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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 180.00 | ACUITE A- | Stable | Assigned | - |
| Bank Loan Ratings | 15.00 | ACUITE A- | Stable | Reaffirmed | - |
| Bank Loan Ratings | 15.00 | - | ACUITE A2+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 210.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) and the short-term rating of ‘ACUITE A2+’ (read as ACUITE A two plus) on the Rs.30.00 Cr bank facilities and has assigned the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) on the Rs.180.00 Cr bank facilities of Chaman Metallics Limited (CML). The outlook remains ‘Stable’.
Raionale for the rating The rating factors in the strong business risk profile of the group marked by the upsurge in revenues and healthy profitability margins arising from the semi-integrated nature of operations. The rating further draws comfort from the experienced management, strong liquidity position and healthy financial risk profile of the group as reflected by the low gearing and healthy debt coverage indicators. These strengths are, however, partly offset by the cyclical nature of the steel industry and the volatility in commodity prices. |
| About the Company |
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Incorporated in 2003, Chaman Metallics Limited (CML) is based in Tadali, Maharashtra and is engaged in the manufacturing of sponge iron. GR group has acquired the company in 2019. CML is headed by Mr. Rameshkumar Ganpatrai Agrawal and Mr. Chetan Kumar Agrawal. The company has an installed capacity of 60,000 MTPA of sponge iron. Further, CML got listed in NSE on January, 2023 and has raised a fund of Rs.24.13 Cr through the IPO.
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| About the Group |
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The G R Group comprises several companies as enumerated below:
Incorporated in 1996, G R Sponge and Power Limited (GRSPL) is engaged in the manufacturing and selling of sponge iron and MS ingots. Based in Raipur, Chhattisgarh, the company is managed by Mr. Rameshkumar Ganpatrai Agrawal and Mr. Chetan Kumar Agrawal. GRSPL has an installed capacity of 60,000 MTPA of sponge iron, an 8 MW waste heat recovery based captive power plant, 30000 MTPA of MS ingots, cast iron and SG inserts. Moreover, G R Minerals and Industries Private Limited (GRMIPL), erstwhile a part of the group, has now been merged with G R Sponge and Power Limited (GRSPL) as per NCLT order. Based in Raipur, Chhattisgarh, N R Sponge Private Limited (NRSPL) was incorporated in 2002 and is engaged in the manufacturing and selling of sponge iron. NRSPL is headed by Mr. Rameshkumar Ganpatrai Agrawal and Mr. Chetan Kumar Agrawal and has an installed capacity of 90,000 MTPA of sponge iron, a 6 MW waste heat recovery based captive power plant and a newly installed 4 MW biomass based captive power plant. Based in Chandrapur, Maharashtra, G R Krishna Ferro Alloys Private limited (GRKFAPL) [erstwhile Prithvi Ferro Alloys Private limited] was incorporated in 2008 and is engaged in manufacturing of ferro alloys. GR group acquired the company in 2021 jointly with Hind Energy Group (rated at ACUITE A+/Stable/A1) in a 50:50 ratio. The company is managed by Mr. Keshav Kumar Agrawal and Mr. Chetan Kumar Agrawal and has an installed capacity of 33,000 MTPA of ferro alloys and an 18 MW thermal captive power plant. |
| Analytical Approach |
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Acuité has consolidated the business and financial risk profiles of N.R. Sponge Private Limited (NRSPL), G R Sponge and Power Limited (GRSPL), G R Minerals and Industries Private Limited (GRMIPL), Chaman Metallics Limited (CML) and G R Krishna Ferro Alloys Private limited (GRKFAPL) [erstwhile Prithvi Ferro Alloys Private Limited] together referred to as the ‘G R Group’ (GG). The consolidation is in the view of common management, strong operational linkages between the entities and a similar line of business. Additionally, G R Sponge and Power Limited have given corporate guarantee for the term loan of G R Krishna Ferro Alloys Private limited. Extent of consolidation: Full.
