The Sambhv group is promoted by the Goyal family of Raipur (Chattisgarh).The group is managed by Mr. Suresh Kumar Goyal, who has more than one decade of experience in the steel business. The group has integrated operations with capacities to produce sponge iron, steel billets and long products across three companies – SSPL, GSIPL and SPLPL. The aggregate installed capacity of the Sambhv Group is 100,000 MT of sponge iron, 297,000 MT of billets and 447,000 MT of rolled steel products. The group has undertaken an expansion capex in SSPL of Rs 64.00 Cr to enhance its billet capacity by 108,000 MTPA and its Pipe capacity by 100000 MTPA. The proposed billet and pipe mill is likely to be operational by April 2023. In addition, the group has undertaken another expansion project in SSPL of Rs 205 Cr to enhance the sponge Iron capacity by 165,000 MTPA along with captive power capacity of 15 MW WHRB, which is expected to be operational by July ' 24. The same will be funded through a mix of debt and equity in 2:1 ratio. Post the expansion, it will benefit from increased scale and other operational synergies, thus strengthening the overall operating profile. Considering its successful capacity expansion of the manufacturing operations in the past, the group has demonstrated strong volume growth and healthy profit margins over the last few years. The group’s consolidated revenues stood at Rs 1453.49 Cr in FY22 as against Rs 988.49 Cr in FY21 thus registering a robust y-o-y growth of 47 percent. This improvement is driven by the rise in both sale volume and average realization of intermediate and finished goods. The revenue growth is expected to continue in FY23 as the group has already achieved revenue of Rs 1351 Cr till December 2022 (prov). This growth is driven by addition of rolling capacity in SSPL with steady realization of steel products. Acuite believes the scale of operation will improve over the medium term backed by rise in sale of value added steel products such as MS Pipes, HR Coil where realizations are higher in comparison to intermediate goods such as Sponge Iron and Billet.

Healthy financial risk profile

The financial risk profile of the group is marked by heathy net worth, modest gearing ratio and strong debt protection metrics. The net worth of the group has improved to Rs 235.54 Cr in FY2022 from Rs.143.41 Cr in FY2021. Acuité has treated unsecured loans of Rs 41.52 Cr as part of networth as the amount is subordinated to bank debt. The gearing of the group stood at 1.22 times as on March 31, 2022 as compared to 1.29 times as on March 31, 2021. The group has high reliance on external debt because of continues capex being undertaken by the group. The long term debt stood at Rs 136.67 Cr in FY22 as against Rs 112.98 Cr in FY21. TOL/TNW stood at 1.63 times in FY22 as against 1.64 times in FY21. Interest coverage ratio (ICR) stood strong at 6.43 times in FY2022 as against 4.23 times in FY 2021. The debt service coverage ratio (DSCR)at 2.50 times in FY2022 as against 2.37 times in FY2021.The improvement in coverage ratio is on account of rise in profit margin. Acuité believes the financial risk profile of the group will remain comfortable over the medium term despite of ongoing and upcoming capex plans due to healthy profit margin.

Efficient working capital management

The group has a comfortable working capital requirement as reflected from 73 days of GCA days in FY22 as against 55 days in FY21. In FY22, group had witnessed an increase in inventory days to 43 days from 26 days in FY21 due to year end inventory of raw material especially iron ore to mitigate the price fluctuations risk. Acuite believes working capital requirement is likely to remain similar in medium term.

­Cyclical nature of the industry
The group performance remains vulnerable to cyclicality in the steel sector as demand for steel depends on the 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. The operating margin of the group is vulnerable to fluctuations in the prices of raw materials (coal and iron ore) as well as realization from finished goods.

Continuous capex mode
The group has undertaken an expansion capex in SSPL of Rs 64.00 Cr to enhance its billet capacity by 108,000 MTPA and its Pipe capacity by 100000 MTPA. The proposed billet and pipe mill is likely to be operational by April 2023. In addition, the group has undertaken another expansion project in SSPL of Rs 205 Cr to enhance the sponge Iron capacity by 165,000 MTPA along with captive power capacity of 15 MW WHRB, which is expected to be operational by July ' 24. To finish its capex program, the group is anticipated to take out a loan for Rs 189 crore over the following two years. Acuité believes the coverage and leverage ratios of the group will witness slight moderation over the medium term because of the rise in the debt levels.