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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 208.00 | ACUITE BBB | Stable | Reaffirmed | Negative to Stable | - |
| Bank Loan Ratings | 10.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 218.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long-term rating at ‘ACUITÉ BBB’ (read as ACUITÉ triple B) and the short-term rating at ‘ACUITÉ A3+’ (read as ACUITÉ A three plus) on the Rs. 218.00 Cr bank facilities of Satyam Iron & Steel Co Private Limited (SISCPL). The outlook has been revised from 'Negative' to 'Stable'.
Rationale for rating and revision in outlook The revision in outlook is primarily driven by the timely completion of SISCPL’s forward integrated capex project along with the commercial operations starting within the expected timeline. The outlook revision also takes into account the growth in the scale of operations backed by the integrated nature of operations. The company has registered 44 per cent growth in the operating income and has achieved revenues of Rs.349.40 Cr in FY2023 (Provisional) as compared to Rs.241.87 Cr in FY2022. The rating further factors in the above average financial risk profile of the company as reflected by the comfortable debt coverage indicators and the improving networth base coupled with the lower than expected deterioration in the gearing levels in FY2023. The rating also considers improvement in the liquidity position of the company due to low fund based bank limit utilisation and improvement in the working capital management. However, Acuité also notes that the company’s operating costs remained at a higher level leading to deterioration in the profitability margins. The rating strengths are further offset by the cyclicality of the steel industry. |
| About the Company |
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Based in West Bengal, Satyam Iron & Steel Co Private Limited (SISCPL) was incorporated in the year 2000 and is promoted by Mr Gopal Kumar Agarwal. The company is engaged in the manufacturing of sponge iron and has also forayed into the production of billet and MS Strips in FY2023. SSICPL has undergone a capex project to enhance the company’s overall scope of production. Currently, the capacity of the sponge iron unit has been increased to 120000 TPA from 60000 TPA. Along with this, the company newly installed a billet unit with a capacity of 135000 TPA, a 60000 TPA Rolling Mill for MS Strips and a 15 MW captive power plant.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of SISCPL to arrive at the rating.
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Key Rating Drivers
| Strengths |
| Long standing operations and experienced promoters
The company has established a strong presence in the industry with operations spanning over two decades. SISCPL is managed by Mr. Gopal Kumar Agarwal, having more than three decades of industry knowledge. Moreover, the company has a strong customer base and includes SRMB Srijian Private Limited (rated at Acuite A+/Stable); Shyam Steel Industries Limited, among others. Acuité believes that, going forward, the company’s long track record of operations and the strong clientele base aided by the experienced management will continue to benefit the operations of SISCPL. Growth in the scale of operations backed by integrated nature of operations The operations of the company are supported by the integrated nature of operations. SISCPL’s manufacturing unit comprises of capacities for sponge iron, billets, MS strips and a captive power plant. The integrated operations provide a competitive edge over the competitors. Also, the captive power plant aids in power cost saving. Moreover, the company has registered 44 per cent growth in the operating income and has achieved revenues of Rs.349.40 Cr in FY2023 (Provisional) as compared to Rs.241.87 Cr in FY2022. Further, it has achieved revenues of Rs.129.73 Cr in Q1 of FY2024 (Provisional). The rise in the revenue levels are supported by the integrated operations and capacity additions. Acuité believes that the scale of operations of the company will continue to remain healthy backed by rise in the capacity utilisation over the medium term. Above average financial risk profile The company’s above average financial risk profile is reflected by improving net worth base, moderate gearing and healthy debt protection measures. The tangible net worth of the company increased to Rs.156.75 Cr as on March 31, 2023 (Provisional) from Rs.140.24 Cr as on March 31, 2022 due to accretion of reserves. Going forward, in FY2024 the company has decided to increase the equity by Rs.9.23 Cr which was infused as unsecured loans in FY2023. Gearing of the company moderated to 1.02 times as on March 31, 2023 (Provisional) as compared to Rs.0.68 times as on March 31, 2022 due to addition of debt owing to capex undertaken. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.23 times as on March 31, 2023 (Provisional) as against 0.75 times as on March 31, 2022. However, the debt coverage indicators stood comfortable marked by Interest Coverage Ratio (ICR) at 8.60 times and Debt Service Coverage Ratio at 6.79 times as on March 31, 2023 (Provisional). The Net Cash Accruals/Total Debt (NCA/TD) stood low at 0.09 times as on March 31, 2023 (Provisional). Acuité believes that, the financial risk profile of the company will remain above average over the medium term backed by the improving cash accruals.
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| Weaknesses |
| Decline in the profitability margins
The operating margin of the company dipped to 5.97 per cent in FY2023 (Provisional) from 12.79 per cent in FY2022. The decline in the margin is due to rise in the raw material cost which could not be passed on to the end user. Also, the price of finished goods did not increase in tandem with the rise in the cost of goods sold. The PAT margin declined to 3.39 per cent in FY2023 (Provisional) from 9.22 per cent in FY2022. Acuité believes that, going forward, improvement in the profitability margins will be a key rating sensitivity. Cyclical nature of the industry 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. The operating margin of the company is exposed to fluctuations in the prices of raw materials as well as realization from intermediate goods. |
| Rating Sensitivities |
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| All Covenants |
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None
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| Liquidity Position: Adequate |
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The company’s liquidity position is adequate marked by net cash accruals of Rs.14.86 Cr in FY2023 (Provisional) as against no long term debt repayment over the same period. The current ratio stood high at 2.75 times as on 31st March, 2023 (Provisional) as compared to 4.33 times as on 31st March, 2022. The cash and bank balances of the company stood at Rs.1.30 Cr as on 31st March, 2023 (Provisional). Moreover, the fund based limit utilization stood low at 20 per cent over the six months ended June, 2023. However, the working capital management of the company is intensive in nature marked by Gross Current Asset (GCA) days of 118 days in FY2023 (Provisional) as against 156 days in the previous year.
Acuité believes that going forward the liquidity position of the company will remain adequate over the medium term owing to the improving cash accruals. |
| Outlook: Stable |
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Acuité has revised the outlook to ‘Stable’ on account of the timely completion of the capex project without significant liquidity stress on the cash flow requirements of its existing operations along with healthy revenue growth backed by its long track record of operations and above average financial risk profile. The outlook may be revised to ‘Positive’ if the company is able to ramp up its scale of operations significantly along with sustaining their financial risk profile with improvement in the profitability margins and liquidity profile. Conversely, the outlook may be revised to ‘Negative’ in case of substantial decline in scale of operations or profitability margins or in case of deterioration in financial risk profile or further elongation in the working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 349.40 | 241.87 |
| PAT | Rs. Cr. | 11.86 | 22.31 |
| PAT Margin | (%) | 3.39 | 9.22 |
| Total Debt/Tangible Net Worth | Times | 1.02 | 0.68 |
| PBDIT/Interest | Times | 8.60 | 13.10 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
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Not Applicable
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| Applicable Criteria |
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• 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 |
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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.
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