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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 78.90 | ACUITE A- | Stable | Reaffirmed | - |
| Total Outstanding | 78.90 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating of 'ACUITE A-' (read as ACUITE A minus) on the Rs. 78.90 Cr. bank facilities of Steel House (SH). The outlook is ‘Stable’.
Rationale for reaffirmation : The rating takes into account the improved operating performance and healthy financial profile of SH. The operating income of SH has been consistently growing since the last two years from FY2023 and has been sustained during current year YTD figure till Feb 2024. The firm's revenue stood at Rs.641.98 Cr. in FY2023 implying a growth rate of ~17.34 percent against the previous year’s. The operating margins ranged between 8.95-8.37 percent for the last two years ended FY2023. The revenue till February 2024(YTD) stood at Rs. 696.45 Cr. and targeting to close the year by Rs. 740-743 Cr. The ratings are supported healthy financial risk profile of SH with healthy debt protection metrics and minimal gearing. The overall gearing of the Company stood at 0.56 times as on March 31, 2023 as against 0.61 times as on March 31, 2022. The interest coverage ratio stood at 8.27 times in FY2023 as against 6.86 times in FY2022. The rating remains constrained by the working capital intensive nature of operations and inherent risk of capital withdrawal for partnership firm. |
| About the Company |
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Established in 1984, Steel House is a Bangalore (Karnataka) based partnership entity engaged in the trading of flat steel products. The entity also provides value added services such as ‘cut to size’ as per customer’s requirements. The entity has installed capacity of 15,000 tons per month to provide value added services at its facility in Jigani (Karnataka). The day-to-day operations are managed by its partner Mr. Vishal Gupta, son of founding partner Mr. Mahendra Kumar Gupta.
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| Unsupported Rating |
| Not applicable |
| Analytical Approach |
| Acuite has considered the standalone financial and business risk profile of Steel House to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
The Partners, Mr. Mahendra Gupta and Mr. Vishal Gupta are seasoned players in the Iron and Steel industry having an experience of four decades and two decades, respectively. The partners longstanding experience helped SH in securing repeated business orders from corporate clients for the value added products of ‘cut-to-size’ and wide product range within flat products. The firm’s client segment spans across automotive, engineering and agricultural equipment manufacturers among others and includes entities like Mitsubishi Lelvator India Private Limited, Buhler India Limited and Miltech Machinery Private Limited majority of whom have been engaged with the firm for over a decade. Acuite believes that Steel House will continue to gain from the partners’ long-standing presence in the marked.
The revenue of the firm improved to Rs. 641.98 Cr. in FY2023 as against Rs.547.13 Cr. in FY2022 registering a growth of 17.34 percent y-o-y basis. Further, the revenue till February 2024 is Rs. 696.45 Cr. and is targeting Rs. 740-743 Cr. in FY2024. And EBITDA margins are expected to be in range of 8.10 – 8.35 percent in FY2024. The operating margin of the firm stood at 8.37 percent in FY2023 against 8.95 percent in FY2022. The PAT margin stood at 6.99 percent in FY2023 as against 7.16 percent in FY2022. SH deals with diversified customer base in various segments including automobile, heavy Engineering ,Electrical equipment, Medical Equipment , Textile machineries and top ten customers contributing less than 20 percent of total revenue. Acuite believes that the firm will be able to maintain the operating performance over the medium term on account of the diversified customer base and stable operating profit margin.
The financial risk profile of the firm is healthy with healthy net worth, gearing and debt protection metrics. The net worth of the firm improved to Rs.121.80 Cr. and Rs.103.95 Cr. as on March 31, 2023 and 2022 respectively on account of accretion to reserves. The gearing of the firm has slightly improved in FY2023. It stood at 0.56 times as on March 31, 2023 as against 0.61 times as on March 31, 2022. Firm’s debt protection metrics is healthy – Interest coverage ratio and debt service coverage ratio stood at 8.27 times and 5.43 times as on March 31, 2023 respectively as against 6.86 times and 4.42 times as on March 31, 2022 respectively. TOL/TNW stood at 0.56 times and 0.62 times as on March 31, 2023 and 2022 respectively. The debt to EBITDA of the company stood at 1.26 times as on March 31, 2023 as against 1.28 times as on March 31, 2022. Acuite believes that the financial risk profile of the firm will continue to remain healthy on account of absence of any debt-funded capex plan.
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| Weaknesses |
The working capital management of the SH remained intensive GCA days at 101 days as on March 31, 2023 as against 103 days as on March 31, 2022. The debtor’s day stood at 66 days as on March 31, 2023 as against 65 days as on March 31, 2022. Subsequently, the payable period stood at (0) days as on March 31, 2023 as against 1 days as on March 31, 2022 respectively. Further, the average bank limit utilization in the last seven months ended Jan 24 remained at ~81 percent for fund based.
The Iron & Steel industry comprises numerous unorganized players at different levels of the value chain. In addition to intense competition, the firm witnesses low value addition, which leads to low profitability margins. The inherent cyclical nature of the steel industry exposes the firm to adverse steel price fluctuations and inventory loss. However, the firm has been able to mitigate this risk to a large extent by passing on the costs to its customers.
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| Rating Sensitivities |
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| Liquidity Position: Adequate |
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The firm has generated adequate net cash accruals to service its debt obligations. The net cash accruals stood at Rs.47.42 Cr. in FY2023 as against the Rs.3.42 Cr. repayment obligations same period and expected to generate cash accruals in the range of Rs.39-47 Cr. against CPLTD of Rs.3.78- 3.93 Cr. over the medium term. Unencumbered cash and bank balances stood at Rs. 0.16 Cr. as on March 31, 2023. The current ratio of the firm stood at 2.82 times as on March 31, 2023. Acuité believes that firm’s liquidity will remain sufficient over the medium term backed by repayment of its debt obligations and improving accruals.
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| Outlook: Stable |
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Acuité believes that Steel House will maintain a ‘Stable’ outlook and continue to benefit over the medium term owing to its promoters' extensive industry experience. The outlook may be revised to 'Positive' in case of sustained improvement in the scale of operations and profitability while maintaining comfortable financial risk profile and liquidity position. Conversely, the outlook may be revised to 'Negative' in case of steep decline in revenue and profitability or if the financial risk profile weakens, because of stretch in working capital cycle or higher than expected debt -funded capital expenditure.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 641.98 | 547.13 |
| PAT | Rs. Cr. | 44.88 | 39.16 |
| PAT Margin | (%) | 6.99 | 7.16 |
| Total Debt/Tangible Net Worth | Times | 0.56 | 0.61 |
| PBDIT/Interest | Times | 8.27 | 6.86 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.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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