Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 72.17 ACUITE BB+ | Stable | Downgraded -
Bank Loan Ratings 38.83 - ACUITE A4+ | Downgraded
Total Outstanding Quantum (Rs. Cr) 111.00 - -
Total Withdrawn Quantum (Rs. Cr) 0.00 - -
 
Rating Rationale

Acuité has downgraded the long term rating to ‘ACUITE BB+’ (read as ACUITE double B plus) from BBB- (Read as ACUITE Triple B minus) and the short term rating to ‘ACUITE A4+’ (read as ACUITE A four plus) from ACUITE A3  (Read as ACUITE A Three) to the Rs.111.00 Cr bank facilities of Ispat Damodar Private Limited (IDPL). The outlook is ‘Stable’.
 

Rationale for the rating
The downgrade in the rating primarily factors in the deterioration in the liquidity position of the company mainly due to continuous reduction in the company’s sanctioned limits by the lenders on account of past regulatory issues. Further, the rating is also constrained by the company’s working capital intensive operations and the thin profitability margins susceptible to volatility in input prices.

However, the rating considers the steady business risk profile of IDPL marked by increase in the revenues. The rating also takes into account the experienced management and the healthy financial risk profile of the company characterized by comfortable leverage ratios.

About the Company
Incorporated in 1996 in West Bengal, Ispat Damodar Private Limited is promoted by Mr. Vikas Bansal, Sumita Majee and Mr. Arup Majee. The company is engaged in the manufacture of sponge iron, MS billet and ferro alloys with an installed capacity of 60,000 MTPA each. The company also has a 18 MW waste heat based power plant for captive consumption. The manufacturing facility of the company located at Purulia, West Bengal.
 
Analytical Approach
­Acuité has taken a standalone view of the business and financial risk profile of IDPL to arrive at the rating.
 

Key Rating Drivers

Strengths
  • ­Long track record of operations and experienced management
DPL’s key promoter, Mr. Vikas Bansal have an experience spanning over a decade in the ferro alloy, billet and sponge iron industry and understanding of the local market dynamics. The company has also established relationships with reputed players like Oswal Minerals Ltd, Odisha Mining Corporation Limited, Carbon Resources Pvt. Ltd. only to name a few. Acuité believes the long track record, experienced management and healthy relations with suppliers will continue to support the business, going forward.
The company has achieved revenues of around Rs.619.98 Cr in FY2022 as against Rs.407.53 Cr in FY2021 and Rs.199.50 Cr in FY2020. The provisional revenue till Oct’22 stood at around Rs.360 Cr(Provisional).
  • 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 stood at Rs.180.08 Cr as on 31st March, 2022 as compared to Rs.175.04 Cr as on 31st March, 2021. Gearing of the company remained below unity at 0.55 times as on March 31, 2022 as against 0.71 times as on March 31, 2021. The Total Outside Liability/Tangible Net Worth (TOL/TNW) stood at 1.08 times as on March 31, 2022 as compared to 1.19 times in the previous year. The strong debt protection metrics of the company is marked by Interest Coverage Ratio of 5.09 times and Debt Service Coverage Ratio at 3.86 times as on March 31, 2022. Net Cash Accruals/Total Debt (NCA/TD) stood at 0.20 times as on March 31, 2022 as against 0.12 times as on March 31, 2021. Acuité believes that going forward the financial risk profile of the company will remain at similar level backed by steady accruals and no major debt funded capex plans.
Weaknesses
  • Thin profitability margins
The operating margin of the company decreased to 5.09 per cent in FY2022 as compared to 5.71 per cent in the previous year. The PAT margins stood at 0.81 per cent in FY2022 as against 0.24 per cent in FY2021. Acuité believes that the improvement in profitability of the company would be a key monitorable going forward.
  • Working capital intensive nature of operations
The working capital intensive nature of operations of the company is marked by high Gross Current Assets (GCA) of 111 days as on 31st March 2022 as compared to 191 days as on 31st March 2021. The high GCA days is high on account of a high proportion of other current assets consisting of amount receivables from materials on loan and other loans and advances. However, the inventory days stood comfortable at 48 days as on 31st March 2022 as compared to 137 days as on 31st March 2021. The company generally maintains buffer stock of manganese ore and iron ore. They purchase these in large quantities (vessels) in order to reduce cost and hence maintain stock as there is shortage of such materials at times and also for the smooth functioning of the plant. The debtor period also stood comfortable at 26 days as on 31st March 2022 as compared to 24 days as on 31st March 2021. Acuité believes that the working capital operations of the firm will remain almost at the same levels as evident from efficient collection mechanism and comfortable inventory levels over the medium term.
  • Intense competition and inherent cyclical nature of the steel industry
The downstream steel industry remains heavily 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. Additionally, prices of raw materials and products are highly volatile in nature.
ESG Factors Relevant for Rating
­Not Applicable
 
