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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 70.00 | ACUITE BBB- | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 70.00 | - | - |
| Rating Rationale |
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Acuité has assigned its long-term rating of ‘Acuité BBB-’ (read as Acuité triple B minus) on the Rs.70.00 Cr bank facilities of SKA Steel and Power Private Limited (SSPPL). The outlook is 'stable'.
Rating Rationale The rating takes into account the long operational track record of Sunil Kumar Agarwal LLP, the flagship company of the group and its support to SKA Ispat Private Limited (SIPL) and SKA Steel and Power Private Limited (SSPPL). The rating also derives strength from the healthy scale of operations marked by significant improvement in the operating income in FY23 (Prov) to Rs 996.75 Cr against Rs 596.38 Cr in FY 2022 along with improvement in EBIDTA margins to 3.94 per cent in FY2023 (Prov) as against 1.95 per cent in FY2022. Further, the rating factors in the efficient working capital management of the group marked by GCA days of 50 days in FY23 (Prov). The adequate liquidity position, as reflected in moderate utilisation of fund based limits and enough cushion in the cash accruals to service the debt obligation, further supports the rating. The rating, however, remains constrained by high gearing, nascent stage of operation and inherent cyclical nature of the steel industry. |
| About the Company |
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Incorporated in November 2020 by Mr. Sunil Kumar Agrawal, Mr. Anil Agrawal and Mr. Sushil Kumar Agrawal, SKA Steel and Power Private Limited (SSPPL) has acquired a running rolling mill plant from Lingraj Steel & Power Private Limited in February 2021 with an installed capacity of 1,50,000 MTPA. The company then started billet production in July 2022 with an installed capacity of 1,63,044 MTPA for the purpose of backward integration of the TMT plant.
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| About the Group |
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About SKA Ispat Private Limited (SIPL)
SIPL was initially incorporated as Sunil Agarwal Infrastructure Pvt Ltd in 2009, later its name was changed to SKA Ispat Private Limited (SIPL) in September 2021. The promoters of SIPL are Mr. Sunil Kumar Agrawal, Mr. Anil Agrawal & Mr. Sushil Kumar Agrawal. The company is engaged in the manufacturing of billets and TMT bars with a total installed capacity of 1,50,000 MTPA each. It has purchased the assets of Jorawar Engineering & Foundry Forge Private Limited. |
| Analytical Approach |
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Extent of consolidation
Full consolidation Rationale for consolidation or Parent/Group/Govt. support ACUITE has considered the consolidated financials of SKA Ispat Private Limited (SIPL) and SKA Steel and Power Private Limited (SSPPL). The consolidation is on account of the common management, same line of operations and operational linkages. |
Key Rating Drivers
| Strengths |
| Experienced management through their association with other group companies
The promoters of the SKA Group, Mr. Anil Kumar Agarwal, Mr. Sunil Kumar Agarwal and Mr. Sushil Kumar Agarwal has over three decades of experience in the construction industry. The promoters have expanded into the steel manufacturing business, as it is the major raw material in the construction industry. Acuite believes that the extensive experience of the promoters in the construction business and relationship with other contractors shall support the steel manufacturing business in the medium term. Steady business risk profile coupled with locational advantage The operating income of the group increased to Rs.996.75 Cr in FY2023 (Prov) as against Rs.596.38 Cr in FY2022, thereby registering an y-o-y growth of ~67 per cent. The group has been able to scale up operations on account of increased average realization and sales volume of TMT bars on the back of rising demand from end user segments. Acuite believes the scale of operation will improve over the medium term backed by rise in sale of value-added steel products such as TMT bars where realizations are higher in comparison to intermediate goods. The EBITDA margin of the group improved to 3.94 per cent in FY2023 (Prov) as against 1.95 per cent in FY2022 on account of decline in material cost. The group has installed a billet capacity in the mid of FY23, which helped them in cost optimization as these billets were used in manufacturing TMT bars. The margins are relatively lower due to the absence of further backward integration of sponge iron and has to source the same from the open market, leading pressure in the operating margins. Acuite expects the operating margin to be range bound between 3.7-4.0 per cent in the near to medium term on account of semi-integrated nature of operations. Moreover, the plants are located in Raipur, Chhattisgarh, which has extensive iron ore and coal reserves, thereby SIPL benefits operationally from its strategic location. Close proximity to customers and raw material suppliers will likely lower freight costs. Acuite believes that the close proximity to the steel hub shall support the business risk profile to an extent. Efficient working capital management The company has an efficient working capital management marked by improved GCA days of 49 days in FY2023 (Prov) as against 76 days in FY2022. The improvement in GCA days is on the account of improved debtor period to 27 days in FY2023 (Prov) as against 56 days in FY2022 due to efficient collection mechanism. Further, the inventory period stood comfortable at 12 days in FY2023 (Prov) as against 13 days in FY2022. Acuité believes that the working capital requirement is likely to remain at similar levels in the near to medium term. |
