Acuite has considered consolidated Business and financial risk profiles of Jai Ganesh Ispat and Ferro Alloys Private Limited and JGI Steel Processors Private Limited, hereafter referred as JGI group. The consolidation is on account of common management and strong operational linkages.

­Established track record of operations and experienced management.
Jai Ganesh Ispat and Ferro Alloys Private Limited (JGI) is a Goa based company, incorporated in 2004. The company's promoters have been engaged in the steel trading business since 1997. This has helped the company to establish strong relationships with their suppliers as well as with the customers, which has led to stability in the inflow of orders as well as supply of raw material. The extensive experience of the promoters as well as the established presence that has helped the company to secure distributorship of JSW Steel Limited. Along with acquiring the distributorship of JSW Steel Limited in Goa, the group has also acquired the distributorship rights for the Coastal Maharashtra region i.e. in the district of Sindhudurg, Ratnagiri, Raigad and Kolhapur Acuité believes that the group will benefit from its experienced management, which helps the company to maintain long-standing relationship with its customers and suppliers.

Robust revenue  growth past three years albeit fluctuating operating  margins:
The group has shown significant growth in revenue over the past three years at a compounded annual growth rate (CAGR) of ~40 percent. The growth in revenue is on account of increase in demand for steel products such as coils, ferros e.tc coupled by promoters’ aggressive approach in availing orders. During FY23 the group has reported revenue of Rs.503.05Cr against Rs.289.69Cr of previous year. The operating  margin of the group has declined to 4.62 percent in FY23 from 5.73 percent of FY22. The decline in operating  margin in on account of drop in realisations. The group has reported sales of ~Rs.319Cr till December 15^th 2023 and expected to register revenue in the range of Rs.555-565Cr and EBITDA margin is expected to be in the range of 3.8-4.0 percent by the end of the year. PAT margin of the group has improved during FY23 to 4.14 percent against 3.23 percent of previous year’s. The improvement is due to sale of real estate flats during the year. However, the PAT levels are expected to come down to previous level as the sale of real estate flats is uncertain during the year on account of low demand. Acuite believes that the three will be a slight moderation in the revenue on account to of low steel prices.

Healthy financial risk profile
JGI group’s financial profile is healthy as marked by Healthy capital structure, comfortable coverage indicators and healthy liquidity. The group’s net worth position stood healthy at Rs 77.88 Cr as on March 31, 2023 as against Rs.57.02 Cr as on March 31, 2022, backed by steady accretion to reserves. JGIFAPL has strategically extended advances amounting Rs.19Cr to its newly established subsidiary company. The capital structure remained healthy with gearing less than 0.65 times and Total Outside Liabilities to Tangible Net Worth (TOL/ TNW) below 0.99 times for past three years through as on March 31, 2023 due to limited capex requirements and resulting in low external borrowings. The group's coverage indicators are comfortable indicated by interest coverage ratio (ICR) 11.21 times and Net Cash Accruals (NCA)/Total Debt (TD) stood at 0.45 times for FY23 vis-à-vis 0.41 times in FY22. Debt service coverage ratio stood at 5.37 times during FY23 against 6.02 times of previous year. Acuité believes that financial risk profile will remain healthy over the medium term, supported by healthy accrual, nil long-term debt, and adequate liquidity with no significant debt-funded capital expenditure plans in near future.

­Moderate intensive working capital operations
The group's working capital is moderately intensive in nature as reflected by its Gross Current Asset (GCA) days of around 130-95 days during last 3 years ended with as on March 31, 2023. JGI group offers credit period of around 45 -60 days to its customers and makes upfront payment to its suppliers. Its inventory days stood at 15-45 days during last 3 years ended March 31, 2023. All its purchases are against payment only leading to moderate utilisation of its working capital limits at an average of 70-75 per cent for last 6 months ending November 2023. Acuité believes that with competitive and trading nature of operations, the company needs to maintain inventory while offering credit keeps the operations working capital operations moderate intensive in nature.

Cyclical and competitive nature of steel industry
The steel long products industry is intensely competitive, with many organized and unorganized players. 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 in current fiscal.