- Group’s established presence in trading business
The group was founded in 1964 by the late Mr. Sawarmal Hisaria, thus having an operational track record of over five decades. In 1997, Mr. Sawarmal Hisaria's sons, Mr. Sandeep Hisaria and Mr. Sangeet Hisaria, joined the family business and diversified the group's activities into trading imported bulk commodities, including coal (coking and non-coking), shredded scrap, heavy melting scrap, billets, pellets, sponge iron, iron ores, among others. The established operational track record has helped the group maintain long-standing relations with customers and suppliers in both domestic and international geographies. The group benefits from its experienced promoters, who collectively possess around four decades of experience in the coal trading industry. Acuité believes that the group will continue sustaining its existing business profile on the back of its established track record and experienced management.
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Streamlined business model with adequate cash coverage for timely retirement of LCs' that mitigates unforeseen distress
The group is mainly engaged in trading imported bulk commodities like coal, with a single shipload estimated at 50,000 MT to 120,000 MT for supplies to various large industrial users. The group has developed a systematic end-to-end process, from identifying suppliers and buyers for a shipment to the timely closure of financial obligations against the shipment. The group receives an interest-free advance deposit from customers equivalent to 10 to 20 percent of the contract value, and the title of the cargo remains with the group until the complete value of the cargo is recovered. Further, material is supplied on a cash-and-carry basis to the customers, while extending credit of the advance deposit only at the time of lifting the last batch of the shipment. Thus, the customer pays upfront an amount equivalent to the PMT value before receiving a delivery order from HG.
The group is involved in importing coking and non-coking coal mainly from overseas and relies heavily on the letter of credit (LC) facility. The group purchases its raw materials backed by LCs with an usance period of 90 to 180 days, and the LC payments are made from sale proceeds received in tranches from customers, not exceeding more than 120 days, depending on the complete unloading of cargo. The group also methodically accumulates the sale proceeds in the form of fixed deposits for the timely retirement of LCs. There is no major bunching of the LCs since not all LCs are due at the same time. Further, the contract agreement stipulates that the customer must complete the lifting of cargo within an agreed period, or the group is eligible to forfeit all advances against the cargo and sell the cargo to another party. The group also maintains an additional margin of approximately 5 percent from the customer to cover foreign exchange exposure, duties and other ancillary charges. The group does not maintain any long-term quantity supply/procurement contracts nor long-term fixed price contracts; each shipment is negotiated independently. Acuité believes that the group's financial discipline for the retirement of LCs is expected to support its cash flow management effectively.
- Healthy financial risk profile
The financial risk profile of the group is healthy, marked by healthy net worth, moderate debt protection metrics, and low gearing. The net worth of the group stood at Rs.416.03 Cr and Rs.382.70 Cr as on March 31, 2024, and 2023 respectively. The gearing of the group improved and stood at 0.54 times as on March 31, 2024, against 0.68 times as on March 31, 2023. Debt protection metrics – interest coverage ratio and debt service coverage ratio stood at 1.60 times and 1.45 times as on March 31, 2024, respectively as against 2.57 times and 1.56 times as on March 31, 2023, respectively. TOL/TNW (Total outside liabilities/Total net worth) stood at 1.80 times and 1.75 times as on March 31, 2024, and 2023 respectively. The debt to EBITDA of the company stood at 2.04 times as on March 31, 2024, as against 1.92 times as on March 31, 2023. Acuité believes that the financial risk profile will remain healthy in the absence of any major debt funded capital expenditure plan over the medium term.
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- Moderate Working capital operations
Group’s working capital operations are moderate as reflected in its gross current assets (GCA) of 71 days in FY2024, compared to 43 days in FY2023. The group has a minimal holding period of inventory and presence of back-to-back payment terms with creditor and debtors. The inventory days stood at 6 days in FY2024 as against 14 days in FY2023. Since these are trading concerns and not restricted to any optimal utilization, the business volumes depend on the demand-supply factors. However, the debtor days stood at 51 days in FY2024 as against 21 days in FY2023. Creditor days stood at 45 days in FY2024 as against 23 days in FY2023. Furthermore, the reliance on bank limits was moderate, with average utilization of approximately 25 percent for the fund-based limits and 60 percent for the non-fund-based limits over the past twelve months ending in February 2025. Acuité believes the working capital management to remain on similar lines over the medium term on account of business policies maintained by the group and presence of back-to-back payment terms with creditor and debtors.
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Moderation in revenues and profitability in FY2024, albeit marginal improvement expected in FY2025
The group's revenues stood at Rs. 3,074.10 Cr in FY2024, compared to Rs. 5,007.80 Cr in FY2023. FY2023 was an exceptional year for the commodity market, primarily coal and steel, where the upward trend in overall realizations reflected in revenue growth to the tune of Rs. 5,007.80 Cr at the group level. With moderation in prices coupled with subdued demand across the industry caused by flooding in the Northern, Western, and Eastern regions of India for a period of four months (June to September), FY2024 revenue witnessed a correction (normal level) to Rs. 3,074.10 Cr. However, in 1FY2025, it is expected to range between Rs.3154-3200 Cr. The operating margin during FY2024 stood at 0.68 percent, compared to 1.40 percent in FY2023. The decline in operating margin is due to lower realizations and higher selling expenses (majorly bad debts). Further, the net profit margin of the group stood at 1.02 percent in FY2024, compared to 1.25 percent in FY2023. Acuité believes that going forward, the sustenance of growth in revenues while maintaining its profitability margins will remain a key rating sensitivity.
The group's business process involves purchasing bulk cargo backed by LCs and stipulates that the customer must complete the lifting of cargo within an agreed period. However, the group is exposed to certain counterparty credit risks associated with the other party to a financial contract not meeting its obligations or refusing to buy the shipment, putting HG's financial profile at risk. To mitigate this, the group has developed a systematic end-to-end process where it receives an interest-free advance deposit from the customer equivalent to 10 to 20 percent of the contract value, and the title of the cargo remains with the group until the complete value of the cargo is recovered. Additionally, material is supplied on a cash-and-carry basis to the customers, while extending credit of the advance deposit only at the time of lifting the last batch of the shipment. Furthermore, the group is eligible to forfeit all advances against the cargo and sell the cargo to another party if the other party fails to fulfill its commitment.
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