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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 61.00 | ACUITE A | Stable | Assigned | - |
| Bank Loan Ratings | 486.78 | ACUITE A | Stable | Upgraded | - |
| Bank Loan Ratings | 81.00 | - | ACUITE A1 | Assigned |
| Bank Loan Ratings | 49.00 | - | ACUITE A1 | Upgraded |
| Total Outstanding | 677.78 | - | - |
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Rating Rationale |
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Acuité has upgraded the long-term rating to ‘ACUITE A’ (read as ACUITE A) from ‘ACUITE A-’ (read as ACUITE A minus) and the short-term rating to ‘ACUITE A1’ (read as ACUITE A One) from ‘ACUITE A2+’ (read as ACUITE A two plus) on the Rs. 535.78 crore bank facilities of B S Sponge Private Limited (BSPL). The outlook is ‘Stable’.
Acuité has also assigned the long-term rating of ‘ACUITE A’ (read as ACUITE A) and the short-term rating of ‘ACUITE A1’ (read as ACUITE A One) on the Rs. 142.00 crore bank facilities of B S Sponge Private Limited (BSPL).The outlook is ‘Stable’. Rationale for Rating |
| About the Company |
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Incorporated in 2000, B S Sponge Private Limited is a Chhattisgarh based company engaged in manufacturing of sponge iron, billets, TMT Bars, strips and ferro alloys. The company has been expanding its capacity over the past couple of years and currently, the company has an installed capacity of 5,10,000 MTPA for production of sponge iron, 2,19,000 MTPA for billets, 2,70,000 MTPA of rolling mill and 15,000 MTPA for production of ferro alloys. Additionally, it operates an in-house captive power plant of 42 MW. The company is promoted by Mr. Parmanand Agarwal and his son Mr. Ashish Agarwal.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of BSPL to arrive at this rating.
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| Key Rating Drivers |
| Strengths |
| Integrated operation with long track record and experienced promoters
The company is promoted by the Agrawal family of Raigarh (Chhattisgarh). The company is managed by Mr. Parmanand Agarwal, who has two decades of experience in the steel business. The company is ably supported by a strong and experienced line of mid-level managers. Acuité believes the vast experience of the promoter has played a pivotal role in the company's ability to cultivate robust relationships with both its customers and suppliers. This has resulted in a sustained performance of the company over the years.
Healthy scale of operation coupled with healthy profitability margin The revenue of the company witnessed a 19% growth in FY2023 to Rs. 812.46 crore in FY2023 as compared to Rs. 682.96 crore in the previous year. Further, in FY2024, the company has reported operating income of Rs. 1494 Cr. (provisional) majorly on account of augmentation in the capacity for various products and increased sales volume despite a decline in the average sales realization. The EBITDA margin of the company has improved to 20.02% in FY2023 from 13.03% in FY2022. In FY2024 the operating profit margin stood comfortable at 18.54% (provisional). Going forward, Acuite believes, that the profitability margin of the company will improve and sustained at healthy levels over the medium term backed by steady demand, stable realization, and integrated nature of plant. In line with the improvement in the EBDITA margin, the PAT margin improved to 8.36% in FY23 compared to 6.57% in FY2022. Above average financial risk profile The financial risk profile of the company is marked by healthy net worth, modest gearing and healthy debt protection metrics. The net worth of the company stood healthy and improved to Rs. 247.19 crore in FY2023 as compared to Rs. 179.99 crore in FY2022. This improvement in net worth is mainly due to the healthy accretions to the reserves. The gearing of the company stood at 1.48 times as on March 31, 2023 when compared to 1.17 times as on March 31, 2022. This further increase in gearing is mainly on account of the additional debt to fund the capex .The coverage indicators stood strong as reflected by Interest coverage ratio (ICR) of 7.66 times in FY2023 as against 7.54 times in FY2022 and the debt service coverage ratio (DSCR) of 2.78 times in FY2023 as compared to 3.17 times in FY2022. The net cash accruals to total debt (NCA/TD) stood comfortable at 0.27 times in FY2023 as compared to 0.30 times in the previous year. Going forward, Acuite believes the financial risk profile of the company will remain healthy on account of steady net cash accruals and no debt funded capex plans in the near to medium term. Moderate Working capital management The operation of the company are moderate working capital intensive marked by moderate gross current asset days of 113 days in FY2023 as compared to 106 days in the previous year. Moreover, the inventory days of the company increased to at 81 days in FY2023 as compared to 47 days in the previous year. The debtor days stood at 09 days in FY2023 as compared to 04 days in the previous year respectively. |
| Weaknesses |
| Intense competition and inherent cyclicality in the steel industry
The company is operating in competitive and fragmented nature of industry especially in primarily steel producing industry. There are several players who are engaged in the sponge iron and billets manufacturing business in organized and unorganized sector. Moreover, the profit margins and sales of the company remains exposed to inherent cyclicality in the steel industry. |
| ESG Factors Relevant for Rating |
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Environment
Manufacture of metals has a substantial environmental impact. The production of basic metals is extremely power-intensive. Most steel is still produced with blast furnaces, releasing large amounts of carbon dioxide, nitrogen oxide, and particulate matters into the air. Moreover, improper waste disposal could lead to releasing toxic fluids in the surroundings having devastating effects. Other issues include efficient water utilization and managing water pollution. Social Occupation and workforce health & safety management are of primary importance to this industry given the dangerous nature of operations. Furthermore, community relations, inclusive development and human rights concerns are crucial factors considering the exploitative industry practices. Additionally, quality of the product is of utmost significance for this industry. Governance Factors such as ethical business practices, management compensation and board administration hold primary importance within this industry. Likewise, regulatory compliance, shareholder’s rights and audit control are other material issues to the industry. Long-term business continuity is key, as it ensures alignment between stockholders and stakeholders. |
| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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The company has adequate liquidity marked by comfortable net cash accruals of Rs.98.79 crore as against Rs.21.91 crore debt obligations in FY2023. Further, the company has free cash and bank balances (including unencumbered FDs) of Rs. 2.36 Cr. as on March 31, 2023. The current ratio of the company stood comfortable at 1.43 times in FY2023 against 1.63 times in FY22. The moderate working capital intensive nature of the company is marked by moderate Gross Current Asset (GCA) days of 113 days in FY2023. The average fund based working capital utilization stood around 73.5% in last six months ended March 2024. Acuité believes that the liquidity of the company is likely to remain adequate over the medium term on account of comfortable cash accruals against long debt repayments over the medium term.
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| Outlook: Stable |
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Acuité believes that the outlook of the company will remain stable over the medium term backed by its experienced management and integrated nature of operations.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 812.46 | 682.96 |
| PAT | Rs. Cr. | 67.89 | 44.85 |
| PAT Margin | (%) | 8.36 | 6.57 |
| Total Debt/Tangible Net Worth | Times | 1.48 | 1.17 |
| PBDIT/Interest | Times | 7.66 | 7.54 |
| 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 • Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.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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