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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1400.00 | ACUITE BBB | Reaffirmed & Withdrawn | - |
| Bank Loan Ratings | 0.48 | Not Applicable | Withdrawn | - |
| Fixed Deposits (FD) | 180.48 | ACUITE BBB | Stable | Notice of Withdrawal | - |
| Bank Loan Ratings | 185.00 | - | ACUITE A3+ | Reaffirmed & Withdrawn |
| Total Outstanding | 180.48 | - | - |
| Total Withdrawn | 1585.48 | - | - |
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Rating Rationale |
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Acuite has reaffirmed and withdrawn its long term rating of ACUITE BBB (read as ACUITE triple B) on the Rs.1400 Cr bank loan facilities of Mukand Limited (ML).
Acuite has reaffirmed and withdrawn its short term rating of ACUITE A3+ (read as ACUITE A three plus) on the Rs. 185 Cr bank loan facitlies of Mukand Limited (ML). Further, the Proposed Long Term Bank Loan Rating of Rs.0.48 Cr is withdrawn without assigning any Rating as the instrument was not issued and thus there are no outstanding obligation of the company against this facility. The rating is being withdrawn on account of the request received from the company as per Acuité’s policy on withdrawal of ratings as applicable to the respective facilities. Acuite has rated FD ratings of Mukand Limited at ACUITE BBB (read as ACUITE Triple B) with a 'Stable' outlook. The rating is put on "Notice of Withdrawal", as per Acuité’s policy on withdrawal of ratings as applicable to the respective facilities. Rationale of reaffirmation The rating reaffirmation takes into account improved operating income albeit decline in operating profitability in FY2023 and recovery recorded in H1FY2024. The group generated an operating income of Rs. 5567.60 Cr in FY2023 as against Rs. 4642.82 Cr in FY2022. The improvement is driven by both higher volumes and values. However, the operating margins stood at (3.23)% in FY2023 as against 5.47% in FY2022. The operating level losses are primarily on account of higher raw material costs and provision for expected credit losses booked to the tune of Rs.80.97 Cr and increase in other manufacturing and miscellaneous expenses during the year. In H1FY2024 the group has reported operating income of Rs. 2763.50 Cr and operating margin of 5.45 percent. The financial risk profile continues to remain moderate marked by reduced gearing and stable debt protection metrics. Going forward, the group's ability to maintain its current profitability levels, operating income and capital structure will be key rating monitorables. |
| About Company |
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Incorporated in 1937, Mukand Iron & Steel Works Limited (MISWL) was acquired by the present promoter family, Shri Jamnalal Bajaj Group in 1939. The company then operated rerolling mills and a foundry in Lahore (British Indian Territory) and at Reay Road in then Bombay, respectively. MISWL's name was subsequently changed to 'Mukand Limited' (ML) in 1989. ML is a multi-division, multi product conglomerate involved in the manufacture of specialty steel long products and industrial machinery. With manufacturing facilities located in Thane, Maharashtra (for stainless steel) and Hospet, Karnataka (for alloy steel). ML along with its subsidiaries and associate companies is engaged in the manufacturing of special alloy steel/ stainless steel billets, bars, rods, wire rods and bright bars. ML has a combined installed capacity for manufacturing of 5.70 lakh MTPA of alloy steel and stainless steel. |
| About the Group |
| Mukand Limited group includes its subsidiaries, joint ventures and associates. Along with manufacturing of special alloy steel/ stainless steel billets, bars, rods, wire rods and bright bars, the Group is also in the business of design, manufacture, assembly and commissioning of industrial machinery, heavy duty cranes, bulk material handling equipment and process plant equipment for ferrous and non-ferrous industries. |
| Unsupported Rating |
| None |
| Analytical Approach |
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has considered the consolidated business and financial risk profile of Mukand Limited along with its subsidiaries. The list of subsidiaries and associates that have been considered for consolidation has been attached in the annexures. The entities are together referred to as 'The Group'. |
| Key Rating Drivers |
| Strengths |
| > Strong parentage; long-standing presence in the steel market Incorporated in 1937, ML largely caters to the automobile and auto component industry. The Chairman and Managing Director of ML, Mr. Niraj Ramkrishna Bajaj has been associated with the steel manufacturing business for almost four decades. The management of the Group is ably supported by qualified team of professionals. Over the years, the Group has been able to build healthy portfolio of reputed automobile manufacturer i.e. end consumers including Maruti Suzuki, Hyundai, Toyota, Nissan, Bajaj Auto, Hero Moto Corp, Honda Motor Cycles and Scooters India Ltd. ML has also established its presence in the international markets by way of exports to the U.S, Germany, Italy, Netherlands, Switzerland, United Arab Emirates, Japan, Hong Kong, Taiwan and Vietnam, amongst others. The promoter’s established presence in the steel business has helped the company to form Joint Venture with Sumitomo Corporation, Japan (SC). In January 2018, ML demerged its alloy steel rolling and finishing business and transferred the same to Mukand Alloy Steel Private Limited (MASPL) {wholly owned subsidiary of ML-now rechristened as Mukand Sumi Special Steel Ltd (MSSSL)}. Subsequently, as a part of the scheme of arrangement and amalgamation amongst the companies, Mukand Vijayanagar Steel Limited (MVSL) {wholly owned subsidiary of the company} was amalgamated with MASPL. In FY2022, ML subsidiaries Mukand Engineers Limited (MEL), Mukand Global Finance Limited (MGFL) and Adore Traders and Realtors Private Limited (ATRPL) were also amalgamated into ML vide NCLT order dated 24.05.2022. During FY2021, ML had envisaged plans of monetization of its non-core assets of which the first tranche was implemented in FY2021 and second tranche in FY2022. The funds raised vide the monetization were used to reduce the outstanding debt levels and for working capital purposes. The experience and reputation of the promoters and it belonging to one of India’s reputed business house; i.e. Bajaj Group was crucial in timely implementation of the plans. Acuité believes that ML will continue to benefit over the near to medium term on account of its experienced management and long-standing existence in the industry. > Moderate Financial Risk Profile The Group has noted an improvement in its overall financial risk post marked by reduced gearing and comfortable debt protection metrics. The Group in recent past had monetized its non-core assets including land parcels and investments in subsidiary entities and the funds generated were utilised to bring down the debt levels of the Group and finance the working capital requirements of its operations. As on March 31, 2023, the Group’s overall gearing improved to 1.83 times as from 3.08 times as on March 31, 2022. The Debt protection metrics marked by interest coverage ratio and Debt to EBITDA stood at 2.27 times and 3.75 times respectively as against 2.29 times and 5.53 times respectively in FY2022. |
