Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 118.49 ACUITE BBB+ | Reaffirmed & Withdrawn -
Bank Loan Ratings 95.93 - ACUITE A2 | Reaffirmed & Withdrawn
Total Outstanding Quantum (Rs. Cr) 0.00 - -
Total Withdrawn Quantum (Rs. Cr) 214.42 - -
 
Rating Rationale

­Acuité has reaffirmed and withdrawn the long-term rating of ‘ACUITE BBB+’ (read as ACUITE triple B plus) and short-term rating of ‘ACUITE A2’ (read as ACUITE A two) on the Rs.214.42 crore bank facilities of SKS Ispat & Power Limited. The rating has been withdrawn on Acuite's policy of withdrawal of raitngs. The rating has been withdrawn on account of the request recieved from the company, and the NOC received from the banker.

About the Company

­Incorporated in April 2000 by Mr. Anil Gupta and Mr. Deepak Gupta, SKS Ispat and Power Limited (SIPL) is a Chhattisgarh based company engaged in the business of manufacturing of sponge Iron, billets, rolled products, ferro alloys and generation of power. The company has integrated steel manufacturing facilities with an installed capacity of 2.7 lakhs MTPA of sponge iron, 3.45 lakhs MTPA of billets and 4.13 lakhs MTPA of rolling mills in its manufacturing unit. SIPL mainly produces long products (structural steel in heavy, medium, light sections) such as channels, beams & angles and produces MS Wire rods, HB Wire, Silico Manganese etc. It also has a power generation unit of 85MW which is utilized for captive consumption.
 
Analytical Approach

­Acuité has considered the standalone business and financial risk profile of SIPL while arriving at the rating.
 

Key Rating Drivers

Strengths

­Experienced management and integrated nature of operation
SKS was incorporated in 2000 by its directors, Mr. Anil Mahabir Gupta and Mr. Deepak Gupta who has an experience of over two decades in steel industry. They are supported by other directors, Mr. Neeta Mithalal Jain, Mr. Rajeev Sabhlok and Mr. Devidas Kashinath Kambale. The company has a long presence in this sector and has established a healthy relationship with customers for more than a decade. SIPL has an integrated steel manufacturing facility, having presence across the value chain and is engaged in manufacturing of sponge iron, billets, rolled products (structural steel in heavy, medium, light sections) such as channels, beams & angles and also produces MS Wire rods, HB Wire, Silico Manganese etc.) and captive power plant of 85 MW. It provides the company flexibility to sell intermediate products as well as use them for captive consumption. The facilities are also supported by captive power plants, waste heat recovery plants and railway sidings, which result in cost efficiencies.

Improving scale of operation coupled with healthy profitability margin
The revenue of the company witnessed a 40.12 per cent growth in FY2022, its revenue increased to Rs.1407.80 crore in FY2022 as compared to Rs.1004.73 crore in the previous year. This growth of the revenue is majorly due to increase in average realization per unit during FY2022 backed by steady demand for sponge iron, billet, rolled product and ferro alloys. There has been moderation in steel and ferro alloy prices since Q2FY2023 which may lead to an overall muted sales growth of the company in FY2023. The company has booked around Rs.720 of sales crore till 30th September 2022 (Prov.). The operating profitability margin of the company has improved to 13.42 per cent in FY2022 as compared to 12.57 per cent in the previous year. This improvement in profitability margin is on account of overall decrease in certain overhead expenses, despite of increase in raw material price. The profit margins of the company have been at around same levels in 6MFY2023 as compared to the previous year. Going forward, Acuité believes, that the profitability margin of the company will be sustained at healthy levels over the medium term backed by steady demand and stable realization. The net profitability margin of the company stood healthy at 6.67 per cent in FY2022 as compared to 11.96 per cent in the previous year.

