Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 170.00 - ACUITE A2 | Assigned
Bank Loan Ratings 235.00 - ACUITE A2 | Reaffirmed
Bank Loan Ratings 507.11 ACUITE BBB+ | Stable | Assigned -
Bank Loan Ratings 747.89 ACUITE BBB+ | Stable | Reaffirmed -
Total Outstanding Quantum (Rs. Cr) 1660.00 - -
Total Withdrawn Quantum (Rs. Cr) 0.00 - -
 
Rating Rationale

Acuité has reaffirmed the long-term rating of ‘ACUITE BBB+’ (read as ACUITE Triple B plus) and Short term rating of ‘ACUITE A2’ (read as ACUITE A two) on the Rs. 982.89 Cr bank facilities of Shakambhari Ispat and Power Limited (SIPL). The outlook is ‘Stable’.Acuité has assigned the long-term rating of ‘ACUITE BBB+’ (read as ACUITE Triple B plus) and Short term rating of ‘ACUITE A2’ (read as ACUITE A two) on the Rs. 607.11 Cr bank facilities of Shakambhari Ispat and Power Limited (SIPL). The outlook is ‘Stable’.

The rating continues to reflect the healthy business profile of the group marked by its long track record and established TMT steel brands in Eastern India. The group had registered strong operational performance during last two years because of rise in sale volume and average realization of steel products.The rating also takes into account the group’s comfortable financial risk profile marked by sound net worth and moderate capital structure. However the rating strengths are partially offset by the cyclical nature of the steel industry and high working capital requirement in the business.The timely completion at the envisaged cost of the ongoing debt funded capital expenditure programmes in the group would remain a rating sensitivity factor.


About the Company
­Shakambhari Ispat & Power Limited (SIPL) was incorporated in 2001 as Ma Chhinnamastika Steel & Power Pvt. Ltd. Later in December 2010, the company was acquired by Shakambhari Group and the name of the company was changed to Shakambhari Ispat & Power Limited. SIPL also has an integrated manufacturing facility of TMT bars with captive sponge iron and mild steel billets plants supported by captive power plants. The company sells its TMT bars under the brand name of ‘Thermocon’. SIPL’s manufacturing unit is located in Purulia, West Bengal. The company has installed capacity of 543,000 MTPA for sponge iron, 499,000 MTPA for billet, 399,000 MTPA for rolled product, 55,500 MTPA for ferro alloy and 52 MW of captive power plant.
 
About the Group

SPS Rolling Mills Limited (SPS) was established in 1990 by Mr. Bipin Vohra. The company is an integrated steel manufacturing unit with facilities of sponge iron, billets and rolling mill. The manufacturing unit of the company is located in Durgapur, West Bengal. The company sells its TMT bars under the brand name of ‘Elegant.’ The company was acquired by the Shakambhari group from NCLT in April 2019. SPS’s manufacturing unit is located in Durgapur, West Bengal. The company has installed capacity of 165,000 MTPA for sponge iron, 198,000 MTPA for billet and 198,000 MTPA for rolled product.

Eloquent Steel Pvt Ltd(ESPL) was acquired by Sharkambhari group in FY18 through auction from Official Liquidator of Honorable High Court, Kolkata. Currently the company is engaged in manufacturing of billet and ferro alloys at its manufacturing unit located in Asansol, West Bengal. The installed capacity for billet unit is 46200 MTPA and ferro alloys is 43,250 MTPA.

Bravo Sponge Iron Private Limited(BSPL) was incorporated in 1997 by Jamshedpur-based Bhalotia group. BSIPL’s plant was shut down during April 2014 to May 2015 as the plant was making loss. In June 2015, Shakambari group took over the control of the company. The company has manufacturing unit in Purulia West Bengal with installed capacity of 76800 MTPA for billet, 120,000 MTPA of sponge iron and 850,000 MTPA of pellet unit.The company has a 10 MW of captive power plant.
 
Analytical Approach

Acuité has taken a consolidated view of Shakambhari Ispat & Power Limited, SPS Steel Rolling Mills Limited,Eloquent Steel Pvt Ltd and Bravo Sponge Iron Pvt Ltd as all the entities are in the same line of business, share common management and has significant operational linkage between them. The modification in analytical approach is on account of strengthening of operational linkages between SIPL, ESPL and BSPL. The group herein is referred to as Shakambhari Group. Extent of consolidation: Full.

 

Key Rating Drivers

Strengths

Established presence in steel industry

SIPL was incorporated in October 2001 in the name of Ma Chhinnamastika Steel & Power Pvt. Ltd. The original promoters had sold the company to Shakambhari group in December 2001. Thereafter in 2010, the name of the company was changed to its current name. The key promoter, Mr. Deepak Agarwal has more than 2 decades of experience in the steel industry. In FY20, the group had acquired SPS from NCLT which strengthened their business profile. Currently the group is selling TMT Bars in the eastern and northern parts of India such as West Bengal, Jharkhand, UP, Bihar Assam and Punjab through its extensive distribution channels which includes 12000 dealers and 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 among others.Acuité believes that the group will continue to benefit from their experienced management and their well-established brands.

Integrated operation with large operational capacity
The group has integrated operations with capacities to produce sponge iron, steel billets and long products across four the entities – SIPL, SPS BSPL and ESPL. The aggregate installed capacity of the Shakambhari Group is 705,000 MT of sponge iron, 820,000 MT of billet, 98750 MTPA of ferro alloys, 597,000 MT of rolled steel products and 62 MW of captive power plant. BSPL had installed 850,000 MT of pellet unit in FY22 to cater to the needs of SIPL and SPS. Further in current fiscal year, BSPL will enhance its pellet capacity by 8,50,000 MT as second line is expected to be operational since October 2022. BSPL will also enhance captive power plant capacity to 23.9 MW from 10 MW and modernize the billet unit through debt led capex plan of Rs 180 Cr.The same is expected to be operational by March 2023.The group has undertaken another debt led capex plan in SPS of Rs 262 Cr toward the enhancement of exiting TMT and billet capacities to 375,000 MTPA each along with refurbishment of recently acquired unit in Purulia, West Bengal. The refurbishment and expansion projects in SPS are expected to complete by Q1FY24.The acquired unit will add 120,000 MTPA sponge iron capacity, 15,845 MTPA of ferro alloy capacity and 10 MW captive power plant. The existing capacities of SIPL will be enhanced through Rs 188 Cr of debt funded capex plan. The mentioned capex plan in SIPL will add 261,000 MTPA of TMT, 161,000 MTPA of billet and 32 MW of captive power plant. ESPL will also add 120,000 MTPA of rolling mill capacity through a capex plan of Rs 90 Cr.The group’s operational capacities and efficiencies are expected to improve significantly in medium term because of ongoing capex plans.

Sustained revenue growth
The group had registered healthy revenue growth as reflected from its revenue of Rs 4861 Cr in FY22(Provisional) as against 2969 Cr in FY21 and Rs 2223 Cr in FY20. The growth is driven by substantial rise in average realization of TMT bar and ferro alloy because of strong demand from end user industries such as construction, real estate etc. In addition, the group had enhanced its existing capacities. The improvement in realization is partially driven by hike in input cost.The scale of operation expected to improve over the medium term backed by capacity addition.

