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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 68.00 | ACUITE BBB | Negative | Assigned | - |
| Bank Loan Ratings | 140.00 | ACUITE BBB | Negative | Reaffirmed | Stable to Negative | - |
| Bank Loan Ratings | 10.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 218.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) and the short-term rating of ‘ACUITE A3+’ (read as ACUITE A three plus) on the Rs.150.00 Cr bank facilities of Satyam Iron and Steel Co Private Limited (SISCPL). The outlook has been revised from ‘Stable’ to 'Negative'.
Acuité has assigned the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) on the Rs.68.00 Cr bank facilities of Satyam Iron and Steel Co Private Limited (SISCPL). The outlook is ‘Negative’. Rationale for the rating The revision in outlook is on account of expected moderation in gearing ratios due to addition of fresh debt to fund the incremental project cost. The ongoing expansion project has witnessed time overrun along with slight cost overrun. Further, there is also a change in scope of project which has also contributed to the incremental project cost. The change in outlook envisages the high implementation risk in the ongoing and cyclical nature of the steel industry. However, the rating also reflects the steady growth in the scale of operations of the company coupled with healthy profitability margins. The rating also derives comfort from the experienced management, long standing operations of the company and the comfortable financial risk profile characterized by comfortable gearing and strong debt coverage indicators. |
| About the Company |
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Incorporated in 2000, Satyam Iron & Steel Co Private Limited (SISCPL) is headed by Mr Gopal Kumar Agarwal and is engaged in the manufacturing of sponge iron. The manufacturing unit is located at Raniganj, West Bengal, with an installed capacity of 60,000 tonnes per annum. Recently company has added and commissioned additional 60,000 MT sponge iron.
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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 |
SISCPL has a long presence in the industry of over two decades. The promoter of the company, Mr. Gopal Kumar Agarwal has more than three decades of experience in the steel industry. Moreover, the company has established a strong customer base and includes SRMB Srijian Private Limited (rated at Acuite A+/Stable), Shyam Steel Industries Limited, among others. Acuité believes that the experienced management, the long track record of the company along with the strong clientele base will continue to aid the operations of the company to achieve the future growth plans.
The company has undertaken expansion cum forward integration which includes enhancement of sponge iron capacity to 1,20,000MT along with addition of 1,35,000 MT of billet capacities, 1,20,000MT of Rolling capacity and 15 MW captive power plant. The current cost of the project is around is Rs.289.30 Cr whereas, the initial cost was Rs.180.75 Cr. The cost is mostly funded through external debt. However, the cost of project and timeline has been revised due to change in scope. The expansion capex plan is now expected to be completed by Q4FY23.The expansion programme will help to improve scale of operation and operational efficiencies.
The company has witnessed revenue growth of around 56 per cent during FY2022 and achieved revenues of Rs.241.87 Cr as compared to Rs.155.38 Cr in FY2021. Further, till September, 2022, it has achieved revenues of Rs.143.87 Cr (provisional). The consistent improvement is on account of increase in the average realization of sponge iron due to buoyancy in the steel industry. Acuite believes the scale of operation will grow over the medium term backed by implementation of expansion project.
However, the operating margin of the company stood at 12.79 per cent in FY2022 as against 16.08 per cent in FY2021.The decline in the margin is due to rise in the raw material cost which could not be passed on to the end user. The PAT margin dipped to 9.22 per cent in FY2022 from 12.70 per cent in FY2021 due to the increase in the finance costs over the same period. Profit margin is expected to improve in medium term because of integrated operation.
The company’s financial risk profile is reflected by high net worth base, comfortable gearing and strong debt protection measures. The tangible net worth of the company increased to Rs.140.24 Cr as on March 31, 2022 from Rs.117.94 Cr as on March 31, 2021 due to accretion of reserves. Gearing of the company stood below unity at 0.68 times as on March 31, 2022 as compared to Rs.0.29 times as on March 31, 2021, whereas, Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood low at 0.75 times as on March 31, 2022 as against 0.36 times as on March 31, 2021. Moreover, the strong debt coverage metrics is marked by Interest Coverage Ratio (ICR) at 13.10 times as on March 31, 2022 and Debt Service Coverage Ratio at 10.07 times as on March 31, 2022. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.25 times as on March 31, 2022. Acuité believes that leverage ratios would witness moderation over the medium term due to the ongoing capex.
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| Weaknesses |
The working capital intensive nature of operations of the company is marked by gross current asset (GCA) of 156 days in FY2022 as against 225 days in the previous year. The high level of GCA days are primarily on account of high inventory requirement. The inventory period stood at 80 days as on 31st March, 2022 as compared to 145 days as on 31st March, 2021. The company holds large inventory of iron ore and coal in order to mitigate price fluctuation risk. However, the debtor period stood comfortable at 9 days as on March 31, 2022 as compared to 32 days in the previous year. Acuité believes that the working capital management of the company will remain intensive over the medium term as evident from the high inventory holding.
The company has revised the pre-determined unit of capacity installation of the rolling mills to 1,20,000 MTPA from 60,000 MTPA. The revision extended the expected date of completion of Q2FY23 to March, 2023 with anticipated commercial operations starting in April, 2023. The total cost determined at the beginning of the project was Rs.180.75 Cr which increased to Rs.289.30 Cr. The increased expenditure is to be financed by internal accruals and term loan from the bank for which additional debt of RS.68 Cr has already been sanctioned. Acuité believes that the rise in the debt burden will lead to moderation in the leverage ratios over the medium term.
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| Rating Sensitivities |
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| Material covenants |
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None
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| Liquidity position: Strong |
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The company’s liquidity position is strong marked by net cash accruals of Rs.23.37 Cr in FY2022 as against no long term debt repayment over the same period. The current ratio stood robust at 4.33 times as on 31st March, 2022 as compared to 3.15 times as on 31st March, 2021. The cash and bank balances of the company stood at Rs.19.10 Cr. Moreover, the fund based limit utilization of the company is nil over the six months ended October, 2022. However, the working capital management of the company is intensive in nature marked by Gross Current Assets (GCA) of 156 days in FY2022 as compared to 225 days in FY2021. Acuité believes that going forward the company’s liquidity position will remain adequate due to steady net cash accruals.
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| Outlook: Negative |
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Acuité has revised the outlook to ‘Negative’ on account of time and cost overrun in the forward integration capex program with higher than expected deterioration in the gearing ratios on account of infusion of fresh debt to fund the incremental project cost. The rating may be ‘downgraded’ in case of further time or cost overrun in the project along with significant stress in the liquidity profile. The outlook may be revised to ‘Stable’, if the company showcases timely execution of the project plans without significant liquidity stress on the cash flow requirements of its existing operations along with healthy revenue growth.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 241.87 | 155.38 |
| PAT | Rs. Cr. | 22.31 | 19.73 |
| PAT Margin | (%) | 9.22 | 12.70 |
| Total Debt/Tangible Net Worth | Times | 0.68 | 0.29 |
| PBDIT/Interest | Times | 13.10 | 26.02 |
| Status of non-cooperation with previous CRA (if applicable) |
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None
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| Any other information |
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None
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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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