| Weaknesses |
| Short operational track record
SKA Ispat Pvt Ltd (SIPL) started manufacturing operations since December 2021 and SKA Steel and Power Private Limited (SSPPL) has started its operations since July 2021. Both the companies have a short operational track record of only two years. Average financial risk profile The group’s financial risk profile is average marked by moderate net worth base, high gearing and comfortable debt protection metrics. The tangible net worth of the group increased to Rs.75.85 Cr as on March 31, 2023 (Prov) from Rs.67.40 Cr as on March 31, 2022, due to accretion of profits to reserves. The flagship company, Sunil Kumar Agarwal LLP holds preference shares in both the companies amounting to Rs.19.00 Cr which is fully convertible after 9 years. Acuité has considered unsecured loans of Rs.46.63 Cr as on March 31, 2023 (Prov), as quasi-equity as the management has undertaken to maintain the amount in the business over the medium term. Gearing of the group stood high at 2.00 times as on March 31, 2023 (Prov) as against 2.16 times as on March 31, 2022. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 2.15 times as on March 31, 2023 (Prov) as against 2.66 times as on March 31, 2022. Moreover, the comfortable debt protection metrics is marked by Interest Coverage Ratio (ICR) at 2.49 times as on March 31, 2023 (Prov) against 1.79 times as on March 31, 2022; and Debt Service Coverage Ratio at 2.49 times as on March 31, 2023 (Prov) as against 1.73 times as on March 31, 2022. The Net Cash Accruals/Total Debt (NCA/TD) stood at 0.15 times as on March 31, 2023 (Prov) as against 0.03 times as on March 31, 2022. Acuité believes that going forward the financial risk profile of the group will be sustained backed by steady accruals and no major debt funded capex plans. Inherent cyclical nature of the steel industry The group's performance remains vulnerable to cyclicality in the steel sector given the close linkage between the demand for steel products and the domestic and global economy. The end-user segments such as real estate, civil construction and engineering also display cyclicality. Further, operating margins are vulnerable to volatility in the input prices (sponge iron, iron ore and coal) as well as realisation from finished goods. The prices and supply of the main raw material, sponge iron, directly impacts the realisations of finished goods. Any significant reduction in the demand and prices adversely impacting the operating margins and cash accruals of the group will remain a key monitorable. |
| Rating Sensitivities |
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| All Covenants |
| None. |
| Liquidity Position |
| Adequate |
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The group’s liquidity position is adequate marked by net cash accruals of Rs.23.53 Cr in FY2023 (Prov) as against nil long term debt repayment over the same period. Going forward, the expected cash accruals will be sufficient to meet the debt obligations backed by expected healthy scale of operations. The current ratio stood moderate at 1.20 times as on 31 st March 2023 (Prov) as compared to 1.13 times as on 31 st March, 2022. Further, the fund-based limits remained moderately utilized at ~89 per cent for six months ended June 2023. The cash and bank balances of the group stood at Rs.5.79 Cr in FY2023 (Prov) as compared to Rs.0.36 Cr in FY2022. Moreover, the working capital management of the group is efficient marked by Gross Current Assets (GCA) of 49 days in FY2023 (Prov) as compared to 76 days in FY2022.
Acuité believes that going forward the company will maintain adequate liquidity position due to steady accruals. |
| Outlook: Stable |
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Acuité believes that the outlook on the group will be 'Stable' over the medium term on account of the experienced management through their association with other group company, sound business risk profile and efficient working capital management. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure and efficient working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the group’s revenues or profit margins, or in case of deterioration in the group’s financial risk profile and liquidity position or elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 996.75 | 596.38 |
| PAT | Rs. Cr. | 6.98 | 1.82 |
| PAT Margin | (%) | 0.70 | 0.31 |
| Total Debt/Tangible Net Worth | Times | 2.00 | 2.16 |
| PBDIT/Interest | Times | 2.49 | 1.79 |
| Status of non-cooperation with previous CRA (if applicable) |
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None.
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| Any other information |
| None. |
| Applicable Criteria |
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• 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 |
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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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| Rating History : |
| Not Applicable |
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