Comfortable financial risk profile
The financial risk profile of the group is marked by strong net worth, modest gearing and comfortable debt protection metrics. The net worth of the group stood at Rs.1511 Cr in FY2022(Provisional) as compared to Rs.1129 Cr in FY2021 due to Rs 32.18 Cr of equity and retention of profits. The gearing of the group stood at 1.54 times as on March 31, 2022(Provisional) as compared to 1.45 times as on March 31, 2021. TOL/TNW stood at 1.96 times in FY22(Provisional) as against 1.81 times in FY21.The group has high reliance on external debt because of continuous debt funded capex plans. Interest coverage ratio (ICR) stood comfortable at 4.67 times in FY2022(Provisional) as against 2.51 times in FY2021.The debt service coverage ratio (DSCR) also stood comfortable at 2.19 times in FY22(Provisional) as against 1.54 times in FY2021.The net cash accruals against total debt (NCA/TD) stood at 0.18 times in FY22(Provisional) as compared to 0.11 times in previous year. Acuité believes the financial risk profile of the group will remain comfortable over the medium term backed by steady accruals and steady profit margin even though they might witness some moderation in leverage indicators in medium term due to the ongoing capex plans.
                                                                                                                
Improvement in profitability margin
The group has reported healthy profit margins both at the operating and net level historically. The operating margin of the group stood at 13.54 percent in FY22(Provisional) as compared to 11.66 percent in FY21. The profit after tax (PAT) margins of the group stood at 6.88 percent in FY22 as against 3.69 percent in the preceding year.) The improvement is driven by exceptional rise in realization of ferro alloys because of high demand from both domestic and overseas markets. However, the profit margin is likely to witness moderation during FY23 due to inventory losses in Q1HFY23 because of decline in realization of steel products.Acuite expects the profitability margin of the group is expected to remain at comfortable level over the medium term backed by integrated operation.

Weaknesses
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 the end user segments such as construction and real estate. Indian steel sector is highly competitive due to the presence of a large number of players. The operating margin of the group is exposed to fluctuations in the prices of raw materials (coal and iron ore) as well as realization from finished goods.

Working capital intensive operations
The operations of group are working capital intensive as reflected in their Gross Current Asset (GCA) days of 168 days in FY22(Provisional) as compared to 177 days in the previous year. The high GCA days are mainly on account of high inventory days which stood at 111 days in FY22(Provisional) as against 99 days in FY21. Debtor days stood at 26 days in FY22(Provisional) as against 46 days in FY21.Acuité expects the GCA days to hover around same levels over the medium term because of large inventory level.

High financial obligations
The group had witnessed substantial rise in debt level because of continuous capex plan. Moreover, the group has undertaken massive expansion capex plans of around Rs 721 Cr in all four entities which will be funded through a mix of debt and equity in 1.6:1 ratio. Hence ongoing debt funded capex plans and enhancement in working capital limits will led further rise in financial obligations.However, the group is able to generate significant amount of accruals which helps to meet its obligation.
ESG Factors Relevant for Rating

Manufacture of metals has a substantial environmental impact. The production of basic metals is extremely power-intensive. Steel is still produced with blast furnaces, releasing large amounts of carbon dioxide, nitrogen oxide, and particulate matters into the air. On the social front, occupation and workforce health & safety management are of primary importance to this industry given the dangerous nature of operations. Furthermore, factors such as ethical business practices, management compensation and board administration hold primary importance within this industry.
 
Rating Sensitivities

­

  • Timely completion of planned capital expenditure

  • Improvement in gearing ratios backed by reduction in debt level along while maintaining comfortable profit margin.
 
Material covenants
­None
 
Liquidity profile: Adequate
­The Shakambhari group has adequate liquidity reflected from low utilization of working capital limits of 60 percent during last 12 months ended July 2022. In addition, group has healthy net cash accrual of Rs 421 Cr during FY22(Provisional) as against current maturity of 124 Cr. Going forward, the net cash accruals are expected to be in the range of Rs 300-400 Cr as against current maturity of around Rs.165 Cr from FY23-FY24. Current ratio stood at 1.46 times during FY22(Provisional) as against 1.56 times in FY21.The working capital requirement of the group stood high as reflected from GCA days of 168 days as on 31 March 2022.Acuite believes the liquidity position of the group will remain adequate, backed by steady accruals over the medium term.
 
