­Experienced management and established association with Kamdhenu Limited
MKSPL was established in the year 2004 by Mr. Anil Kumar Agarwal and Mr. Sunil Kumar Agarwal. The directors of the company have more than 15 years of experience in the iron and steel industry. The extensive experience of the management has helped the company establish long-term relations with suppliers resulting in direct procurement of MS billet from the domestic market. Moreover, their experience has also helped in building healthy customer relations in the domestic market of Chhattisgarh, Maharashtra, Madhya Pradesh and Orissa. Acuité believes that MKSPL will continue to benefit from long experience of the management in establishing relations with their key suppliers and customers. MKSPL has been associated with Kamdhenu Limited and sells TMT bars under the brand name of ’Kamdhenu’. The company pays royalty to Kamdhenu Limited for selling under their brand. Currently, MKSPL is one of the largest manufacturers of Kamdhenu TMT with exclusive coverage in Chhattisgarh, Maharashtra and Madhya Pradesh. The company has a wide distribution network consisting of around 850 distributors/dealers in its area of operation. Acuité believes that, that the business risk profile of the company would remain strong over the medium term backed by its long standing relation with Kamdhenu Limited.

Healthy scale of operation
The revenue of the company witnessed a 28.24 per cent growth in FY2022, its revenue increased to Rs.1316.21 crore in FY2022 as compared to Rs.1026.34 crore in the previous year. This growth of the revenue is majorly due to increase in average realization per unit during FY2022 backed by steady demand for billet, rolled products. The realization in rolled product had increased substantially in FY’22 which has witnessed correction in the current fiscal. Further, the average realization of the rolled product has also improved during the 1st half of FY2023, however, the realization for rolled product has declined globally on account of high level of inventory and weak demand in the export market, which may lead to overall sluggish growth in the revenue during FY2023. The company has booked around Rs.724 crore of sales till 31st October 2022 (Prov.). Going forward, Acuité believes that revenue of the company will maintain at a healthy level and sluggish growth on account of overall moderation in iron and steel industry globally.

Comfortable financial risk profile
The financial risk profile of the company is marked by healthy net worth, modest gearing and healthy debt protection metrics. The net worth of the company stood healthy at Rs.142.20 crore in FY 2022 as compared to Rs 96.67 crore in FY2021. This improvement in networth is mainly due to the retention of current year profit. The total networth of company includes Rs.25.90 crore of unsecured loan termed as quasi equity in FY2022 as the same amount is subordinated with bank debt. The gearing of the company stood at 1.15 times as on March 31, 2022 when compared to 1.08 times as on March 31, 2021. This increase in gearing is mainly on account of increase in short term debt during the period. Interest coverage ratio (ICR) is healthy and stood at 4.19 times in FY2022 as against 4.33 times in FY2021. The debt service coverage ratio (DSCR) of the company also stood comfortable at 1.88 times in FY2022 as compared to 2.26 times in the previous year. The net cash accruals to total debt (NCA/TD) stood comfortable at 0.23 times in FY2022 as compared to 0.31 times in the previous year. Going forward, Acuite believes the financial risk profile of the company will remain strong on account of steady net cash accruals and no major debt funded capex plan over the near term.

Moderate working capital management
The working capital management of the company is marked by comfortable gross current asset (GCA) days of 95 days in FY2022 as compared to 79 days in FY2021. This increase in GCA days is on account of significant increase in other current assets during FY2022, which mainly consists of loans and advances to related parties, advance given to suppliers and other advances during FY2022. The debtor days of the company stood comfortable at 31 days in FY2022 as compared to 39 days in the previous year. The inventory holding period of the company also stood comfortable at 51 days in FY2022 as compared to 36 days in the previous year. Further, the company has utilized ~92 per cent of its working capital facility during last six months ended October 2022. Acuité believes that the working capital of the company would be maintained at moderate levels over the medium term backed by its efficient debtor management policy.

­Moderate profitability margin
The operating profitability margin of the company has decreased to 4.65 per cent in FY2022 as compared to 5.02 per cent in the previous year. This decrease in profitability margin is on account of an increase in raw material price. Going forward, Acuite believes, that the profitability margin of the company will increase and sustained at moderate levels over the medium term backed by steady demand, stable realization and backward integration in group also help to reduce the power and logistic cost. The operating profitability margin has further stood moderate at 5.44 per cent during 6MFY2023 (Prov.).

Significant exposure to group company
MKSPL has been increasingly pumping in funds to their group companies, the advances extended to group companies have enhanced from Rs.07.00 cr in FY’21 to Rs. 28 cr in FY’22. Acuite believes that any further sizeable investments in group entities would pressurize the liquidity position of MKSPL.

Intense competition and inherent cyclicality in the steel industry
The company is operating in competitive and fragmented nature of industry due to the presence of many unorganized players on account of low entry barriers. Moreover, demand for steel products predominantly depends on the construction and infrastructure sectors. Thus, the profit margins and sales of the company remains exposed to inherent cyclicality in these sectors.