­Established track record along with experienced management 
HS is engaged into the trading and distribution of iron and steel products since 2017. The firm is managed by the partners Mr. Bharat J. Bhuta and Mr. Bhavin B. Bhuta who possess nearly five decades and two decades of experience in the iron and steel trading industry. The partners are being supported by its team of experienced professionals in managing day to day operations of HS. The extensive experience of the partners has enabled HS to establish a healthy relationship with its customers and suppliers. Acuité believes that HS will continue to benefit from its experienced management. The revenue of the company stood at Rs. 737.57 Cr. in FY2024(Prov.) as against Rs. 1060.86 Cr. in FY2023 as against Rs. 414.22 Cr. in FY2022.

Moderate financial risk profile
The company’s financial risk profile is moderate marked by moderate net worth, debt protection metrics and gearing levels.
The tangible net worth of the company stood at Rs.32.07 crore as on 31 March 2024(Prov.) as against 25.29 crore as on 31 March 2023. The net worth has improved on account of accretion of profits to reserves and is gradually expected to improve further over coming years. The gearing level of the company stood at 2.38 times as on 31 March 2024(Prov.) as against 2.48 times as on 31 March 2023. The total debt of the company stood at Rs.76.36 crore as on March 31, 2024(Prov.). The whole debt comprised of short- term debt. Interest Coverage Ratio (ICR) stood at 4.04 times for FY24(Prov.) against 5.06 times for FY23. Debt Service Coverage Ratio (DSCR) stood at 2.99 times for FY24(Prov.) against 3.63 times for FY23. The total outside liabilities to tangible net worth (TOL/TNW) of the company stood at 2.94 times as of March 31, 2024(Prov.) as against 2.85 times as of March 31,2023. The Debt/EBITDA levels stood at 3.98 times as of March 31, 2024(Prov.) as against 2.42 times as of March 31,2023.

Acuité believes that HS’s financial risk profile will continue to improve further in the absence of any major debt funded capex plans over the medium term.
 

­Moderately intensive working capital operations of the company
The working capital operations of the company stood moderately intensive marked by GCA days of 62 days in FY 2024 (Prov.) as against 33 days in FY 2023, the increase in GCA days is on account of increase in the inventory levels. The debtor days stood at 11 days in FY 2024 (Prov.) as against 14 days in FY 2023 and the inventory days for the company stood at 41 days in FY 2024 (Prov.) as against 15 days in FY 2023. The inventory for the company consists of HR Coils, JSW TMT bars, etc. However, the creditors days stood at 1 day in both FY 2024 (Prov.) and FY2023 as well.

Acuité believes that the ability of HS to maintain an efficient working capital cycle over the  medium term will remain a key rating sensitivity factor.
 

Cyclical and competitive nature of steel industry
The steel long products industry is intensely competitive, with many organized and unorganized players especially in the secondary/steel re-rolling business, which is less capital intensive. HS operates in a highly competitive steel industry thereby putting pressure on pricing power. In addition, the industry is reeling under the pressure of cheaper imports. The performance is linked to the steel industry which is cyclical in nature as well as end user industries such as real estate, infrastructure and construction. However, this risk is mitigated as the infrastructure industry in booming and the demand is much on a higher side backed by government initiatives for the upcoming years.