Outlook : Stable

­Acuite believes that Shakambhari group will benefit over the medium term from the promoters vast experience in the steel industry and comfortable financial risk profile. The outlook may be revised to ‘Positive’ if Shakambhari group is able to strengthen the financial risk profile along with sustainability in the profitability margin. Conversely, the outlook may be revised to ‘Negative’ if the group witnessed a significant deterioration in financial risk profile or liquidity position due to any significant time or cost overruns in their planned or unplanned capital expenditure.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Provisional) FY 21 (Actual)
Operating Income Rs. Cr. 4861.28 2969.89
PAT Rs. Cr. 334.45 109.50
PAT Margin (%) 6.88 3.69
Total Debt/Tangible Net Worth Times 1.54 1.45
PBDIT/Interest Times 4.67 2.51
Status of non-cooperation with previous CRA (if applicable)
­Not Applicable
 
Any other information
­None
 
Applicable Criteria
• Default Recognition - https://www.acuite.in/view-rating-criteria-52.htm
• Entities In Manufacturing Sector -https://www.acuite.in/view-rating-criteria-59.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm
Note on complexity levels of the rated instrument
https://www.acuite.in/view-rating-criteria-55.htm

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
05 Oct 2021 Term Loan Long Term 58.42 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Term Loan Long Term 64.80 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Cash Credit Long Term 20.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Term Loan Long Term 64.36 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Letter of Credit Short Term 40.00 ACUITE A2 (Upgraded from ACUITE A3)
Letter of Credit Short Term 24.00 ACUITE A2 (Upgraded from ACUITE A3)
Cash Credit Long Term 84.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Letter of Credit Short Term 43.00 ACUITE A2 (Upgraded from ACUITE A3)
Cash Credit Long Term 51.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Cash Credit Long Term 36.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Letter of Credit Short Term 10.00 ACUITE A2 (Upgraded from ACUITE A3)
Letter of Credit Short Term 5.00 ACUITE A2 (Upgraded from ACUITE A3)
Cash Credit Long Term 114.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Term Loan Short Term 45.75 ACUITE BBB+ (Upgraded from ACUITE A3)
Proposed Cash Credit Long Term 0.42 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Term Loan Long Term 63.98 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Term Loan Long Term 42.91 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Bank Guarantee Short Term 30.00 ACUITE A2 (Upgraded from ACUITE A3)
Cash Credit Long Term 42.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Cash Credit Long Term 20.00 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Term Loan Long Term 85.93 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- | Stable)
Letter of Credit Short Term 18.00 ACUITE A2 (Upgraded from ACUITE A3)
05 Aug 2020 Cash Credit Long Term 262.00 ACUITE BBB- | Stable (Reaffirmed)
Letter of Credit Short Term 105.00 ACUITE A3 (Reaffirmed)
Term Loan Long Term 493.57 ACUITE BBB- | Stable (Reaffirmed)
Proposed Letter of Credit Short Term 35.00 ACUITE A3 (Reaffirmed)
Proposed Cash Credit Long Term 38.00 ACUITE BBB- | Stable (Reaffirmed)
Bank Guarantee Short Term 30.00 ACUITE A3 (Reaffirmed)
13 May 2020 Bank Guarantee Short Term 30.00 ACUITE A3 (Assigned)
Proposed Letter of Credit Short Term 35.00 ACUITE A3+ (Assigned)
Term Loan Long Term 493.57 ACUITE BBB- | Stable (Assigned)
Cash Credit Long Term 262.00 ACUITE BBB- | Stable (Assigned)
Letter of Credit Short Term 105.00 ACUITE A3 (Assigned)
Proposed Cash Credit Long Term 38.00 ACUITE BBB- | Stable (Assigned)
