| Benefitted from Experienced Management:
TBAPL’s board comprises of Mr. Manish Rungta and Mr. Manoj Kumar Baheti, who look after the day-to-day operations of the company supported by a team of qualified professionals. The directors have around two decades of experience in the ferro alloys manufacturing industry. Acuité believes the long track record, experienced management, will continue to support the business, going forward.
Change in Business Model Aimed at Supporting Improved Topline Growth
TBAPL has a long-standing relationship with Tata Steel Mining Limited (TSML), now merged with Tata Steel Limited (TSL) as of September 2023, supported by a five-year renewable off-take agreement for 43,000 MTPA under a conversion model wherein key raw materials are supplied by TSML, resulting in stable margins despite lower revenue recognition. However, given the relatively lower realizations under the conversion model and TSML’s unwillingness to continue the earlier margin of around 8% citing prevailing market conditions, TBAPL has already reduced its level of transactions with TSML and intends to fully discontinue conversion operations from FY27, while progressively increasing exposure to the open market to diversify revenues and support topline growth. This shift is expected to improve realizations and pricing flexibility over the medium term, albeit with higher exposure to market-linked risks such as volatility in raw material prices and finished product realizations. Additionally, silico manganese production commenced in FY25 has shown steady improvement, with higher output recorded in 9MFY26, supported by operational flexibility arising from the use of common submerged arc furnace infrastructure for both ferro and silico alloys. Earlier, the Company exhibited customer concentration risk with significant dependence on Tata Steel Mining Limited (TSML); however, transactions with TSML have been significantly reduced and are expected to be fully discontinued by FY27. Concurrently, TBAPL has added new customers and increased transaction volumes with existing customers, which indicates diversification of the revenue base and improved stability in its business profile. Acuite believes that while topline growth is supported by total revenues of Rs. 256 crore in 9MFY26, the sustainability of scale under the new open-market-oriented business model remains a key monitorable going forward.
Healthy Financial Risk profile:
The financial risk profile are supported by healthy net worth, low gearing and healthy debt protection metrics. The total tangible net worth stood by Rs.132.39 crore in FY 25 as compared to Rs.123.82 crore in FY 24. Gearing stood below unity at 0.17 times in FY 25 as compared to 0.10 times in FY 24. The debt protection metrics stood high with ICR and DSCR stood at 23.33 times and 3.91 times in FY 25. TOL/TNW and debt/EBITDA stood at 0.43 times and 1.51 times in FY 25. Going forward, Acuité believes that the financial risk profile of the company will be healthy backed by steady accruals and no major debt funded capex plans.
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| Intensive Working Capital management:
The Company’s working capital cycle remain intensive in FY25, with GCA days increasing to 162 days from 127 days in FY24, primarily driven by a sharp buildup in inventory. Inventory days rose to 71 days in FY25 from 12 days in FY24, mainly due to significant year-end raw material purchases, resulting in raw material holdings rising to Rs. 30.62 crore (Rs. 2.55 crore in FY24) as the Company maintained at least one month’s stock to support its expanding open-market operations. Finished goods inventory also increased to Rs. 11.94 crore in FY25 from Rs. 4.70 crore in FY24. Other current assets rose to Rs. 26.19 crore in Fy 25 from Rs. 22.05 crore in FY 24 crore, largely on account of inter-corporate deposits extended to group and external entities, earning interest at 8–9%. On the positive side, debtor days improved to 48 days in FY25 from 85 days in FY24 due to lower exposure to TSML, which carried longer credit terms, while payable days improved to 71 days in FY 25 from 107 days in FY24. Despite the stretch in GCA days during FY25, Acuité expects the Company’s working capital cycle to improve over the medium term, supported by tighter inventory controls and timely realization of receivables.
Scale of operations with significant decline in profitability margin:
TBAPL’s revenues declined to Rs. 227.21 crore in FY25 from Rs. 258.83 crore in FY24 due to lower realizations and reduced offtake from TSML amid correction in stainless-steel prices. However, the Company achieved revenues of Rs. 256 crore in 9MFY26 and is expected to close FY26 at around Rs. 325 crore. Operating margins moderated to 3.04% in FY25 from 6.77% in FY24, impacted by lower conversion income and lower realizations, while PAT margin declined to 3.77% in FY 25 from 5.92% in FY 24. Going forward, the company expects the margins will be in the range of the 4–5% range. Acuite believes, their operating performance will improve in the medium term supported by their YTD performance, diversification into silico manganese production, and reduced reliance on conversion-based income following the discontinuation of conversion operations. However, sustainability in the profitability will be key monitorable.
Highly fragmented and intensely competitive industry
The ferro alloys industry is marked by the presence of a large number of organized and unorganized players owing to low entry barriers. The company faces intense competition from the presence of several mid-to-large players in the said industry. The presence of a large number of players has a direct impact on pricing, restricts bargaining power having an adverse impact on margins. Acuité believes that the Company will remain exposed to the highly fragmented and intensely competitive steel industry over the medium term.
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