Robust financial risk profile
The financial risk profile of the company is marked by strong net worth, very low gearing and strong debt protection metrics. The net worth of the company stood healthy at Rs.854.47 crore in FY 2022 as compared to Rs 760.21 crore in FY2021. This improvement in networth is mainly due to the retention of current year profit. The total networth of company includes Rs.159.96 crore of Compulsory Cumulative Convertible Preference Shares (CCCPS) termed as quasi equity in FY2022. The CCPS has subsequently got converted into equity in the current year in Aug’22. The gearing of the company stood at 0.10 times as on March 31, 2022 when compared to 0.18 times as on March 31, 2021. This further improvement in gearing is mainly on account of improvement in networth and repayment of long term debt coupled with lower utilization of working capital facility during FY2022. Interest coverage ratio (ICR) is strong and stood at 15.28 times in FY2022 as against 5.22 times in FY2021. The debt service coverage ratio (DSCR) of the company also stood strong at 2.73 times in FY2022 as compared to 2.72 times in the previous year. The net cash accruals to total debt (NCA/TD) stood strong at 1.44 times in FY2022 as compared to 1.10 times in the previous year. Going forward, Acuité believes the financial risk profile of the company will remain robust on account of steady net cash accruals and no major debt funded capex plan over the near term.

Weaknesses

­Intense competition and inherent cyclicality in the steel industry
The company is operating in competitive and fragmented nature of industry due to the presence of many unorganized players on account of low entry barriers. Moreover, demand for steel products predominantly depends on the construction and infrastructure sectors. Thus, the profit margins and sales of the company remains exposed to inherent cyclicality in these sectors

Rating Sensitivities

  • ­Scaling up of operations while maintaining their profitability margin

  • Sustenance of their conservative capital structure

  • Working capital management
 
Material covenants
­None
 
Liquidity Position
Strong

­The company has strong liquidity position marked by healthy net cash accruals of Rs.126.58 crore as against Rs.38.18 term debt obligations in FY2022. The cash accruals of the company are estimated to remain in the range of around Rs. 152.61 crore to Rs. 169.37 crore during 2023-24 as against of Rs.30.56 crore long term debt obligations during FY2023. The current ratio of the company stood strong at 2.38 times in FY2022. The Gross Current Asset (GCA) days of the company stood comfortable at 107 days in FY2022. The bank limit of the company has been ~35 percent utilized during the last six months ended in October 2022. Acuité believes that the liquidity of the company is likely to remain strong over the medium term on account of healthy cash accruals against the long debt repayments over the medium term.
 
Outlook:
Not Applicable­
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Actual) FY 21 (Actual)
Operating Income Rs. Cr. 1407.80 1004.73
PAT Rs. Cr. 93.86 120.13
PAT Margin (%) 6.67 11.96
Total Debt/Tangible Net Worth Times 0.10 0.18
PBDIT/Interest Times 15.28 5.22
Status of non-cooperation with previous CRA (if applicable)
­None
 
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
• Rating Process and Timeline: https://www.acuite.in/view-rating-criteria-67.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
Note on complexity levels of the rated instrument

