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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 6.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 22.00 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 6.00 | - | ACUITE A3+ | Assigned |
| Bank Loan Ratings | 8.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding | 42.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) and the short-term rating of ‘ACUITE A3+’ (read as ACUITE A three plus) to the Rs. 30.00 Cr. bank facilities of Incredible Industries Limited (IIL). The outlook remains ‘Stable’.
Acuité has assigned the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) and the short-term rating of ‘ACUITE A3+’ (read as ACUITE A three plus) to the Rs. 12.00 Cr. bank facilities of Incredible Industries Limited (IIL). The outlook is ‘Stable’. Rationale of the Rating The rating reaffirmation of the group factors in the operating efficiency of the group marked by integrated nature of operations coupled with steady increase in the turnover levels. The rating also draws comfort from healthy financial risk profile characterized by low gearing and comfortable debt protection metrics. The adequate liquidity position of the company and the management’s long track record in the steel industry, further reassures the rating. However, these strengths are partially offset by working capital intensive nature of operations and cyclical nature of the steel industry. |
| About Company |
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Incorporated in 1979, IIL is a Kolkata based company engaged in the manufacturing of rolled products (TMT bars and wire rods). The company runs under the directorship of Mr. Rama Shankar Gupta, Mr. Niket Agarwal, Mr. Sanjay Kaloya, Mr. Asit Baran Dasgupta, Ms. Sonam Agarwal and Ms. Shilpi Modi. It is listed with NSE, BSE and CSE. The manufacturing facilities are located in Durgapur, West Bengal, with an installed capacity of 1,70,000 MTPA for rolled products. The company procures the basic raw material i.e, billets majorly from ACL and therefore enjoys backward integration with the group company which is engaged in manufacturing of sponge iron and billets. The TMT bars manufactured by IIL are sold under their brand ‘Adhunik’. The group markets its product via dealer network across various states of India including West Bengal, Bihar, Odisha and North-Eastern states.
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| About the Group |
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ACL was incorporated in 1996.The company is engaged in the manufacturing of sponge iron and billets. It runs under the directorship of Mr. Rama Shankar Gupta, Mr. Niket Agarwal, Mr. Sanjay Kaloya, Ms. Sonam Agarwal and Ms. Shilpi Modi. The manufacturing facilities are located in Durgapur, West Bengal, with an installed capacity of 60,000 MTPA for the DRI plant and 78,000 MTPA for their SMS unit. The company also has its own 4.00 MW wind farm plant at Dhule (Maharashtra), for which it has entered into a Power Purchase Agreement (PPA) with Maharashtra State Electricity Distribution Company Limited (MSEDCL) for selling of power generated from wind farm.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has considered the consolidated business and financial risk profile of ACL and IIL while arriving at the rating. The consolidation is in the view of common management, strong operational linkages between the entities and a similar line of business.
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| Key Rating Drivers |
| Strengths |
| Long track record of operations and experienced management The group has long operational track record in the iron and steel industry for more than four decades. Further, the key record of the group coupled with the long experience of the management will continue to benefit the group going forward, resulting in steady growth in the scale of operations. Integrated operations and locational advantage The operations of the group are forward integrated from sponge iron to rolled products, which supports the operating efficiency in terms of smooth availability of raw material for IIL from ACL. ACL met around 75% of IIL’s raw material requirement in as against 72% in FY2023 and 56% in FY2022. The sponge iron manufactured by ACL is almost entirely consumed in-house, for the production of billets. The surplus production of sponge iron, if any, is sold to the other billet manufacturers in the market. Also, the billets so manufactured by ACL are used by IIL for the manufacture of their rolled products. Acuité believes the semi-integrated nature of operations of the group and locational advantage on account of the close proximity of both the plants, provides efficiency in terms of operations and mitigates the risks arising from the cyclical nature of steel industry to some extent. Steady business risk profile The group witnessed an improvement in its scale of operations marked by its revenue of Rs.700.85 Cr. in FY2023 as against Rs.532.77 Cr. in FY2022 (the revenues arrived at here after knocking off inter-company transactions; however the intercompany sales include GST). The increase in the revenue is majorly driven by rise in average realization and increased sales volume of TMT bars in FY2023 buoyed by higher demand and better capacity utilization. The integrated nature of operations of the group enhances the operating efficiencies with presence in steel value chain right from sponge iron to rolled products. It provides