 times for FY2023. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.18 times as on March 31, 2023.
Also, the company is currently in the process of updating and automating its rolling mills. Previously, it only produced round and square products, but now it’s expanding its production to include flat products in order to improve capacity utilization. The total cost of the project is Rs. 7 Cr which will be funded through debt of Rs. 5.00 Cr and Rs. 2.00 Cr from internal accruals. Acuité believes that going forward, the financial risk profile of the company will remain healthy backed by steady accruals despite having low debt funded capex plans.
The company’s working capital management is efficient in nature marked by improving Gross Current Assets (GCA) of 66 days in 31st March 2023 as compared to 87 days in 31st March 2022, owing to efficient inventory policy and receivable collection cycle. The inventory period stood at 43 days as on March 31, 2023 as compared to 44 days as on 31st March 2022. Also, the debtors stood at 16 days in FY2023 as compared to 26 days in FY2022. Moreover, the GCA days of the company has also emanates from the other current asset, which mainly consists of advances to suppliers and balances with revenue authority. Against this, the company has creditors, which stood at 14 days as on March 31, 2023. The company relies on its bank lines to meet its working capital requirement which stood utilised at ~89.86% over last 6 months ended September 2023.
Acuité believes that the working capital operations of the company will remain at same level over the medium term. |
| Weaknesses |
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 |
| Not Applicable |
| Liquidity Position |
| Adequate |
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The company’s liquidity position is adequate marked by net cash accruals of Rs.12.48 Cr in FY2023 and absence of any long term debt repayment obligation. Moreover, the company’s efficient working capital management is reflected from Gross Current Assets (GCA) of 66 days as on March 31, 2023 as compared to 87 days as on March 31, 2022. However, the current ratio stood moderate at 1.15 times as on 31st March, 2023. Further, the fund based limit remained utilised at 89.86 per cent over last 6 months ended September 2023. Acuité believes that going forward the company will maintain adequate liquidity position due to steady accruals and low debt funded capex plans.
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| Outlook: Stable |
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Acuité believes that the outlook on the company will be 'Stable' over the medium term on account of the experienced management, sound business risk profile and healthy financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the company's revenues or profit margins, or in case of deterioration in the company's financial risk profile and liquidity position or further deterioration in the capacity utilization levels and elongation in its working capital cycle.
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| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 658.37 | 579.08 |
| PAT | Rs. Cr. | 7.17 | 8.56 |
| PAT Margin | (%) | 1.09 | 1.48 |
| Total Debt/Tangible Net Worth | Times | 0.61 | 0.63 |
| PBDIT/Interest | Times | 2.79 | 2.43 |
| 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 • Manufacturing Entities: 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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