­Acuite has consolidated the business and financial risk of Om SaiRam Steel and Alloys private limited and Sanvijay Alloys and Power limited for FY2023, hereafter refered as Om Sairam Group (OSG). The consolidation is in the view of integrated nature of business.

Experienced promoters and an established track record of operations

OSSAPL has a long operational track record in the iron and steel industry spanning two decades. Mr. Dinesh S. Bharuka started his career in 1986 with his family business of dealing in scrap metal at various steel processing plants in Maharashtra. In 2003, he and his brother, Mr. Rajendra Bharuka, incorporated this company and entered the steel business. The extensive experience of promotors has helped the group establish long-term relationships with its customers. OSSAPL’s manufacturing facility is located in Jalna, MH, with billet production capacity of five lakh metric tons per year and five lakh fifty thousand metric tons of TMT bars per year. In FY23, OSSAPL acquired Sanvijay Alloys and Power Limited as part of a backward integration initiative. In FY2024, the group acquired a thermal power plant with a capacity of 40 MW from Kiloskar Group.

Improving the business risk profile

The group's revenue improved to Rs. 1523.60 crore in FY2024 (prov) as against Rs. 1495.80 crore in FY2023. The improvement in revenue is due to an improvement in production quantity, backed by the capacity expansion in FY2023. The operating margins of the group improved to 15.72 percent in FY2024 (Prov) from 13.96 percent in FY23. Improvement in profitability is backed by backward integration through the acquisition of SAPL. Further, the group has undertaken capex to expand its sponge iron production capacity in SAPL with a total outlay of around Rs. 750 crore, out of which Rs. 500 crore being funded through bank loans and the balance through internal accruals. The capex program is expected to be completed in the next three years. Post-completion of the capex OSSAPL capacity utilization is expected to improve to 80 to 85 percent from the present level of around 50 percent. Along with this, the group has purchased a 40 MW power plant, which is expected to benefit the company through a reduction in power costs. The on-going expansion plans are expected to improve the scale of operations of the group, coupled with better operating margins. However, timely completion of the ongoing capex will remain a key rating that is monitorable.

Healthy financial risk profile

The group's financial risk profile is healthy, with a healthy net worth base, a moderate gearing ratio, and strong debt protection metrics. The tangible net worth of the group stood at Rs. 453.91 crore as of March 31st, 2024 (prov) as against Rs. 361.38 crore as of March 31st, 2023. The improvement in net worth is due to the accretion of profits to the reserves. The gearing ratio of the group stood at 1.61 times as of March 31st, 2024 (prov), as opposed to 1.76 times as of March 31st, 2023. The total debt of the group stood at Rs 732.98 Cr. as of March 31, 2024 (Prov) and consisted of Rs. 247.35 Cr. of term loans, Rs. 161.24 Cr. of loans from promotors, short-term working capital debt of Rs 301.02 Cr, and CPLTD of Rs. 23.23 Cr. The interest coverage ratio stood comfortable at 3.93 times as of March 31, 2024 (prov) and 5.51 times as of March 31, 2023. The debt service coverage ratio (DSCR) stood comfortable at 3.36 times as of March 31, 2024 (prov) and 4.13 times as of March 31, 2023. The total outside liabilities to tangible net worth stood at 1.94 times for FY2024 (prov) as against 2.10 times in FY2023. Acuité believes that going forward, the financial risk profile of the company is likely to remain healthy, backed by steady accruals.

Moderate Working capital management

Group's working capital operations are moderate in nature as reflected by  Gross Current Asset (GCA) of 121 days as in 2024 (Prov) as against 99 days in FY23. The inventory levels have improved and stood at 42 days for FY2024(Prov) compared against 50 days for FY2023. The debtor days stood at 42 days for FY2024 (prov) against 24 days for FY2023. The average credit period allowed to the customers is around 20-25 days. The creditor days of the company stood at 21 days for FY2024 (Prov) as against 19 days for FY23. Acuité believes that the working capital operations of the group will remain at same level as evident from efficient collection mechanism and comfortable inventory levels over the medium term.

­­Intense competition and inherent cyclical nature of the steel industry
The steel-rolling industry remains fragmented and unorganized. The company is exposed to intense competitive pressures from a large number of organized and unorganized players, along with its exposure to the inherent cyclical nature of the steel industry. Additionally, prices of raw materials and products are highly volatile in nature. Business operations also face competition from cheaper Indonesian and Chinese imports. A substantial increase in imports may adversely impact realization and volumes and, hence, remain a key monitorable.