­Acuité has taken a consolidated view of Shakambhari Ispat and Power Limited, SPS Steels Rolling Mills Limited, Eloquent Steel Private Limited and Bravo Sponge Iron Private Limited as all the entities are in the same line of business, share common management and has significant operational linkage between them. The group herein is referred to as Shakambhari Group.

Long operational track record and experienced management 
The Shakambhari group has a long track record of over two decades in the iron and steel industry. Shakambhari Ispat and Power Limited was incorporated in October 2001 in the name of Ma Chhinnamastika Steel & Power Pvt. Ltd. The previous promoters had sold the company to Shakambhari group in December 2010. Thereafter in 2010, the name of the company was changed to its current name. Further, in FY2019, the group acquired SPS Steels Rolling Mills Limited from NCLT which strengthened their business profile. Currently the group is selling TMT Bars in the Eastern, Western and Northern parts of India such as West Bengal, Jharkhand, UP, Bihar Assam, Rajasthan, Madhya Pradesh, Gujarat, Delhi, Haryana and Punjab through its extensive distribution channels which includes about 12000 dealers and about 3200 distributors. The group has two established brands, ‘Thermocon’ and ‘Elegant’ which have a strong brand recall in West Bengal and its neighbouring states. The group caters to both domestic and overseas markets such as Nepal, Japan, South Korea, Brazil, USA, Canada, European Countries, etc. among others. Acuité believes that the long track record of operations will benefit the company going forward, resulting in steady growth in the scale of operations. Currently the group is headed by Mr. Deepak Kumar Agrawal who has an experience of more than three decades in the iron and steel industry. Acuité derives comfort from the long experience of the promoters.
Improved scale of operations
The group have achieved a revenue of Rs. 5533.69 Cr. in FY24 against Rs. 5450.20 Cr. in FY23. The increase of 1.53% is attributed to the increased volume of sales albeit moderation in price realization. The EBITDA margins of the group stood at 10.79% in FY24 as compared to 10.74% in FY23. The PAT margins of the group stood at 3.32% in FY24 as compared to 5.21% in FY23. The decrease in PAT is attributed to the increase in interest cost from the term loans taken to fund the capex. The topline of the group for FY25 is Rs. 6483.42 Cr. The growth is driven by a substantial rise in average realization of TMT bar and ferro alloy because of strong demand from end user industries such as construction, real estate, export etc. In addition to this, the group had enhanced its existing capacities and successfully completed the CAPEX plans to move past the project execution risk. Moreover, the group has a locational advantage as the plants are in the industrial area of West Bengal, which is in close proximity to various steel plants and sources of raw materials. Further the plants are well connected through road and rail transport which facilitates easy transportation of raw materials and finished goods. For easy transportation of goods, the group has also acquired 10 Rakes under GPWIS scheme of railway. Going forward, the group is likely to improve the business risk profile on account of enhanced production limits.
Healthy financial risk profile
The group’s financial risk profile is marked by strong net worth, moderate gearing and healthy debt protection metrics. The tangible net-worth of Rs. 2280.04 Cr. as on 31st March 2024 against Rs. 2053.04 Cr. as on 31st March 2023. The improvement has been noticed due to accretion of reserves. The total debt of the group is Rs. 2717.45 Cr. as on 31st March 2024 (LT – Rs.1653.54 Cr., USL – Rs. 88.82 Cr. and ST – Rs. 975.09 Cr.) against Rs. 2223.70 Cr. (LT – Rs. 1336.21 Cr., USL – Rs. 33.39 Cr. and ST – Rs.854.09 Cr.) as on 31st March 2023. The gearing stands moderate at 1.19 times in FY24 against 1.08 times in FY23. Further, the interest coverage ratio of the group stood at 2.31 times in FY24 against 3.28 times in FY23. The debt service coverage ratio stood at 1.34 times in FY24 against 1.85 times in FY23. The decline in coverage indicators has been observed because of the increased loan driven by capital expenditures, alongside the associated rise in interest costs. The TOL/TNW stood at 1.49 times in FY24 against 1.45 times in FY23. Net Cash Accruals/Total Debt (NCA/TD) stood healthy at 0.12 times as on March 31, 2024, against 0.18 times as on March 31, 2023. Acuité believes that the financial risk profile of Shakambhari Group is likely to improve in the medium term due to steady cash accruals after successful completion of CAPEX plans and repayment of debt leading to likely improvement in debt protection metrices.

­Intense competition and inherent cyclical nature of the steel industry
The working capital operations of the group remained intensive marked with stable GCA days which stood at 161 days as on as on 31st March 2024 against 160 days as on 31st March 2023. The high level of GCA days is on account of high inventory levels during the same period. The inventory and debtor days of the group stood at 95 days and 29 days respectively as on 31st March 2024 against 103 days and 26 days respectively as on 31st March 2023. The slight moderation was on account of better inventory management and operational efficiencies derived due to rake procurement and other integration activities within the group. On the other hand, the creditor days of the group stood at 12 days as on 31st March 2024 against 19 days as on 31st March 2023. Acuité believes that Shakambhari group’s working capital cycle is likely to remain moderate on account of efficient collection mechanism but constrained by high inventory levels over the medium term.
Intense competition and inherent cyclical nature of the steel industry
The downstream steel industry remains heavily fragmented and unorganized. The company is exposed to intense competitive pressures from large number of organized and unorganized players along with its exposure to inherent cyclical nature of the steel industry. Additionally, prices of raw materials and products are highly volatile in nature. Acuite believes that the group remains exposed to such cyclicality and competition in the steel industry is reflected from volatility to its operating margins.