| Weaknesses |
| > Working capital intensive nature of operations The Group’s operations are working capital intensive marked by gross current asset days of 153 days as on March 31, 2023 as against 207 days as on March 31, 2022. The improvement in GCA days is largely driven by faster realisations. The trade receivables days reduced to 30 days as on March 31, 2023 as against 43 days as on March 31, 2022. The inventory days ranged between 98-120 days for the period. The working capital requirements are adequately support by trade creditors and working capital loans availed from banks. The creditor days stood at 42 days as on March 31, 2023 as against 52 days as on March 31, 2022. > Susceptibility of operating performance to volatility in demand and prices ML manufactures alloy steel using iron ore and metallurgical coke as its main input and stainless-steel using steel scrap and nickel as its main input. The prices of these inputs are linked to the global markets having direct impact on the Group's profitability. Besides the domestic demand volatility, supply side factors such as imports from China are also major determinate which influence the credit profile of the steel manufacturers. ML imports 40-60 per cent of its raw material requirement and is, thus, also exposed to forex fluctuations. The operating margins on a consolidated basis stood at (3.23)% in FY2023 as against 5.47% in FY2022. The operating level losses are primarily on account of higher raw material costs and provision for expected credit losses created to the tune of Rs.80.97 Cr and increase in miscellaneous expenses during the year. In H1FY2024 the group has reported operating margin of 5.45 percent. Net profitability margins stood at 3.09 percent in FY2023 (3.82% in FY2022) supported by other income of suplus generated on land parcel sale. Acuité believes that ML will continue to remain exposed to the risk of changes in raw material prices, thereby impacting its profitability. However, in order to mitigate the risk to some extent, ML has entered into a cost-plus arrangement with its Joint Venture MSSSL for the sale of its entire output of alloy steel division and follows an order back to back policy for its raw material requirement for its stainless steel division. |
| ESG Factors Relevant for Rating |
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Manufacture of metals has a substantial environmental impact. The production of basic metals is extremely power-intensive. Most steel is still produced with blast furnaces, releasing large amounts of carbon dioxide, nitrogen oxide, and particulate matters into the air. On the social front, occupation and workforce health & safety management are of primary importance to this industry given the dangerous nature of operations. Furthermore, factors such as ethical business practices, management compensation and board administration hold primary importance within this industry. Incorporated in 1937, Mukand Limited has implemented policies, established procedure and conducts awareness programmes towards safety and health of its employees. Functional Departments implement practices that includes efficiency in energy and in utilizing natural resources with minimal or no damage to the environment. On the governance front, the Group has implemented policies to ensure transparency in all its operations, make disclosures and comply with various laws and regulations. ML’s Baard has constituted various committees comprising of its key management personnel as its members, to cater to the various environmental, social and governance issues encompassing the industry. |
| Rating Sensitivities |
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> Sustenance of improvement recoded in operating performance of the group in H1FY2024 > Any unexpected debt additions in the business thereby impacting the debt protection metrics and liquidity position |
| All Covenants (Applicable only for CE & SO Rating) |
| Not Applicable |
| Liquidity Position |
| Adequate |
| ML’s liquidity position has been assessed adequate basis the improving nature of the cash accruals vis-à-vis the debt obligations coupled with continuous repayment of its outstanding debt. The cash accruals for the near to medium term is expected to remain in the range of Rs.150 Cr to Rs.300 Cr against no significant repayment obligations. The operations of the Group are working capital intensive marked by Gross Current Asset days of 153 days as on March 31, 2023. The working capital requirements of the Group are adequately supported by working capital term loans and inter-corporate debt. The average bank limit utilisation of its non-fund based facilities stood around 60.39 percent for the last eight months ended November, 2023. |
| Outlook: Stable |
| Acuité believes that ML will maintain a ‘Stable’ outlook over medium term driven by strong parentage; long-standing presence in the steel market and moderate financial risk profile. The outlook may be revised to 'Positive' incase of higher-than-expected improvement in scale of operations and profitability while maintaining its working capital cycle. Conversely, the outlook may be revised to ‘Negative’ in case of lower than expected improvement in scale of operations and profitability of the group or any unexpected debt additions leading to deterioration in financial risk profile. |
| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 5567.60 | 4642.82 |
| PAT | Rs. Cr. | 171.78 | 177.42 |
| PAT Margin | (%) | 3.09 | 3.82 |
| Total Debt/Tangible Net Worth | Times | 1.83 | 3.28 |
| PBDIT/Interest | Times | 2.27 | 2.29 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any Other Information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.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. |
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