Rating Sensitivities
  • Thin profitability margins
  • ­Thin profitability margins
  • Elongation in the working capital cycle
 
Material covenants
­None
 
Liquidity Position
Stretched
The company has a stretched liquidity position with fund based utilization at 93 per cent for the last 6 months till September 2022 on account of continuous reduction in limits from both their lenders. Further, the working capital intensive nature of operations is marked by high GCA days of 111 days as on March 31, 2022 as compared to 191 days as on March 31, 2021. However, the company has sufficient net cash accruals of Rs.19.27 Cr in FY2022 as against a long term debt repayment of only Rs.0.32 Cr over the same period. The current ratio stood comfortable at 1.57 times as on March 31, 2022 as compared to 1.46 times as on March 31, 2021. The cash and bank balances stood at Rs 0.06 Cr as on March 31, 2022. Acuité believes that going forward the liquidity position of the company will be stretched further due continuous decrease in working capital limits.
 
Outlook: Stable
Acuité believes the company’s outlook will remain 'stable' over the medium term on account of its experienced management, healthy financial risk profile and healthy scale. The outlook may be revised to 'Positive' in case the company witnesses a material improvement in its scale of operations. Conversely, the outlook may be revised to 'Negative’ in case of decline in the company’s revenues or profit margins, or in case of deterioration in the company’s financial risk profile and liquidity position or elongation in its working capital cycle.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 619.98 407.53
PAT Rs. Cr. 5.04 0.96
PAT Margin (%) 0.81 0.24
Total Debt/Tangible Net Worth Times 0.55 0.71
PBDIT/Interest Times 5.09 3.04
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any other information
­None
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm
• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm
Note on complexity levels of the rated instrument
­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
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
18 Oct 2021 Cash Credit Long Term 33.33 ACUITE BBB- | Stable (Upgraded from ACUITE BB+)
Cash Credit Long Term 23.20 ACUITE BBB- | Stable (Upgraded from ACUITE BB+)
Letter of Credit Short Term 1.26 ACUITE A3 (Upgraded from ACUITE A4+)
Proposed Bank Facility Long Term 15.64 ACUITE BBB- | Stable (Upgraded from ACUITE BB+)
Proposed Bank Guarantee Short Term 20.00 ACUITE A3 (Upgraded from ACUITE A4+)
Bank Guarantee Short Term 6.04 ACUITE A3 (Upgraded from ACUITE A4+)
Bank Guarantee Short Term 11.53 ACUITE A3 (Upgraded from ACUITE A4+)
21 Jul 2020 Cash Credit Long Term 23.20 ACUITE BB+ (Downgraded and Issuer not co-operating*)
Proposed Bank Guarantee Short Term 20.00 ACUITE A4+ (Downgraded and Issuer not co-operating*)
Term Loan Long Term 5.20 ACUITE BB+ (Downgraded and Issuer not co-operating*)
Cash Credit Long Term 41.60 ACUITE BB+ (Downgraded and Issuer not co-operating*)
Letter of Credit Short Term 7.30 ACUITE A4+ (Downgraded and Issuer not co-operating*)
Letter of Credit Short Term 13.70 ACUITE A4+ (Downgraded and Issuer not co-operating*)
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Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
State Bank of India Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 11.53 Simple ACUITE A4+ | Downgraded
Indian Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 6.04 Simple ACUITE A4+ | Downgraded
State Bank of India Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 33.33 Simple ACUITE BB+ | Stable | Downgraded
Indian Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 23.20 Simple ACUITE BB+ | Stable | Downgraded
Indian Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 1.26 Simple ACUITE A4+ | Downgraded
Not Applicable Not Applicable Proposed Bank Guarantee Not Applicable Not Applicable Not Applicable 20.00 Simple ACUITE A4+ | Downgraded
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 15.64 Simple ACUITE BB+ | Stable | Downgraded
­

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