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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 44.13 | ACUITE BBB- | Stable | Assigned | - |
| Bank Loan Ratings | 20.75 | - | ACUITE A3 | Assigned |
| Total Outstanding | 64.88 | - | - |
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Rating Rationale |
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Acuité has assigned its long-term rating of ACUITE BBB-(read as ACUITE triple B minus) and its short term rating of ‘ACUITE A3’ (read as ACUITE A three) on the Rs.64.88 crore bank facilities of Elec Steel Processing Industries Private Limited (ESPIPL). The outlook is 'Stable'.
Rationale for the Rating The rating assigned takes into consideration the augmented business risk profile witnessing improvement year on year, primarily due to high demand in the infrastructure and power sector led by power supply requirements throughout the nation. ESPIPL clocked revenues of Rs.140.16 crores in FY23; as against Rs.91.88 crores in FY22 with a year on year growth of 52.5% and Rs.111.62 crores (Prov.) for H1FY24; backed by increasing demand and increasing export business. The company also has renowned clientele with relations in India as well as Oman & Canada. The rating also draws comfort from the established operations and experience of the company. The rating is constrained over moderate financial risk profile of the company reflected by low net worth despite having a vintage experience. The working capital operations of the company also remained intensive led to high reliance towards its bank limits. Acuité also takes note of the company’s ongoing capex towards enhancing its existing production capacity by 15% to cater to the rising order book. |
| About the Company |
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ESPI is engaged into manufacturing of transformer laminations made from grain oriented electrical steels (iron-silicon alloys) which provides low core loss and high permeability needed for electrical transformers. ESPI also manufactures toroidal cores for metering transformers. ESPI imports cold-rolled grain oriented silicon steel (CRGO) and cold-rolled non-grain oriented silicon steel (CRNGO) sheets.
ESPI, got converted into a private limited company in September 2022; named “Elec Steel Processing Industries Pvt Ltd”. The company has 4 operational plants situated in Vadodara, Gujarat. Out of which, 2 plants situated in GIDC Vadodara, would be shifted to the new location at Vadodara itself; in the ongoing debt funded capex to enhance the production capacity and reduce the turnaround time. One of the four plants is exclusively set up to cater to the requirements of Hitachi Energy India Ltd. The plants situated in GIDC which are to be relocated, would be used as warehouses after completion of ESPIPL’s capex plan. ESPIPL is currently promoted by Mr. Harshad Bagadia & Mr. Paras Bagadia. |
| Analytical Approach |
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Acuité has considered standalone business and financial risk profile of ESPIPL to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Experienced management and vintage relation with renowned clients
Elec Steel Processing Industries Pvt Ltd; previously being operational as a partnership firm since 1971, converted into a private company in FY23. The company is engaged in the business of transformer lamination and the key promoters have an experience of over 5 decades in the industry. ESPIPL also has vintage relations with renowned clients such as Hitachi energy India Ltd, Federal Transformers & Switchgears LLC (Canada), Jayco Electricals to name a few. Augmented business risk profile ESPIPL has witnessed year on year growth backed by robust demand in the infrastructure and power segment led by increasing need of power supply throughout the nation. ESPIPL clocked a revenue of Rs.140.16 crores in FY23; as against Rs.91.88 crores in FY22 with a year on year growth of 52.5% and Rs.111.62 crores for H1FY24; backed by increasing demand and growing order book (order book amounted to Rs.16.99 crores as on Dec 13, 2023). Furthermore, the company has consistent increase in its orders and increasing export business reported at Rs.44.97 crores in FY23 as against Rs.9.83 crores for FY22. The Export segment primarily being catered to Voltamp Transformers and Federal Transformers, Oman for FY23. The profitability margins for ESPIPL improved significantly YoY with EBITDA margin at 7.39% for FY23 vis a vis 5.48% for FY22 and PAT margin at 3.9% vis a vis 1.44% for FY22. The company reported profit of Rs.5.47 crores for FY23 as against Rs.1.32 crores in FY22. Acuite believes that the business risk profile of the companywould continue to in the near term. Improvement in operations with increasing Orderbook The company's operations are improving year on year where ESPIPL's outstanding order book is growing with orders from Canada, Oman where ESPIPL plans to expand its presence with Voltamp Transformers. The company has an outstanding orderbook as on Dec 31, 2023 amounting to Rs. 16.99 Cr of which Rs.5.97 Cr are from Oman and Canada. |
| Weaknesses |
| Moderate Financial Risk Profile
The financial risk profile of ESPIPL remains moderate marked by increasing yet lower level of net worth, moderate gearing and comfortable debt protection metrics. The net worth of the company increased to Rs.20.04 crore as on March 31, 2023; vis a vis Rs.15.56 crore as on March 31, 2022 and as against Rs.11.45 Cr. as on march 31, 2021. The net worth also includes quasi equity worth Rs.8.86 crores as on March 31, 2023. The Debt-equity (gearing) improved yet remained moderate at 1.19 times in FY23 Vis a Vis 1.46 times in FY22. The company’s debt protection metrics remained comfortable and improved marked by its Interest coverage ratio at 4.54 times for FY2023 as against 2.69 times in FY2022; improving YoY and DSCR of the company witnessed improvement to 3.62 times in FY2023 as against 2.03 times for FY2022. The Net cash accruals to total debt (NCA/TD) stood at 0.25 times in FY2023 as against 0.09 times in FY2022. TOL/TNW for ESPIPL improved to 1.72 as on March 31, 2023 as against 2.12 times as on March 31, 2023. Acuité believes that the financial risk profile of the company is likely to remain at similar levels with debt funded capex in FY23-24. Susceptibility to volatile raw material prices ESPIPL is exposed to the volatility in the prices of its primary raw material, CRGO (Cold rolled grain oriented steel) where the derivation of price is dependent on various factors including global scenarios such as geopolitical conflicts, pandemic etc. The inherent vulnerability in the commodity prices exposes ESPIPL to the susceptibility of margins. |
| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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ESPIPL has adequate liquidity position marked by adequate net cash accruals of Rs.6.04 crores as against debt obligations of Rs.0.87 crores for FY2023. The cash accruals of the company are estimated to increase in the near term; while maturing debt obligations are expected to rise marginally. However, the company’s reliance on working capital borrowings is on higher side marked by average utilisation of ~81 percent of its bank limits as per 9 months ended Sept. 2023. (Including an ad-hoc limit of Rs.3.00 Cr.). Furthermore, the company maintains cash and bank balances of Rs.0.02 crores as on March 31, 2023 and the current ratio also stood at 1.89 times as on March 31, 2023. ESPIPL also maintained an investment of Rs.1.24 crores in fixed deposits against LC as on March 31, 2023.
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| Outlook : Stable |
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Acuité believes that ESPIPL will maintain a ‘Stable’ outlook and will continue to derive benefit over the medium term due to completion of capex and growing top line. The outlook may be revised to ‘Positive’, if the company demonstrates substantial and sustained growth in its revenues while maintaining its margins and is able to improve working capital operations. Conversely, the outlook may be revised to ‘Negative’ if the company generates lower than anticipated cash accruals, most likely due to significant debt funded capex or impact on profitability margins, thereby impacting its financial risk profile, particularly its liquidity.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 140.16 | 91.88 |
| PAT | Rs. Cr. | 5.47 | 1.32 |
| PAT Margin | (%) | 3.90 | 1.44 |
| Total Debt/Tangible Net Worth | Times | 1.19 | 1.46 |
| PBDIT/Interest | Times | 4.54 | 2.69 |
| 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 |
| 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 |
| Rating History : |
| Not Applicable |
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