Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 29.00 ACUITE BBB- | Stable | Reaffirmed -
Bank Loan Ratings 15.00 - ACUITE A3 | Reaffirmed
Total Outstanding Quantum (Rs. Cr) 44.00 - -
 
Rating Rationale

­Acuité has reaffirmed the long-term rating of 'ACUITE BBB-' (read as ACUITE triple B minus) and the short-term rating of 'ACUITE A3' (read as ACUITE A three) on the Rs.44.00 crore bank facilities of Champion Rolling Mill Private Limited (CRMPL). The outlook is 'Stable'

Rationale for reaffirmation
The reaffirmation of the rating is driven by the improvement in operating income of the company in FY2023. The revenue of the company stood at Rs. 320.63 crore in FY2023(prov.) as against Rs.267.37 crore in FY2022 registering a growth of 20%. The rating also factors in the sustenance of moderate financial risk profile marked by moderate tangible networth, moderate gearing level and coverage ratios. However, the rating remains constrained on account of volatile profitability, working capital intensive nature of operations and the susceptibility of the performance of the company on  steel prices.

About the Company

­Incorporated in the year 2004, CRMPL is a Maharashtra-based entity promoted by Mr. Mohd. Yunus Khan, Mr. Mohd. Shafique Khan and Mr. Mohd. Kalim Khan. The company is engaged in the manufacturing and marketing of MS Angles, MS Beams, MS Channels, MS T-Angles, MS Scraps, and sludge in the domestic market with a manufacturing facility is located at Wada, Maharashtra with an installed capacity of 90,000 MTPA.
 
Analytical Approach
­Acuité has considered the standalone view of the business and financial risk profile of CRMPL to arrive at the rating.
 

Key Rating Drivers

Strengths

Established track record of operations with experienced management
CRMPL was established in the early 1970s as Champion Enterprises, a partnership firm by the family of the promoters. The initial business consisted of trading Iron Billets. Later in the year 2004, the constitution of the firm was changed to a private limited company and started commercial production of MS Angles, Channels, T-Angles, and Beams in the year 2008. The promoters of the company have more than four decades of experience in the steel industry. The extensive experience of the promoters has helped the company to maintain a healthy relationship with its customers and suppliers. The company has its customers predominantly in Maharashtra.

The revenue of the company stood at Rs. 320.63 crore in FY2023(prov.) as against Rs.267.37 crore in FY2022 registering a growth of 20% yoy. However, the profitability margins remain volatile and the operating profit margin stood at stood at 3.10% in FY2023 (Prov.) as against3.28% in FY2022. The PAT margin stood at 1.01% in FY2023(prov.) as against 1.12% in FY2022.

Acuité believes that the company will benefit from the extensive experience of the promoters along with a healthy relationship with its customer and suppliers.

­Moderate Financial Risk Profile
The financial risk profile of the company is moderate marked by moderate tangible networth, moderate gearing level and coverage ratios. The tangible net worth of the company stood at Rs. 32.40 crore as on March 31, 2023(prov.) as against Rs.29.15 crore as on March 31, 2022. The company follows a moderate leverage policy as reflected in its peak gearing level of 1.20 times as on March 31, 2023(prov.) as against 1.36 times as on March 31, 2022. The TOL/TNW improved to 1.84 times as on March 31, 2023 (prov.) as against 2.16 times as on March 31, 2022. The total debt of Rs. 38.77 crore outstanding as on March 31, 2023(prov.) comprises of vehicle loans and working capital term loan of Rs. 4.13 crore , unsecured loans from promoters of Rs. 5.92 crore and working capital borrowings of Rs.28.72 crore. The debt protection metrics of the company are moderate as the interest coverage ratio(ICR) stood at 2.60 times in FY2023(prov.) as against 2.65 times in FY2022. The debt-service coverage ratio (DSCR) stood at 2.35 times in FY2023(prov.) as against 2.34 times in FY2022.

Acuité believes the financial risk profile of the company is expected to remain moderate backed by moderate cash accruals and no major debt-funded capex in the near to medium term.

Weaknesses

­Working Capital intensive nature of operations
The operations of the company are of working capital intensive nature marked by moderate GCA days and higher working capital utilisation. The GCA days of the company stood at 86 days in FY2023(prov.) as against 103 days in FY2022. The inventory days stood at 64 days in FY2023(prov.) as against 73 days in FY2022. The debtor days of the company stood at 17 days in FY2023(prov.) as against 20 days in FY2022. The creditor days stood at 20 days in FY2023(prov.) as against 25 days in FY2022. The average working capital utilisation of the bank limits stood higher at 96% for six months ended March 2023.

Inherent cyclicality in the steel industry
The steel industry is highly fragmented and unorganized. VAPL is exposed to intense competitive pressure from large number of organized and unorganized players along with its exposure to inherent cyclical nature of the steel industry.

Rating Sensitivities

  • ­Significant improvement in scale of operations, while maintaining its profitability margins.

  • Deterioration in the working capital cycle leading to stress on the debt coverage indicators or the liquidity position of the entity.
 
Material covenants
­None
 
Liquidity Position
Adequate

The liquidity position of the company is adequate marked by sufficient net cash accruals against its maturing obligations. The company generated net cash accrual of Rs. 5.38 crore in FY2023 (prov.) against negligible maturing debt obligations. Going ahead , the cash accruals of the company are expected to be in the range of Rs.6.88-8.03 crore during FY2024-2025 against maturing debt obligations of Rs. 0.39-2.15 crore. The average working capital utilisation of the bank limits stood higher at 96% for six months ended March 2023. The company maintains unencumbered cash and bank balance of Rs. 1.64 crore as on March 31, 2023 (prov.)
 
Outlook: Stable

­Acuité believes that CRMPL will maintain a stable outlook over the medium term backed by its experienced management and established track record of operation in the aforementioned industry. The outlook may be revised to 'Positive' if the company demonstrates substantial and sustained growth in its revenues and operating margins from the current levels along with efficient working capital management. Conversely, the outlook may be revised to 'Negative', if the company faces stretched Working capital cycle or a fall in revenue, or a deterioration in the financial risk profile.
 

Particulars Unit FY 23 (Provisional) FY 22 (Actual)
Operating Income Rs. Cr. 320.63 267.37
PAT Rs. Cr. 3.25 2.99
PAT Margin (%) 1.01 1.12
Total Debt/Tangible Net Worth Times 1.20 1.36
PBDIT/Interest Times 2.60 2.65
Status of non-cooperation with previous CRA (if applicable)
­Not Applicable
 
Any other information
­None
 
Applicable Criteria
• 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

­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. 
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
05 Apr 2022 Cash Credit Long Term 20.00 ACUITE BBB- | Stable (Reaffirmed)
Letter of Credit Short Term 1.00 ACUITE A3 (Assigned)
Cash Credit Long Term 9.00 ACUITE BBB- | Stable (Assigned)
Letter of Credit Short Term 14.00 ACUITE A3 (Reaffirmed)
23 Mar 2022 Letter of Credit Short Term 14.00 ACUITE A3 (Reaffirmed)
Cash Credit Long Term 20.00 ACUITE BBB- | Stable (Reaffirmed)
05 Jan 2021 Letter of Credit Short Term 14.00 ACUITE A3 (Reaffirmed)
Cash Credit Long Term 20.00 ACUITE BBB- | Stable (Reaffirmed)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Axis Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 29.00 Simple ACUITE BBB- | Stable | Reaffirmed
Axis Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 15.00 Simple ACUITE A3 | Reaffirmed

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