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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 45.00 | ACUITE BB+ | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 45.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long term rating of ‘ACUITE BB+’ (read as ACUITE double B Plus) on the Rs.45.00 crore bank facilities of Metalloys Recycling Limited (MRL). The outlook is ‘Stable’.
Rationale for Reaffirmation
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| About the Company |
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Incorporated in 1987, MRL is a Mumbai based company promoted by Mr. Ambalal Porwal and Mr. Vijay Mohanlal Porwal, who possess over 3 decades of experience in the industry. The company is engaged in the processing of secondary ferrous and non-ferrous metals, and its main products are copper scrap, aluminum scrap, zinc scrap, brass scrap, magnesium scrap, nickel scrap and blended stainless steel scrap. The products sold by MRL are used as basic raw materials for various copper alloys, various grades of brass, zinc alloys, aluminum alloys, nickel alloys and stainless steel production. MRL’s processing unit is located at Kalyan (Thane), and office in Andheri (Mumbai).
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of MRL to arrive at the rating. |
Key Rating Drivers
| Strengths |
| Established track record of operations and experienced management
MRL was incorporated in the year 1987 and has established the presence of over three decades in the metal recycling industry. The company is promoted by Mr. Ambalal Porwal and Mr. Vijay Mohanlal Porwal, who possess over 3 decades of experience in the industry. The extensive experience of the promoters and the established presence of the company has helped in maintaining healthy relations with reputed customers like Jindal Stainless Limited, Nico Extrusions Limited, among others. Acuité believes that the company will benefit from its experienced management, longstanding relations with customers over the medium term. Revenue and profitability The operating income of the company improved and stood at Rs. 612.80 crore in FY2022 as against Rs.318.40 crore in FY2021. The revenue of the company has improved by ~93 percent in comparison to last year. The reason for improvement in revenue is due to increase in volume produced and increase in value of the product. The operating margin of the company which stood at 2.88 percent in FY2022 as against 3.26 percent in FY2021. Financial Risk Profile MRL has above average financial risk profile marked by moderate net worth and moderate debt protection metrics. MRL’s net worth stood at Rs. 49.34 Cr as on 31st March 2022 as against Rs. 45.23 Cr as on 31st March 2021. Gearing levels (debt-to-equity) stood at 0.87 times as on March 31, 2022 as against 0.68 in FY 2021 and Total outside liabilities to total net worth (TOL/TNW) stood at 1.14 times as on FY2022 vis-à-vis 0.83 times as on FY2021. Further, Debt-EBITA increased and stood at 3.88 times as on 31st March 2022 as against 2.76 times as on 31st March 2021. The coverage indicators of the company stood comfortable as is apparent from the interest coverage ratio which comfortable at 3.13 times for FY2022 as against 3.48 times in FY2021 and Debt service coverage ratio which moderated and stood at 1.39 times in FY2022 as compared to 1.76 times in FY2021. Working capital operations MRL has moderate working capital requirements as evident from gross current assets (GCA) of 57 days in FY2022 as compared to 85 days in FY2021. Debtor days have decreased marginally to 18 days in FY2022 as against 19 days in FY2021. Inventory days have decreased to 24 days in FY2022 as against 43 days in FY2021Working capital limits were utilized at moderate level of ~59 per cent during the last Six months ended September 2022. Further, the current ratio of MRL stood at 2 times as on March 31, 2022. |
| Weaknesses |
| Customer concentration risk
The company faces a customer and supplier concentration risk. About ~ 32 per cent of the total sales and ~57 percent of the total purchases are derived from Nico Extrusions Limited for the period ended FY2022. However, reputed clientele, long-standing relationship and recurring flow of orders from key customers reduce concentration and counterparty risk to a certain extent. Intense Competition and Volatility in Raw Material Prices The industry remains fragmented and unorganized due to presence of various players with limited differentiation in end products. The industry is also exposed to cyclicality and volatility of raw material prices. |
| Rating Sensitivities |
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Sustaining the scale of operations and improving the profitability margins leading to improvement in overall financial risk profile. Any further stretch in the working capital cycle and liquidity profile of the firm. |
| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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MRL has adequate liquidity marked by adequate net cash accruals to its maturing debt obligations. Company generated cash accruals of Rs. 5.45 crore for FY2022 as against Rs. 2.94 crore of repayment obligations for the same period. Current Ratio stood at 2 times as on 31 March 2022 as against 2.44 times in the previous year. The working capital limits are utilized at ~59 per cent during the last Six months providing additional cushion to meet the contingencies. Therefore, company has adequate liquidity to meets its requirements.
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| Outlook: Stable |
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Acuité believes that MRL will continue to maintain a ‘Stable’ outlook over the near to medium term owing to its established market position and experienced management. The outlook may be revised to ‘Positive’ in case the company achieves sustained growth in revenues and higher-than-expected improvement in profitability, working capital management and debt protection metrics. Conversely, the outlook may be revised to ‘Negative’ in case of a significant decline in revenues and operating profit margins, or deterioration in the capital structure and liquidity position on account of higher than expected working capital requirements.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 612.80 | 318.40 |
| PAT | Rs. Cr. | 4.11 | 4.36 |
| PAT Margin | (%) | 0.67 | 1.37 |
| Total Debt/Tangible Net Worth | Times | 0.87 | 0.68 |
| PBDIT/Interest | Times | 3.13 | 3.48 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.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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