Press Release September 09, 2024 R K STEEL MANUFACTURING COMPANY LIMITED Rating Assigned

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	265.00	ACUITE BBB | Stable | Assigned	-
Total Outstanding	265.00	-	-

Rating Rationale

­Acuite has assigned long-term rating at 'ACUITE BBB' (read as ACUITE Triple B) for R K Steel Manufacturing Company Limited on the Rs. 265.00 Cr. bank facilities. The outlook is 'Stable'. Rationale for rating: The rating takes into cognizance the healthy business risk profile, efficient working capital cycle followed by adequate liquidity position. However, these strengths are partly offset by the moderate financial risk profile and susceptibility of margins to volatility in the prices of raw materials.

About the Company

­Chennai – Based, R K Steel Manufacturing Company Limited is incorporated in 2006. The company is engaged in manufacturer, wholesaler and exporter of assured quality Hot Rolled Tube, Black Steel Tube, Pre-Galvanized Tube and Precision Tube. The directors of the company are Mr. Pramod Kumar Bhalotia, Mr. Abhishek Bhalotia, Mr. Shashank Garg and Mr. Ashwin Satyanarayan Agarwal.

Unsupported Rating

­Not Applicable

Analytical Approach

­Acuité has considered the standalone business and financial risk profile of R K Steel Manufacturing Company Limited to arrive at the rating.

Key Rating Drivers

Strengths

­Long track record of operations The operations of the Company are managed by promoters Mr. Pramod Kumar Bhalotia and Mr. Rajesh Kumar Bhalotia. The promoters have an overall experience of more than two decades in the steel industry. The company manufactures and supplies value added steel products such as hot rolled tubes, hot dip galvanized pipes, precision tubes. Over the years, the company have been able to establish healthy relationship with it’s customers and suppliers. Acuite believes that the experienced management of the company will benefit  the scalability and profitability of the Company over the medium term.  Efficient Working Capital Management The operations of the company has an efficient working capital cycle as reflected from Gross Current Assets of 92 days as on March 31, 2024(Prov.) compared to 119 days as on March 31, 2023 and 71 days as on March 31, 2022. The inventory days stood at 55 days as on March 31,2024(Prov.) as compared to 58 days as on March 31, 2023 and 31 days as on March 31, 2022. The debtor days stood at 34 days as on March 31, 2024(Prov.) compared to 35 days as on March 31, 2023 and 34 days as on March 31, 2022. The creditor days stood at 4 days as on March 31, 2024 (Prov.) compared to 13 days as on March 31, 2023 and 11 days as on March 31, 2022. Acuite believes that working capital requirements are expected to remain at similar levels due to the moderate inventory holding and efficient collection mechanism policy of the company over the medium term. Increase in revenues and operating profitability The revenues of the Company have increased to Rs. 1022.11 Cr. as on March 31, 2024 (Prov.) from Rs. 857.89 Cr. as on March 31, 2023 due to increase in volume sales of different products of the company despite a decline in prices. The operating profitability has largely remained stable at 5.40 percent as on March 31, 2024(Prov.) from 5.46 percent as on March 31, 2023 due to increase in manpower costs and manufacturing expenses in FY 2024.

Weaknesses

­­Margins are susceptible to price fluctuations The company's performance remains vulnerable to cyclicality in the steel sector as demand for steel depends on performance of end user segments such as construction and real estate. Indian steel sector is highly competitive due to presence of large number of players. Acuite believes that the operating margin of the company will continue to remain exposed to fluctuations in the prices of raw materials as well as price realization from finished goods. ­Moderate financial risk profile The financial risk profile of the company is moderate marked by comfortable net worth, high gearing and comfortable debt protection metrics. The adjusted tangible net worth stood at Rs.125.23 Cr. as on March 31, 2024(Prov.) as compared to Rs. 88.32 Cr. as on March 31, 2023 and Rs. 59.57 Cr. as on March 31, 2022 due to accretion of reserves. Acuite has considered unsecured loans of Rs. 13.49 Cr. as on March 31, 2024(Prov.) as quasi equity, as the same is sub ordinated to bank loans. Adjusted gearing stood comfortable at 2.08 times as on March 31, 2024(Prov.) compared to 2.64 times as on March 31, 2023 and 2.38 times as on March 31, 2022 due to reliance on bank borrowings for capex  undertaken in FY2024 and incremental working capital borrowings. The interest coverage ratio stood at 2.89 times as on March 31, 2024(Prov.) compared to 3.52 times as on March 31,2023 and 3.47 times as on March 31, 2022. The debt service coverage ratio stood at 1.49 times as on March 31,2024(Prov.) compared to 1.83 times as on March 31, 2023 and 2.93 times as on March 31, 2022. The TOL/TNW stood at 2.24 times as on March 31, 2024(Prov.) compared to 3.09 times as on March 31, 2023 and 3.02 times as on March 31, 2022. the debt-EBDITA was high at 4.31 times as on March 31, 2024. Acuite believes that the company’s financial risk profile will remain at a moderate level over the medium term backed by steady cash accruals.

