| Extensive experience of promoters in the steel industry
The Group has an experience of more than three decades in steel manufacturing. The key promoter of the group is Mr. Vinod Garg, who has an experience spanning more than three decades in the iron and steel industry. The extensive experience of the promoter has helped the group establish long-term relationships with its customers for repeat orders and with suppliers for procurements. The senior management team is ably supported by a strong line of mid-level managers who have extensive experience in their respective fields. Over the years of operations, the group has gradually increased its capacities and its integration level, benefiting their day-to-day operations. The steel manufacturing facilities of the group are located in proximity to the sources of key raw materials. Acuité believes that the extensive experience of the promoters with a strong understanding of market dynamics, healthy relations with customers and suppliers, and a positive domestic demand outlook will continue to benefit the business profile of the group over the medium term.
Strong Business Risk Profile
The revenue of the group has improved to Rs.1934.11 Cr. in FY2024 as compared to revenues of Rs.1870.22 Cr. in FY2023. The operating margin of the group increased to 5.64 per cent in FY2024 as compared to 4.49 per cent in FY2023. Likewise, the PAT margins stood at 1.75 per cent in FY2024 as against 1.52 per cent in FY2023.The improvement is driven by lower raw material expenses in FY2024 as compared to the previous year. Further, the integrated operations have helped the group to maintain comfortable operating and profit margins. The group has registered arevenue of Rs.1495.54 Cr. till 31st December, 2024.
Further, the group has embarked on a backward integration project in order to fully integrate the facility, expanding the capacity of Sponge Iron, Steel Melting Shop (MS Billets) and the additional captive power plant within Pushpit Steels Private Limited which is expected to support in improving the turnover and profitability of the group going forward. Additionally, the group has entered into lease based agreement for solar and wind power projects in both Pushpit Steels Private Limited and Pulkit Metals Private Limited. The solar plant is expected to commence operations in FY2026 while the wind plant is expected to start operations in FY2027. Acuite expects the scale of operations of the group to be improved in near to medium term backed by enhanced production capacity through capacity expansion along with addition of power projects.
Healthy financial risk profile
The group’s financial risk profile is marked by healthy networth, comfortable capital structure and moderate debt protection metrics. The tangible net worth of the group increased to Rs.417.03 Cr. as on March 31, 2024 from Rs.341.03 Cr. as on March 31, 2023 due to equity infusion under Pushpit Steels Private Limited as well as accretion of profits into reserves. The capital structure of the group is marked by gearing which stood comfortable at 1.12 times as on March 31, 2024 as against 1.34 times as on March 31, 2023. The debt protection metrics remained moderate marked by interest coverage ratio (ICR) of 2.90 times and debt service coverage ratio (DSCR) of 1.71 times for FY2024. Furthermore, the group has an ongoing debt funded capex plan in order to fully integrate their facility, expanding the capacity of Sponge Iron, Steel Melting Shop (MS Billets) and the additional captive power plant within Pushpit Steels Private Limited which might impact the debt protection metrices slightly and will remain a key monitorable. In addition, the net cash accruals to total debt (NCA/TD) stood at 0.13 times in FY2024 as against 0.11 times in FY2023 and Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.36 times as on March 31, 2024 as against 1.71 times as on March 31, 2023. Acuité expects that going forward the financial risk profile of the group may moderate yet remain in a healthy position over the medium term on account of debt funded capex plans.
Efficient working capital operations
The working capital management of the group is efficient marked by Gross Current Assets (GCA) of 101 days for FY2024 as compared to 109 days for FY2023. The inventory days of the group stood at 46 days in FY2024 as compared to 66 days in FY2023. Further, the debtor days of the group stood at 52 days for FY2024 as against 42 days for FY2023. Against this, the group has minimal creditors, which stood at 13 days as on March 31, 2024. The average fund based and non-fund based utilization of the group stood at 74.10% and 56.31% respectively over last six months ended December 2024. Acuité expects that the working capital operations of the group will remain at the similar levels over the medium term.
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| Susceptibility to fluctuations in raw material prices or changes in government regulations
The group’s operating profitability is susceptible to fluctuations in raw material prices. The sector participants typically have high operating and financial leverage, large working capital requirements, and large-sized debt capital funding from the capex. Domestic steel producers are substantially dependent on imports of coking coal, and hence, any supply-side issue could have a material impact on utilization and profitability. In addition, metal prices are heavily dependent on international prices, as the domestic market is open for imports. Hence, any changes in the economic policies that could impact infrastructure spending or the easing of environmental norms can materially impact metal prices. Acuité believes that increasing scale would result in better absorption and higher margins, which would remain key rating monitorable.
Susceptibility to cyclicality in the steel industry and end-user industry
The domestic steel sector is characterized by demand cyclicality, volatility in raw material and metal prices, high regulatory risk, and the risk of imports. Group operates in the cyclical steel industry, thus making it vulnerable to downturns in industry demand, leading to a decline in realizations and profitability. Moreover, the bulk of its revenue is derived from the cyclical domestic end-use industry; demand depends on economic growth and consumer sentiments, and thus any decline in demand can also have an adverse impact on sales and profitability for the group. Demand for steel products depends on the level of construction and infrastructure activities and any movement in economic cycles. Furthermore, the steel industry remains exposed to global steel prices. While the cost-efficient and integrated domestic steel operations of the company partially cushion profitability against cyclical downturns, it will remain exposed to inherent price and demand volatility in the steel industry. Acuité believes that domestic consumption growth will continue in medium term, underpinned by demand growth from construction, real estate, automobiles, and consumer durables segments. High government spending on infrastructure, private sector capex, and the availability of credit will support demand growth in the end-user segment.
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