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Key Rating Drivers
| Strengths |
| Experienced management
G R group has established a long presence of over two decades in the iron and steel industry. The group is promoted by Mr. Rameshkumar Ganpatrai Agrawal with an industry experience of over two decades and is supported by the second generation promoters, Mr. Keshav Agarwal and Mr. Chetan Agrawal. Acuité believes that the long track record of operations and the vast experience of the promoters will continue to support the growth plans of the group, going forward. Strong business risk profile The group’s operations are supported by the semi integrated nature of operations with a manufacturing capacity of sponge iron, ingots, ferro alloys, foundry division and three captive power plants. GRSPL and NRSPL produces power from the sponge iron producing facilities through waste heat recovery mechanism. Since inception, the produced power of GRSPL is used in the ferro alloy plant of GRMIPL and the power plant of NRSPL is supplying power to the ingots manufacturing unit in GRSPL. Further, the captive power plant in GRKFAPL supplies power in the company’s ferro alloy plant. This power cost saving mechanism gives the group a competitive edge over its competitors and thereby ensures stable and sustainable margins for the group in the medium to long term. Acuité believes the semi-integrated nature of operations of the group enhances the operating efficiencies and mitigates the risks arising from the cyclical nature of steel industry to some extent. The group has achieved a turnover of Rs.739.64 Cr till December, 2022 (provisional). The uptrend in the revenues is backed by the favourable domestic demand and ramp up of operations in GRKFAPL. Moreover, GR group has achieved a significant growth in the revenues of around 68 per cent in FY2022 and has achieved revenues of Rs.864.97 Cr as compared to Rs. 515.79 Cr in FY2021. The improvement in the turnover is primarily on account of revenue generation from MS Ingots and foundry divisions in GRSPL and commencement of operations of GRKFAPL from October, 2021. Acuité believes that going forward the scale of operations will remain healthy over the medium term driven by the capacity additions, the established market position of the group and the continued thrust on infrastructure development along with pick-up in the real estate and construction activities by the Government. In FY2022, there was an exceptional growth in the profitability margins of the group primarily on account of upswing in the prices of ferro alloys. The operating margin of the group rose to 15.38 per cent in FY2022 from 9.40 per cent in FY2021. Further, the PAT margin increased to 10.23 per cent in FY2022 from 5.11 per cent in FY2021. However, the ferro alloy prices moderated in FY2023 which led the margins to slightly contract with an operating margin of 12.47 per cent (provisional) and PAT margin of 6.41 per cent (provisional) in the 9M of FY2023. Acuité believes going forward, the profitability margins are expected to remain healthy backed by steady demand and the semi integrated nature of operations of the group. Healthy financial risk profile The financial risk profile of the group is healthy as reflected by the high networth, comfortable gearing and healthy debt protection metrics. The tangible net worth of the group significantly improved to Rs.298.35 Cr as on March 31, 2022 from Rs.141.47 Cr as on March 31, 2021 due to accretion of profits and infusion of capital of GRKFAPL. Gearing of the group continues to remain comfortable at 0.82 as on March 31, 2022 as compared to 0.75 as on March 31, 2021. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) also stood comfortable at 0.99 times as on March 31, 2022 as against 1.25 times as on March 31, 2021. The healthy debt protection metrics of the group is marked by Interest Coverage Ratio (ICR) at 7.09 times as on March 31, 2022 and Debt Service Coverage Ratio (DSCR) at 4.90 times as on March 31, 2022. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.45 times as on March 31, 2022. The group has undertaken a capex in CML to install one new sponge iron plant with capacity of 350 TPD, to install a billet unit (3 x 20 MT), install one cast iron unit (3 x 4 MVA), install one 12 MW Waste Heat Recovery based captive power plant and one 12 MW Coal Fuel based captive power plant. The project commenced in July, 2022 and the commercial operations are expected to start by July, 2024. The total cost of the project is Rs.296.00 Cr, out of which Rs.180.00 Cr will be funded through term loan and balance from promoters’ sources. The funding risk is mitigated with the financial tie up completed for the entire Rs.180 Cr of term loan. Acuité believes that going forward the financial risk profile of the group will remain healthy over the medium term despite having debt funded capex plans. Moderate working capital management The working capital management of the group is moderate in nature marked by Gross Current Assets (GCA) of 132 days as on March 31, 2022 as against 124 days as on March 31, 2021. The moderate level of GCA days are primarily on account of the moderate inventory period which stood at 74 days as on March 31, 2022 as compared to 79 days as on March 31, 2021. The inventory holding is due to maintaining the stock of iron ore and coal in order to mitigate the fluctuation in prices. However, the debtor period stood comfortable at 21 days as on March 31, 2022 as compared to 15 days as on 31st March 2021. Acuité believes that the working capital cycle of the group will remain around the similar level as evident from the moderately high inventory levels and the efficient collection mechanism over the medium term. |
| Weaknesses |
| Intense competition and inherent cyclical nature of the steel industry
The downstream steel industry remains heavily fragmented and unorganised. The group is exposed to intense competitive pressures from large number of organised and unorganised players along with its exposure to inherent cyclical nature of the steel industry. Additionally, prices of raw materials and products are highly volatile in nature . |
| Rating Sensitivities |
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| Material covenants |
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None
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| Liquidity Position: Strong |
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The group has a strong liquidity position marked by high net cash accruals as against the maturing debt obligations. The net cash accruals stood at Rs.108.94 Cr as on March 31, 2022 as against long term debt repayment of only Rs.11.03 Cr over the same period. The fund based limit remains moderately utilised at 56 per cent over the six months ended January, 2023. The current ratio stood comfortable at 1.73 times as on March 31, 2022 as compared to 1.39 times as on March 31, 2021. The cash and bank balances of the group stood at Rs.0.73 Cr as on March 31, 2022. However, the working capital management of the group is moderate in nature marked by Gross Current Assets (GCA) of 132 days as on March 31, 2022 as against 124 days as on March 31, 2021. Acuité believes that going forward the group will maintain superior liquidity position due to the improving accruals.
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| Outlook: Stable |
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Acuité believes that the outlook on GR group will remain 'Stable' over the medium term on account of the long track record of operations, experienced management, sound business position, healthy financial risk profile and strong liquidity position. 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 group’s revenues or profit margins, or in case of deterioration in the group’s financial risk profile or delays in the completion of the project or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 864.97 | 515.79 |
| PAT | Rs. Cr. | 88.47 | 26.36 |
| PAT Margin | (%) | 10.23 | 5.11 |
| Total Debt/Tangible Net Worth | Times | 0.82 | 0.75 |
| PBDIT/Interest | Times | 7.09 | 4.89 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
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Not Applicable
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| 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 • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.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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