| long track record and experienced promoters with Integrated 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 of Raigarh (Chhattisgarh), who has two decades of experience in the iron & steel business. 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. It has a diversified product profile of TMT manufacturing, structural products, wire rod, galvanising units and fabrication units under the brand name “Nandan”. 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.
Strong business risk profile supported by integrated nature of operations and locational advantage The strong business risk profile of the group is supported by the integrated nature of operations; this enhances the operating efficiencies and mitigates the risks arising from the cyclical nature of steel industry to some extent. Also, the revenue of the group increased to Rs. 1396.82 Cr in FY2022 as compared to revenues of Rs.912.43 Cr in FY2021. Moreover, the group has achieved around Rs. 1339.42 Cr till December 2022(Provisional). Going forward, once the new capacities commence, the group’s revenue is likely to increase significantly in the near future in addition to the expansion of sales through the regular and expanded channels of dealer distributors.
Acuité believes that the sustainability in the revenue growth would be a key monitorable going forward and also that the diversified product range of the group will help to maintain its business risk profile over the medium term . In addition to this, the company has a locational advantage as the plants are located in the industrial area of Raipur, which is in close proximity to various steel plants and sources of raw materials. Further the plants are well connected through road and rail transport which facilitates easy transportation of raw materials and finished goods.
The operating margin of the group declined 5.90 per cent in FY2022 as compared to 7.98 per cent in the previous year. The margins have declined due to the base effect due to the significant increase in prices of the FG as well as the RM. Another reason for decline in margins in FY22 is due to the change in the product mix. The PAT margins stood at 1.76 per cent in FY2022 as against 3.02 per cent as on FY2021. The ROCE levels stood at a comfortable level of about 10.07 per cent in FY2022 as against 10.29 per cent in FY2021.
Healthy financial risk profile
The group’s healthy financial risk profile is marked by healthy networth base, comfortable gearing and moderate debt protection metrics. The tangible net worth of the group improved to Rs.336.76 crore as on March 31, 2022 from Rs.299.84 crore as on March 31, 2021 due to accretion of reserves. Acuité has considered unsecured loans of Rs.26.39 Cr as on March 31, 2022, as quasi-equity as the management has undertaken to maintain the amount in the business over the medium term. Gearing of the group stood comfortable at unity as on March 31, 2022 as compared to 0.89 as on March 31, 2021, although there was some increase in the debt levels in FY2022 due to the higher working capital requirements and planned capex towards a new plant in NSPL. Acuité notes that the company has been regularly incurring capex in the last few years for debottlenecking and improving efficiency. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.44 times as on March 31, 2022 as against 1.33 times as on March 31, 2021. The moderate debt protection metrics of the group is marked by Interest Coverage Ratio at 2.75 times as on March 31, 2022 and Debt Service Coverage Ratio at 1.25 times as on March 31, 2021. Net Cash Accruals/Total Debt (NCA/TD) stood low at 0.13 times as on March 31, 2022. Acuité expects while these new capex initiatives would increase the debt levels, healthy revenues and profits generated from the existing business are expected to adequately support the financial profile over the medium term, followed by limited debt repayment obligations. '
The group had undertaken planned capex in NSPL for Pipe mill and galvanizing project which will be operational from July, 2023 and capacity will be 1,50,000 MTPA. Out of 1,50,000 capacity, 50% will be sourced from captive consumption and remaining from the external market. Further, the product will be sold in the external market.
The total cost of the project for Pipe mill and Galvanizing section is Rs 60.15 crores which will be funded through debt of Rs 41 Cr and balance from promoters’ sources.
Acuité does not foresee any material impact on group’s capital structure and debt metrics. Higher-than-expected debt-funded capex resulting in deterioration in debt metrics and capital structure will remain a key rating sensitivity factor.
Moderate working capital managment
The working capital management of the group is moderate marked by Gross Current Assets (GCA) of 118 days in 31st March 2022 as compared to 145 days in 31st March 2021. The moderate level of GCA days is on account of high inventory levels during the same period. The inventory holding stood at 81 days as on 31st March 2022 as compared to 97 days as on 31st March 2021 since the group has a diversified product profile, and has to maintain considerable amount of inventory both in terms of raw materials and finished goods. However, the debtor period stood low at 18 days as on 31st March 2022 as compared to 26 days as on 31st March 2021. Acuité believes that the working capital operations of the group will remain almost at the same levels as evident from the high level of inventory period over the medium term. |
Intense competition and inherent cyclical nature of the steel industry
The steel rolling industry remains fragmented and unorganised. The company is exposed to intense competitive pressures from large number of organised and unorganised players along with its exposure to inherent cyclical nature of the steel industry. Further, there has been a significant push by the government on steel-intensive sectors such as railways and infrastructure, any sustained downturn in demand will adversely impact performance of steel companies. Additionally, prices of raw materials and products are highly volatile in nature. Business operations also face competition from cheaper Indonesian and Chinese imports. Substantial increase in imports may adversely impact realisation and volumes, and hence, remains a key monitorable. |
