| Experienced management
The key promoters of the group, Mr. Nawal Khetan, Mr. Ashok Chowdhary and Mr. Rajesh Tola have been associated with the iron & steel industry for two decades. In addition to this, the second generation promoters are having experience of around a decade. Acuité derives comfort from the long experience of the promoters.
Sound business risk profile of group
The sound business risk profile of the group is supported by the integrated nature of operations with a manufacturing capacity of sponge iron, billets, TMT Bars & other rolled products, ferro alloys and three waste heat based captive power plants. Nutan Ispat and Power Private Limited has become fully integrated after the recent addition of billet division and power plant. Further, Sunil Ispat & Power Limited (SIPL) supplies sponge iron to Maruti Ferrous Private Limited and now the newly installed Karnikripa power Private Limited company will supply sponge iron for the captive consumption of the group. Acuité believes that the integrated nature of the group enhances the operating efficiencies and mitigates the risks arising from the cyclical nature of steel industry to some extent.
In addition to this, the group has a locational advantage as the plants are located in the industrial area of Raipur, Chhattisgarh , which is in close proximity to various steel plants and sources of raw materials. Further the plants are well connected through road and rail transport which facilitates easy transportation of raw materials and finished goods.
The operating income of the group stood at Rs. 1409.71 Cr. in FY2023 as against Rs. 1323.95 Cr. in FY2022. The revenue is estimated to stand at ~Rs. 1501.78 Cr. in FY2024E. In terms of profitability, the operating margin has recorded an increasing trend as it stood at 10.13 percent in FY2023 as against 8.04 percent in FY2022. The net profitability stood at 4.29 percent in FY2023 as against 2.84 percent in FY2022. The profitability is estimated to remain in similar range in FY2024 as FY2023. The operating margin is estimated in the range of 10.5-11 percent and net profitability in the range of 4-4.5 percent. Acuité believes that the scaling up of operations while maintaining the profitability margin would be a key monitorable going forward.
Healthy financial risk profile
The group’s healthy financial risk profile is marked by healthy net-worth, comfortable gearing and moderately comfortable debt protection metrics. The tangible net worth of the group stood at Rs. 431.12 Cr. as on March 31, 2023 from Rs. 369.07 Cr. as on March 31, 2022 due to accretion of profits to reserves. Acuite has considered unsecured loans worth Rs. 125.08 crore as on March 31, 2023 as quasi equity as the management has undertaken to maintain the amount in the business over the medium term. The gearing stood below unity at 0.83 times as on March 31, 2023 as against 0.73 times on March 31, 2022. Increase in the gearing level is on account of additional debt availed by the group in FY2023 primarily towards in capex in KPPL. The Total Outside Liabilities/Tangible Networth stood moderate at 1.34 times as on March 31, 2023 as against 1.23 times on March 31, 2022.
The debt protection metrics are moderately comfortable marked by Interest coverage ratio (ICR) at 3.84 times on March 31, 2023 as against 3.18 times on March 31, 2022. The Debt service coverage ratio (DSCR) stood at 1.87 times on March 31, 2023 as well as March 31, 2022. NCA/Total Debt stood at 0.25 times on March 31, 2023 as against 0.24 times on March 31, 2022.
In FY2024, the company is estimated to avail further long term debt towards completion of its capex project in KPPL. The group set up a sponge iron plant with an installed capacity of 165,000 MTPA in Karnikripa Power Pvt. Ltd. (KPPL). The total cost of the project for Sponge Iron manufacturing is Rs. 120.80 crore which is funded through debt of Rs. 80 Cr. and Rs. 40.80 Cr. from promoters’ sources. The commercial operations in the new unit has commenced from April, 2024 onwards. In FY2025, the company plans to avail short term debt to the tune of additional Rs.200 Cr. in KPPL to support the group’s enhanced working capital requirement. Acuite believes that the financial risk profile group will remain healthy over the medium term.
Moderate working capital management
The moderate working capital management of the group is marked by Gross Current Assets (GCA) of 108 days as on 31st March 2023 as compared to 113 days as on 31st March 2022. The GCA days is primarily on account of a high proportion of other receivables and recoveries. Further, the inventory holding stood at 65 days in 31st March 2023 as compared to 67 days as on 31st March 2022. However, the debtor period stood comfortable at 2 days as on 31st March 2023 as compared to 10 days as on 31st March 2022. Acuité believes that the working capital operations of the group will remain at same level as evident from efficient collection mechanism and moderate inventory levels over the medium term.
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| Intense competition and inherent cyclical nature of the steel industry
The steel rolling industry remains fragmented and unorganised. The group is exposed to intense competitive pressures from large number of organised and unorganised players along with its exposure to inherent cyclical nature of the steel industry. Further, there has been a significant push by the government on steel-intensive sectors such as railways and infrastructure, any sustained downturn in demand will adversely impact performance of steel companies. Additionally, prices of raw materials and products are highly volatile in nature. Business operations also face competition from cheaper Indonesian and Chinese imports. Substantial increase in imports may adversely impact realisation and volumes, and hence, remains a key monitorable.
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