­For arriving at this rating, Acuité has consolidated the business and financial risk profiles of Nandan Steels and Power Limited, Hi-Tech Power and Steel Limited (HTPSL) and Nandan Metallics Private Limited (NMPL) together referred to as the ‘Nandan Group’(NG). The consolidation is in the view of common management, parent subsidiary relationship, strong operational linkages between the entities and a similar line of business.

­Established track record and skilled promoters with location advantage along with integrated nature of operations
The group is managed by Mr. Ashok Kumar Agarwal, Mr. Binod Kumar Agarwal, Mr. Sanjay Kumar Kariwalla, Mr. Vikash Kumar Agarwal, and Mr. Manish Kumar Agarwal from Raigarh (Chhattisgarh), each possessing two decades of experience in the iron & steel industry. Their extensive experience and established operational history have enabled them to foster strong relationships with key suppliers and respected customers nationwide. The diversified product portfolio, featuring Thermo Mechanically Treated (TMT) steel manufacturing, structural products, wire rod, galvanizing units, and fabrication units under the brand name “Nandan,” contributes to their strengths. Acuité derives comfort from the management’s extensive background and anticipates it will drive the company’s steady operational growth moving ahead. The group has increased revenues of Rs. 2,368.23 Cr. in FY2024 as compared to revenues of Rs. 1849.23 Cr. in FY2023. The improvement in revenues is majorly on account of increase in volume sales as well as increase in average realization per unit of sponge iron during the period. Furthermore, the operating margin of the group stood at 6.81 per cent in FY2024 as compared to 6.27 per cent in FY2023. The PAT margins stood at 2.34 per cent in FY2024 as against 1.78 per cent in FY2023. The profitability margin has increased the operating profit per tonne of steel sold has increased which signifies that the group is making incremental profit per tonne of steel sold due to the better operating efficiencies and economies of scale. The ROCE levels stood at a comfortable level of about 13.49 per cent in FY2024 as against 12.37 per cent in FY2023. Going forward, the group’s revenue is likely to increase significantly soon in addition to the expansion of sales through the regular and expanded channels of dealer distributors.

Healthy financial risk profile
The group’s healthy financial risk profile is marked by healthy net worth, modest gearing and comfortable debt protection metrics. The tangible net worth of the group stood at Rs.469.41 Cr. as on March 31, 2024 as compared to Rs.378.65 Cr. as on March 31, 2023 due to accretion to reserves. Acuité has considered unsecured loans of Rs.55.60 Cr. as on March 31, 2024, as quasi-equity as the management has undertaken to maintain the amount the business over the medium term. The gearing of the company stood modest at 1.3 times as on 31 March 31, 2024. The increase is due to long-term debt undertaken for capex for Hi-tech Steel. Similarly, the Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.76 times as on March 31, 2024 as compared to 1.59 times as on March 31, 2023. The debt protection metrices of the company remain comfortable marked by Interest coverage ratio (ICR) of 3.01 times and debt service coverage ratio (DSCR) of 1.71 times for FY2024. The net cash accruals to total debt (NCA/TD) stood healthy at 0.14 times in FY2024. Acuité believes that going forward the financial risk profile will remain healthy over the medium term, supported by healthy internal accrual generation, along with integrated nature of operations.

Moderate working capital management
he working capital management of the group is moderate marked by Gross Current Assets (GCA) of 88 days for FY2024 as compared to 99 days for FY2023. The GCA days of the group emanates from the high other current asset, which mainly consists of other loans and advances, statutory deposits and material on loan. The inventory days of the group stood at 58 days in FY2024 as compared to 72 days in FY2023. For HPSL, the inventory days are usually between 45-60 days, however the same has reduced to 47 days in FY2024 compared to 64 days in FY2023. For NSPL, the inventory is high on account of quality checks which are done by third parties. However, due to increase in inventory turnover, the inventory days have reduced in FY2024. The debtor days stood at 13 days in FY2024 against 12 days in FY2023. Days payable outstanding stood at 16 days against 26 days in FY2023. The working capital cycle ranges between 50-60 days and there are no instances of drags on liquidity. Acuité believes that the working capital operations of the group will remain at the similar levels over the medium term.

­Cyclical nature of the steel industry and the vulnerability of the margins to the volatility in steel prices
The group faces strong competitive forces from both organized and unorganized participants, compounded by the cyclicality inherent in the steel industry. Moreover, the government’s emphasis on steel-intensive sectors like railways and infrastructure increases vulnerability; any prolonged drop in demand would negatively affect steel group’s performance. Furthermore, the fluctuation in prices of raw materials and goods is considerably unstable. The business also contends with rivalry from more affordable imports from Indonesia and China. A substantial rise in imports could detrimentally affect earnings and quantities, making this a crucial aspect to watch. Although, the operating margin of the group stood at 6.81 per cent in FY2024 as compared to 6.27 per cent in FY2023 which is largely attributed to enhanced operational efficiencies and moderation in raw material prices. However, the profitability margins remain susceptible towards volatility in raw material prices.