­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.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
28 Nov 2022 Letter of Credit Short Term 72.93 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 81.82 ACUITE BBB+ | Positive (Reaffirmed)
Proposed Bank Facility Long Term 36.67 ACUITE BBB+ | Positive (Reaffirmed)
Bank Guarantee Short Term 23.00 ACUITE A2 (Reaffirmed)
07 Jun 2022 Bank Guarantee Short Term 23.00 ACUITE A2 (Reaffirmed)
Cash Credit Long Term 81.82 ACUITE BBB+ | Positive (Reaffirmed)
Proposed Bank Facility Long Term 36.67 ACUITE BBB+ | Positive (Reaffirmed)
Letter of Credit Short Term 72.93 ACUITE A2 (Reaffirmed)
Working Capital Demand Loan Long Term 31.67 ACUITE BBB+ (Withdrawn)
04 Oct 2021 Proposed Bank Facility Long Term 5.00 ACUITE BBB+ | Stable (Assigned)
Working Capital Demand Loan Long Term 31.67 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- )
Term Loan Long Term 47.90 ACUITE BBB+ (Withdrawn)
Cash Credit Long Term 81.82 ACUITE BBB+ | Stable (Upgraded from ACUITE BBB- )
Bank Guarantee Short Term 23.00 ACUITE A2 (Upgraded from ACUITE A3)
Letter of Credit Short Term 72.93 ACUITE A2 (Upgraded from ACUITE A3)
06 Apr 2021 Letter of Credit Short Term 15.74 ACUITE A3 (Withdrawn)
Cash Credit Long Term 81.82 ACUITE BBB- | Stable (Upgraded from ACUITE BB- | Stable)
Letter of Credit Short Term 13.77 ACUITE A3 (Withdrawn)
Cash Credit Long Term 18.25 ACUITE BBB- (Withdrawn)
Working Capital Demand Loan Long Term 31.67 ACUITE BBB- | Stable (Assigned)
Term Loan Long Term 47.90 ACUITE BBB- | Stable (Upgraded from ACUITE BB- | Stable)
Letter of Credit Short Term 10.68 ACUITE A3 (Withdrawn)
Bank Guarantee Short Term 23.00 ACUITE A3 (Upgraded from ACUITE A4+)
Cash Credit Long Term 13.28 ACUITE BBB- (Withdrawn)
Cash Credit Long Term 9.41 ACUITE BBB- (Withdrawn)
Letter of Credit Short Term 13.40 ACUITE A3 (Withdrawn)
Cash Credit Long Term 9.41 ACUITE BBB- (Withdrawn)
Letter of Credit Short Term 72.93 ACUITE A3 (Upgraded from ACUITE A4+)
05 Mar 2020 Cash Credit Long Term 13.28 ACUITE BB- | Stable (Reaffirmed)
Term Loan Long Term 30.60 ACUITE BB- (Withdrawn)
Bank Guarantee Short Term 23.00 ACUITE A4+ (Reaffirmed)
Term Loan Long Term 78.59 ACUITE BB- | Stable (Reaffirmed)
Cash Credit Long Term 9.41 ACUITE BB- | Stable (Reaffirmed)
Cash Credit Long Term 18.25 ACUITE BB- | Stable (Reaffirmed)
Letter of Credit Short Term 15.74 ACUITE A4+ (Reaffirmed)
Letter of Credit Short Term 13.77 ACUITE A4+ (Reaffirmed)
Term Loan Long Term 3.50 ACUITE BB- (Withdrawn)
Term Loan Long Term 6.21 ACUITE BB- (Withdrawn)
Term Loan Long Term 4.30 ACUITE BB- (Withdrawn)
Cash Credit Long Term 9.41 ACUITE BB- | Stable (Reaffirmed)
Proposed Bank Facility Short Term 29.51 ACUITE A4+ (Withdrawn)
Letter of Credit Short Term 13.40 ACUITE A4+ (Reaffirmed)
Letter of Credit Short Term 10.68 ACUITE A4+ (Reaffirmed)
Proposed Long Term Loan Long Term 31.17 ACUITE BB- (Withdrawn)
Cash Credit Long Term 81.82 ACUITE BB- | Stable (Reaffirmed)
Term Loan Long Term 10.97 ACUITE BB- (Withdrawn)
Term Loan Long Term 6.77 ACUITE BB- (Withdrawn)
Letter of Credit Short Term 72.93 ACUITE A4+ (Reaffirmed)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
State Bank of India Not Applicable Bank Guarantee/Letter of Guarantee Not Applicable Not Applicable Not Applicable 23.00 Simple ACUITE A2 | Reaffirmed & Withdrawn
State Bank of India Not Applicable Cash Credit Not Applicable Not Applicable Not Applicable 81.82 Simple ACUITE BBB+ | Reaffirmed & Withdrawn
State Bank of India Not Applicable Letter of Credit Not Applicable Not Applicable Not Applicable 72.93 Simple ACUITE A2 | Reaffirmed & Withdrawn
Not Applicable Not Applicable Proposed Long Term Bank Facility Not Applicable Not Applicable Not Applicable 36.67 Simple ACUITE BBB+ | Reaffirmed & Withdrawn
­

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