Sound business profile
The group has a long track record of around three decades in the castings & forgings industry and two decades in the sponge iron manufacturing industry. The group is promoted by Mr. Kailash Kumar Kanodia, who has vast experience of around three decades in the steel industry.
The group caters to both renowned corporates and government undertakings such as Jindal Steel and Power Limited, Godawari Power and Ispat Limited, Nuvoco Vistas Corporation Ltd, Heavy Vehicle Factory among others. Further, the group has diversified geographical presence as it sells casting products to different entities across European and Asian nations such as UK, Saudi Arabia, Thailand etc. In FY22, the sale from overseas markets stood at Rs 74 Cr as against Rs 43 Cr in FY21.Acuité believes that the group’s long-standing relationship with these clients will keep the business operations in good stead going forward.

Sustained revenue growth
The group had registered sustained growth during last 2 FYs as reflected from its revenue of Rs 591 Cr in FY22 as against Rs 454 Cr in FY21 and Rs 383 Cr in FY20. The growth is driven by significant rise in average realization of sponge iron along with rise in order flow related casting products from both domestic and overseas markets. The group has posted revenue of Rs 236 Cr till July 2022(Provisional). The scale of operation is expected to remain at similar level over the medium term as manufacturing units are operating at optimal level.

Improving financial risk profile
The financial risk profile of the group is marked by high net worth, comfortable gearing and healthy debt protection metrics. The net worth of the group stood at Rs. 186 Cr. as on 31 March, 2022 as against Rs.157 Cr. as on 31st March, 2021. The gearing (debt-equity) stood low at 0.42 times in FY2022 as against 0.59 times in FY2021.TOL/TNW stood comfortable at 0.97 times in FY22.The group has low reliance on external debt which led to decline in financial cost. Moreover, the interest coverage ratio (ICR) and debt service coverage ratio (DSCR) stood strong at 7.28 times and 3.78 times in FY2022 as compared to 5.82 times and 3.15 times in FY2021 respectively.The NCA/TD stood at 0.51 times in FY2022 as against 0.41 times in FY21. Acuité believes that the financial risk profile of the group will remain comfortable in the absence of any major debt funded capex plans in the medium term.
 

Moderate working capital operations
The group’s operations are moderately working capital intensive marked by Gross Current Asset (GCA) of 133 days in FY2022 as against 136 days in FY2021.Inventory Day stood at 84 days in FY2022 as against 70 days in FY2021.The debtor days stood at 30 days in FY2022 as against 32 days for FY2021. Acuité expects the GCA days to hover around same levels over the medium term because of large inventory level.

Pressure on operating margins
The profitability of the group had declined as EBITDA margin of the group stood at 9.05 percent in FY22 as against 12.81 percent in FY21.The decline in operating margins is driven by higher raw material costs and particularly higher coal prices. Acuite believes that the profitability margins of the group will continue to remain vulnerable as group is exposed to raw material fluctuation risk.