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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 90.00 | ACUITE A | Stable | Upgraded | - |
| Bank Loan Ratings | 40.00 | - | ACUITE A1 | Assigned |
| Bank Loan Ratings | 150.00 | - | ACUITE A1 | Upgraded |
| Total Outstanding Quantum (Rs. Cr) | 280.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| 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 also assigned and upgraded the short-term rating to ACUITE A1’ (read as ACUITE A one) from ‘ACUITE A2+’ (read as ACUITE A two plus) to the Rs.280.00 crore bank facilities of Godavari Commodities Limited (GCL). The outlook is ‘Stable’.
Rationale for the rating The upgrade in the rating factors in the increased scale of operations and improved financial risk profile of GCL in FY2022 and till date current year performance, supported by the rally in coal prices and expected continuation of healthy performance in the current year as well, on account of high demand and offtake from the power sector. Acuité notes that while the trading volume have moderated in the current year from the all-time highs of FY 2022 following the global coal shortage, the significant surge in price would gradually reflect in GCL’s earnings in FY2023 and FY2024 along with diversification of business profile. The financial risk profile have remained comfortable with gearing below unity and strong debt coverage indicators on the back of consistent increase in the networth and higher cash accruals. The rating also derives comfort from the strong liquidity position of the company marked by surplus cash accruals and unutilized lines of fund-based limits. The rating upgrade also factors in reputed client profile of the company supported by increasing demand in the industry providing revenue visibility over the medium term. These strengths are however, partly offset by the working capital intensity in the operations, susceptibility to changing demand and pricing conditions and stressed end user industry. Together with higher accruals and minimal reliance on debt, this is expected to keep the company’s financial risk profile healthy, characterised by a conservative capital structure, strong liquidity profile and strong debt coverage metrics. |
| About the Company |
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Incorporated in 1992, GCL is a Kolkata based company engaged in trading of non-coking coal. The company also provides coal handling, supervision, and transportation services. GCL was promoted by the Bhutoria family associated with coal trading since last three decades. Currently the business is managed by Mr. Padam Chand Bhutoria and his sons Mr. Indraj Mal Bhutoria and Mr. Kamal Bhutoria. Till fiscal 2012, it was only trading in domestic coal. However, from FY 2013, it also commenced trading in imported coal. Recently, the company has bagged two contracts from West Bengal Mineral Development and Trading Corporation Ltd for excavation and loading of Sand from the river beds in West Bengal and transporting thereof to customers.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of GCL to arrive at this rating. |
Key Rating Drivers
| Strengths |
| Experienced management and established relationship with customers
Established in 1992, the company has been operational for around two decades. The promoter, Mr. Padam Chand Bhutoria has more than three decades of experience in the coal trading business. Currently the business is managed by Mr. Padam Chand Bhutoria and his sons Mr. Indraj Mal Bhutoria and Mr. Kamal Bhutoria. The Bhutoria family has been associated with the coal trading business since the past six decades. The long standing experience of the promoters and long track record of operations has helped them to establish comfortable relationships with key suppliers and reputed customers across the country. The clientele majorly consists of client having high credit worthiness and reputations in the market. Some of the key customers of the company are Saroj Commodities Private Limited, Ankit Metal and Power Ltd, West Bengal Minerals Development & Trading Corporation Limited, Lalitpur Power Generation Company Ltd. to name a few. Acuité derives comfort from the long experience of the management and believes this will benefit the company going forward, resulting in steady growth in the scale of operations. Healthy financial risk profile The company’s financial risk profile is marked by healthy networth, comfortable gearing and strong debt protection metrics. The tangible net worth of the company improved to Rs. 582.07 Cr as on March 31, 2022 from Rs.490.04 Cr as on March 31, 2021, aided by sizeable accretion to reserves which kept the capital structure conservative, as reflected by a low gearing of 0.11 times as on March 31, 2022 following the repayment of the unsecured loan of Rs 13.61 Cr. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood low at 0.60 times as on March 31, 2022 as against 0.79 times as on March 31, 2021. The strong debt protection metrics of the company is marked by Interest Coverage Ratio at 7.85 times and Debt Service Coverage Ratio at 8.57 times as on March 31, 2022. The surge in earnings in FY2022 supported by minimal debt and high accruals led to further improvement in the credit metrics. Net Cash Accruals/Total Debt (NCA/TD) stood high at 2.44 times as on March 31, 2022. Acuité believes that GCL’s financial profile has strengthened further in FY2022 and the same is likely to sustain going forward, supported by healthy internal accrual generation and in absence of any major debt funded capex plans. Significant improvement in scale of operation The company has achieved revenues of Rs. 1244.54 Cr in FY2022 as compared to revenues of Rs 505.11 Cr in FY2021. The turnover decline in FY21 was on account of disruption in operation due to pandemic outbreak and also the demand for electricity was low which led to decline in demand for coal. However, the top line improved significantly in FY22, mainly driven by both improvement in volume and realizations. The growth in revenue was driven by high demand from end user industry like iron and steel, power cement etc. Further, the company has already achieved revenues of Rs ~1613.80 Cr till December 2022(Prov). The coal prices have seen significant increase in FY23, largely due to greater fuel and electricity demand as countries slowly exited more stringent coronavirus restrictions as well as fallout from the RussiaUkraine war. As many European countries moved to restricting gas imports from Russia, coal has become the alternative choice to fill the power supply gap, driving up the prices. Acuité believes the scale of operation will improve further in medium term with backed by increasing demand for coal in the domestic market. However, the EBITDA margin of the company moderated in FY22 to 9.97 per cent in FY2022 as compared to 10.23 per cent in the previous year, due to increasing input prices, high freight cost for transportation of coal, on account of volatility in diesel prices and higher commission expenses. The PAT margins also declined to 7.43 per cent in FY2022 as against 9.48 per cent as on FY2021, due to substantial increase in finance cost. The ROCE levels stood at a comfortable level of about 23.48 per cent in FY2022 as against 12.82 per cent in FY2021, benefitting from the healthy profitability and asset-light nature of the business. Acuité believes that the stable market position and diversified clientele will mitigate the impact of decline, if any, in demand in any one sector. While coal trading volume will be supported by continued demand from the power sector, sustenance of the coal trading volumes will remain key monitorable. |
| Weaknesses |
| Working capital intensive nature of operation
The working capital management of the company has improved in FY22, although marked by high Gross Current Assets (GCA) of 217 days in 31st March 2022 as compared to 517 days on 31st March 2021 with increased efficiencies in debtor and inventory management. The high level of GCA days is on account of high level of current assets due to advance given to suppliers and related parties. However, the debtor period significantly improved to 80 days as on 31 st March 2022 as compared to 248 days as on 31st March 2021, with implementation of a strict debtor collection policy and capping its exposure to individual customers, thus improving its working capital position. Moreover, the inventory period also stood moderate at 45 days in 31st March 2022 as compared to 119 days in 31st March 2021. In FY21, the company kept the inventory levels high to mitigate the rising international coal prices and adverse price risks. Acuité believes that the working capital operations of the company will remain at same level given the nature of the industry over the medium term. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position |
| Strong |
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GCL’s liquidity position is strong with healthy cash accruals and adequate cash and liquid investments. The net cash accruals stood high at Rs. 93.89 Cr as on March 31, 2022 as against debt repayment of only Rs. 1.63 Cr. over the same period. The company maintains healthy cash and bank balances of Rs.61.97 Cr of this Rs.60.72 Cr is retained as current account balance and also maintains unencumbered FD balance of Rs. 20.62 Cr as on March 31, 2022. The current ratio stood strong at 2.29 times as on March 31, 2022 as compared to 2.08 times as on March 31, 2021. Moreover, the fund based limit remained utilized at only ~6.16 per cent over the last eight months ended November, 2022, indicating a considerable buffer from unutilised sanctioned limits. The non-fund based limit remained utilized at ~75.76 per cent over the eight months ended November, 2022. However, working capital management of the company is high marked by Gross Current Assets (GCA) of 217 days in 31st March 2022 as compared to 517 days in 31st March 2021. Acuité believes that going forward the company will maintain adequate liquidity position due to steady accruals.
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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 on account of sustainable growth in the financial performance of the company marked by satisfactory scale of operations and sustenance of profitability margins coupled with comfortable capital structure and strong debt coverage indicators on the back of consistent increase in the networth and healthy cash accruals over the years. Conversely, the outlook may be revised in case of weakening of its business risk profile, lower coal offtake and deterioration in profitability margins thereby impacting the liquidity and debt protection indicators of the company.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 1244.54 | 505.11 |
| PAT | Rs. Cr. | 92.48 | 47.89 |
| PAT Margin | (%) | 7.43 | 9.48 |
| Total Debt/Tangible Net Worth | Times | 0.11 | 0.17 |
| PBDIT/Interest | Times | 7.85 | 6.82 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.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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