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Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Rating
Indian Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 10.00 ACUITE A2 | Reaffirmed
Punjab National Bank Not Applicable Bank Guarantee (BLR) Not Applicable Not Applicable Not Applicable 10.00 ACUITE A2 | Reaffirmed
UCO Bank Not Applicable Bank Guarantee/Letter of Guarantee Not Applicable Not Applicable Not Applicable 30.00 ACUITE A2 | Reaffirmed
Punjab National Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 100.00 ACUITE BBB+ | Stable | Reaffirmed
Indian Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 20.00 ACUITE BBB+ | Stable | Reaffirmed
Bandhan Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 25.00 ACUITE BBB+ | Stable | Reaffirmed
Union Bank of India Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 75.00 ACUITE BBB+ | Stable | Reaffirmed
UCO Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 138.00 ACUITE BBB+ | Stable | Reaffirmed
Bank of Baroda Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 20.00 ACUITE BBB+ | Stable | Reaffirmed
Canara Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 46.00 ACUITE BBB+ | Stable | Reaffirmed
South Indian Bank Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 1.00 ACUITE BBB+ | Stable | Reaffirmed
State Bank of India Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 100.00 ACUITE BBB+ | Stable | Assigned
UCO Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 47.00 ACUITE A2 | Reaffirmed
Punjab National Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 25.00 ACUITE A2 | Reaffirmed
Union Bank of India Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 58.00 ACUITE A2 | Reaffirmed
Bank of Baroda Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 10.00 ACUITE A2 | Reaffirmed
Canara Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 15.00 ACUITE A2 | Reaffirmed
State Bank of India Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 50.00 ACUITE A2 | Assigned
Indian Bank Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 20.00 ACUITE A2 | Assigned
Not Applicable Not Applicable Proposed Bank Guarantee Not Applicable Not Applicable Not Applicable 30.00 ACUITE A2 | Reaffirmed
Not Applicable Not Applicable Proposed Cash Credit Not Applicable Not Applicable Not Applicable 151.69 ACUITE BBB+ | Stable | Assigned
Not Applicable Not Applicable Proposed Letter of Credit Not Applicable Not Applicable Not Applicable 100.00 ACUITE A2 | Assigned
Punjab National Bank Not Applicable Term Loan 31-03-2017 10.50 30-03-2030 59.57 ACUITE BBB+ | Stable | Reaffirmed
State Bank of India Not Applicable Term Loan 30-05-2021 9.60 29-12-2029 39.13 ACUITE BBB+ | Stable | Reaffirmed
UCO Bank Not Applicable Term Loan 31-03-2017 10.35 30-03-2030 78.34 ACUITE BBB+ | Stable | Reaffirmed
Punjab National Bank Not Applicable Term Loan 31-03-2020 10.35 31-12-2029 37.73 ACUITE BBB+ | Stable | Reaffirmed
Union Bank of India Not Applicable Term Loan 31-03-2017 10.5 30-03-2030 48.95 ACUITE BBB+ | Stable | Reaffirmed
Indian Bank Not Applicable Term Loan 31-03-2017 10.35 30-03-2030 59.17 ACUITE BBB+ | Stable | Reaffirmed
Bandhan Bank Not Applicable Term Loan 01-04-2022 8.90 01-01-2029 56.30 ACUITE BBB+ | Stable | Assigned
Canara Bank Not Applicable Term Loan 01-01-2023 11.80 30-09-2031 30.00 ACUITE BBB+ | Stable | Assigned
Punjab National Bank Not Applicable Term Loan 01-01-2023 8.30 30-09-2031 35.00 ACUITE BBB+ | Stable | Assigned
Indian Bank Not Applicable Term Loan 01-01-2023 9.30 30-09-2031 35.00 ACUITE BBB+ | Stable | Assigned
UCO Bank Not Applicable Term Loan 01-04-2022 8.90 29-01-2029 25.00 ACUITE BBB+ | Stable | Assigned
Union Bank of India Not Applicable Term Loan Not available 8.10 Not available 74.12 ACUITE BBB+ | Stable | Assigned
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