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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1000.48 | ACUITE BBB | Stable | Upgraded | Positive to Stable | - |
| Bank Loan Ratings | 185.00 | - | ACUITE A3+ | Upgraded |
| Bank Loan Ratings | 343.00 | ACUITE BBB | Upgraded & Withdrawn | - |
| Bank Loan Ratings | 552.00 | - | ACUITE A3+ | Upgraded & Withdrawn |
| Fixed Deposits (FD) | 120.48 | ACUITE FA | Stable | Reaffirmed | Positive to Stable | - |
| Fixed Deposits (FD) | 60.00 | ACUITE FA | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 1365.96 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 895.00 | - | - |
| Rating Rationale |
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Acuité has upgraded the long-term rating to ‘ACUITE BBB’ (read as ACUITE Triple B) from 'ACUITE BBB-' (read as ACUITE Triple B minus) on the Rs.1000.48 Cr bank facilities of Mukand Limited. The outlook is revised from ‘Positive’ to 'Stable’. |
| 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. |
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.
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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. 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. 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. > Monetization of non-core assets and investments as planned ML in FY2021 had announced the monetization of its land parcels estimating to Rs. 800 Cr coupled with recommended plans to disinvest 51 percent in the JV (Mukand Sumi Special Steel Ltd) for a consideration of approximately Rs. 1,200 Cr to its promoter group companies. As on March 31, 2022, the above discussed plans were implemented. ML had received a total consideration of Rs.1213.13 Cr on divestment of its shares in the joint venture and had sold its 55 acres of land at Thane to NTT Global Data Centers Nav2 Private Limited for a consideration of Rs. 801.00 Cr. In March 2022, ML has executed an agreement for sale for balance land parcel of approx. 47 acres for a total consideration of Rs. 806.14 Cr, out of which part consideration of Rs.161.23 Cr is deposited by purchaser in an escrow account and balance is expected to be deposited in Q1FY2023. The considerations received from the above transactions were utilised to bring down the outstanding debt levels of the Group. > Improvement in the overall financial risk profile w.r.t mentioned reforms The considerations received through the above monetization plans, were significantly utilized towards repayment of its bank loans. The overall gearing of the Group stood at 3.25 times as on September 30, 2021 as against 4.56 times as on March 31, 2021 and 4.11 times as on March 31, 2020. The interest coverage stood at 2.41 times as on September 30, 2021 as against 0.74 times as on March 31, 2021 and 0.39 times as on March 31, 2020. The execution of agreement for sale of land parcel in March, 2022 is expected to further improve the financial risk profile of ML over the near term. The Company’s term loan of Rs. 1000 Cr is due to be repaid in September, 2022. Acuité believes that timely receipt of sale consideration and timely repayment of existing term loan will be a key rating monitorable. |
| Weaknesses |
| > 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 declined to (16.71) percent in FY2021 as against 4.25 per cent in FY2020. The loss was driven by one time write off of Rs.253 crore bad debt in ML’s NBFC subsidiary and rise in raw material costs. In 9MFY2022, ML operating profitability stood at 5.02 percent driven by improved realisations. Net profitability margins which stood at (7.51) percent in FY2021 and (8.20) percent in FY2020, improved to 3.92 percent in 9MFY2022. 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.
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| 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 in operating performance of the Group
> Timely completion of sale of approx.47 acres of land parcel > Timely repayment of corporate debt due in FY2023 > Any unexpected debt additions in the business thereby impacting the debt protection metrics and liquidity position |
| Material Covenants |
| None |
| Liquidity Position: Adequate |
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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.800 Cr supported by monetization of its non-core assets during the period. ML availed a corporate loan of Rs.1000 Cr for refinancing short term and long-term debt during FY2021 which is due to be repaid in FY2023. During the year FY2021 and FY2022, ML repaid its fund based short term bank borrowings of Rs.343 Cr and closed non-fund based limits of Rs.552 Cr. ML currently avails non-fund based working capital facility of Rs.185 Cr. The average utilization of this facility stood at 48% for last five months ended February, 2022.
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| Outlook: Stable |
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Acuité believes that ML will maintain a ‘Stable’ outlook over medium term on account of improved operating performance in FY2022 aided by the revival in demand and the fructification of management’s plan to retire its high cost debt by monetizing its non-core assets. 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 deterioration in the operations, profit margins or any unexpected debt additions leading to deterioration in financial risk profile leading to liquidity pressures.
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| Particulars | Unit | FY 21 (Actual) | FY 20 (Actual) |
| Operating Income | Rs. Cr. | 2714.08 | 2926.69 |
| PAT | Rs. Cr. | (203.78) | (239.88) |
| PAT Margin | (%) | (7.51) | (8.20) |
| Total Debt/Tangible Net Worth | Times | 4.56 | 4.11 |
| PBDIT/Interest | Times | 0.74 | 0.39 |
| 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 • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.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 |
| https://www.acuite.in/view-rating-criteria-55.htm |
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt Support) |
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List of companies consolidated: 1. Mukand Global Finance Ltd 2. Vidyavihar Containers Ltd 3. Mukand International FZE 4. Mukand Sumi Special Steel Ltd 5. Mukand Sumi Metal Processing Ltd 6. Hospet Steels Ltd 7. Mukand Engineers Ltd 8. Bombay Forgings Ltd 9. Stainless India Ltd 10. Adore Traders and Realtors Private Limited |
| About Acuité Ratings & Research |