the group with a flexibility to sell intermediate products and also, use them for captive consumption. The group’s margin declined slightly due to increase in the raw material prices which the group could not fully pass ion to its end users. The operating profit of the group was at 4.76% in FY2023 vis-à-vis 5.33 % in FY2022. However, the PAT margin declined marginally to 1.47 per cent in FY2023 as against 1.54 per cent in FY2022. Further, the group has achieved a turnover of Rs.615.67 Cr (Prov) till December 2023. Acuite believes that the group would be able to maintain its revenues while also maintaining its margins at similar levels over the medium. Healthy financial risk profile The group’s financial risk profile is marked by healthy networth, low gearing and comfortable debt protection metrics. The tangible networth of the group stood at Rs.281.34 Cr. as on March 31, 2023 as against Rs.263.56 Cr. in the previous year due to accretion of profits. Gearing of the group stood at comfortable levels at 0.28 times as on March 31, 2023 as against 0.27 times in the previous year. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 0.52 times as on March 31, 2023 as against 0.56 time in the previous year. The comfortable debt protection metrics of the group is marked by Interest Coverage Ratio (ICR) at 2.88 times and Debt Service Coverage Ratio (DSCR) at 1.62 times as on March 31, 2023 as compared to 3.12 times and 1.90 times respectively in the previous year. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.25 times as on March 31, 2023. Acuité believes that going forward, the financial risk profile of the group will remain healthy backed by steady accruals and no major debt funded capex plans. |
| Weaknesses |
| Working capital intensive nature of operations
The working capital intensive nature of operations of the group is marked by high but improving Gross Current Assets (GCA) of 171 days as on March 31, 2023 as against 217 days in the previous year. The improving yet high GCA days are primarily on account of high inventory holding level of 86 days as on March 31, 2023 as compared to 112 days in the previous year as the company maintains inventory of raw materials to mitigate the price volatility. However, the debtor period improved and stood comfortable at 7 days as on March 31, 2023 as against 27 days in the previous year. Also, the group provides high advances to suppliers for meeting their inventory requirement at almost a Rs. 100 Cr. as on March 31, 2023. Acuité believes that the working capital requirement is likely to remain at similar levels over the medium term. Inherent cyclical nature of the steel industry The group's performance remains vulnerable to cyclicality in the steel sector given the close linkage between the demand for steel products and the domestic and global economy. The end-user segments such as real estate, civil construction and engineering also display cyclicality. Further, operating margins are vulnerable to volatility in the input prices (iron ore and coal) as well as realisation from finished goods. The prices and supply of the main raw material, iron ore, directly impacts the realisations of finished goods. Any significant reduction in the demand and prices adversely impacting the operating margins and cash accruals of the group will remain a key monitorable. |
| Rating Sensitivities |
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| Liquidity Position |
| Adequate |
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The group’s liquidity is adequate marked by net cash accruals of Rs.19.61 Cr. as against long term debt repayment of Rs.7.66 Cr. over the same period. Further, the current ratio stood comfortable at 3.37 times as on March 31, 2023. However, the fund based limit remained highly utilised at 87.93 per cent and the non-fund based limit at 85.75 per cent for nine months ended February 2024. The cash and bank balance stood at Rs.0.78 Cr. as on March 31, 2023. Moreover, the working capital intensive nature of operations of the firm is marked by high GCA days of 171 days as on March 31, 2022 as against 217 days in the previous year. There are no capex plans of the group over the medium term. Acuité believes that going forward the group will maintain adequate liquidity position due to steady accruals, absence of debt funded capex plans and healthy current ratio.
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| Outlook: Stable |
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Acuité believes that the outlook on the group will be 'Stable' over the medium term on account of the long track record of operations, experienced management, sound business risk profile and healthy financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the group’s revenues or profit margins, or in case of deterioration in the group’s financial risk profile and liquidity position or delay in completion of its projects or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 700.85 | 532.70 |
| PAT | Rs. Cr. | 10.29 | 8.23 |
| PAT Margin | (%) | 1.47 | 1.54 |
| Total Debt/Tangible Net Worth | Times | 0.28 | 0.27 |
| PBDIT/Interest | Times | 2.88 | 3.12 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any Other Information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.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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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||
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