Rating Sensitivities

Improvement in scale of operations ­Debt funded capital expenditure plan Improvement in capital structure and Debt/EBDITA

Liquidity Position

Adequate

­The liquidity is adequate marked by steady net cash accruals of Rs. 31.51 Cr. as on March 31, 2024(Prov.) as against long term debt repayment of Rs. 14.29 Cr. over the same period. The current ratio stood at 1.23 times as on March 31, 2024 (Prov.) as compared to 1.50 times as on March 31, 2023 and 1.70 times as on March 31, 2022. Moreover, the fund-based limit was utilized around 80 per cent for the six-months ended July 2024.Acuité believes that going forward the liquidity position of the company will remain adequate in the absence of any major debt funded capex plans, steady accruals and moderate current ratio.

Outlook: Stable

­­Acuité believes the outlook on company will remain ‘Stable’ over the medium term backed by its experienced management and long track record of operations along with efficient working capital managment. The outlook may be revised to ‘Positive’ if the company is able to improve its scale of operations significantly along with sustained improvement in financial risk profile. Conversely, the outlook may be revised to ‘Negative’ in case of deterioration in working capital operations leading to stretch in liquidity profile or financial risk profile.

Other Factors affecting Rating

­None

Key Financials

Particulars	Unit	FY 24 (Provisional)	FY 23 (Actual)
Operating Income	Rs. Cr.	1022.11	857.89
PAT	Rs. Cr.	23.43	20.22
PAT Margin	(%)	2.29	2.36
Total Debt/Tangible Net Worth	Times	2.08	2.64
PBDIT/Interest	Times	2.89	3.52

Status of non-cooperation with previous CRA (if applicable)

­CRISIL, vide its press release dated January 8th, 2024 had denoted the rating of R K Steel Manufacturing Company Limited as 'CRISIL BB+/Stable; 'DOWNGRADED AND ISSUER NOT CO-OPERATING’.

Any other information

None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.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.

Rating History:Not Applicable

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Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating HDFC Bank Ltd Not avl. / Not appl. Cash Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 87.00 Simple ACUITE BBB | Stable | Assigned Not Applicable Not avl. / Not appl. Proposed Long Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 3.17 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Term Loan 29 Dec 2021 Not avl. / Not appl. 29 Aug 2026 2.26 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Term Loan 29 Dec 2021 Not avl. / Not appl. 30 Oct 2024 0.66 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Term Loan 31 Jan 2023 Not avl. / Not appl. 31 Jan 2028 8.87 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Term Loan 02 Mar 2023 Not avl. / Not appl. 31 Jan 2028 13.44 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Term Loan 18 Mar 2024 Not avl. / Not appl. 18 Mar 2029 8.90 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Term Loan 20 May 2024 Not avl. / Not appl. 18 Nov 2028 4.70 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Term Loan 29 Dec 2021 Not avl. / Not appl. 23 Dec 2026 5.00 Simple ACUITE BBB | Stable | Assigned HDFC Bank Ltd Not avl. / Not appl. Working Capital Demand Loan (WCDL) Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 131.00 Simple ACUITE BBB | Stable | Assigned

Contacts

Analytical Details	Contact Details
Mohit Jain Senior Vice President - Rating Operations Tel: 022–49294017 mohit.jain@acuite.in Vedika Lahoti Associate Analyst - Rating Operations Tel: 022-49294065 vedika.lahoti@acuite.in	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating.