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.