- Established track record of operations and extensive experience of promoters
The Mahendra group has a long track record of over four decades in the iron and steel industry. Acuité believes that the long track record of operations will benefit the company going forward, resulting in steady growth in the scale of operations. The key promoters of the group, Mr. Manoj Kumar Agrawal, Mr. Mahendra Kumar Agrawal and Mr. Deepesh Agrawal, have been associated with the iron & steel industry for two decades. Acuité derives comfort from the long experience of the promoters.
- Sound business risk profile supported by sharp increase in operating income
The sound business risk profile of the group is supported by the sharp increase in the scale of operations. The revenue of the group increased to Rs.2285.63 Cr in FY2022 as compared to revenues of Rs.1805.58 Cr in FY2021 and Rs.1468.09 Cr in FY2020, thereby registering a 2 year CAGR of 24.77 per cent in this year. Moreover, the group has achieved around Rs. 2543.99 Cr till December 2022(Provisional). The growth in revenue is primarily on account of healthy demand, better market condition, better realization and rise in the trading of iron ore fines sales in the overseas market.
The operating margin of the group increased to 10.05 per cent in FY2022 as compared to 7.25 per cent in FY2021. The PAT margins stood at 5.98 per cent in FY2022 as against 3.59 per cent in FY2021. The improvement in the profitability margin in FY2022 is on account of the exceptional increase in trade of coal, due to the shortage of coal during FY 22, demand for imported coal had increased substantially. The RoCE levels stood at a comfortable level of about 30.30 per cent in FY2022 as against 29.08 per cent in FY2021. However, the operating margin of the group stood at 5.70 per cent in 9M FY23(Provisional)and the PAT margin stood at 2.89 percent in 9M FY23(Provisional). The profitability margin in FY2023 declined due to the increase in trading volume of coal and reduction in trading of iron ore on account of the duty charge levied on iron ore.
Acuité believes that the sustainability in the revenue growth and improvement in the profitability margin 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.
- Stable offtake and locational advantage
AIPL and MPPL both have signed power purchase agreements (PPA) with CSPDCL for 8.91MW for 20 years till 2038. Presently, AIPL is operating at plant load factor (PLF) of 70.18 per cent and MPPL is operating at plant load factor (PLF) of 92.46 per cent. Currently, the cost for supply of contracted energy is Rs.6.76/kWh. Acuité believes that the PPA with CSPDCL with AIPL and MPPL provides comfortable revenue visibility, going forward.
The group has a locational advantage as the plants are located in the industrial area of Raipur, Chattisgarh, 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.
- Healthy financial risk profile
The group’s financial risk profile is marked by strong networth, moderate gearing and healthy debt protection metrics. The tangible net worth of the group increased to Rs.437.85 Cr as on March 31, 2022 from Rs.275.96 Cr as on March 31, 2021 due to accretion of reserves. Acuité has considered unsecured loans of Rs.61.19 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 moderate at 1.11 times as on March 31, 2022 as against 0.94 times as on March 31, 2021. The gearing increased on account of additional export packing credit facility availed by AIPL to meet the high order book. The Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood high at 2.43 times as on March 31, 2022 as against 2.03 times as on March 31, 2021. The healthy debt protection metrics of the group is marked by Interest Coverage Ratio at 5.90 times as on March 31, 2022 and Debt Service Coverage Ratio at 3.52 times as on March 31, 2022. Net Cash Accruals/Total Debt (NCA/TD) stood at 0.31 times as on March 31, 2022. Acuité believes that going forward the financial risk profile of the group will remain healthy over the medium term, despite having debt funded capex plans.
The group has an ongoing capex in MSPL by installing an additional capacity of sponge iron of 650 TPD, Ferro Alloys (9Mva*2), 132 KVA Line and Water Supply line and a power plant of 25MW. The estimated project cost is Rs.325 Cr, against which the sanctioned term loan of bank of Rs.210 Cr and remaining portion from the promoters’ contribution of Rs.115 Cr.The commercial operation date of the project is April 2024. |
