HMB Ispat Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 125.00 Crs. of HMB Ispat Pvt. Ltd.

Particulars

Facilities**	Amount(Rs.Crs.)	Tenure	Rating#
Fund Based	105.00	Long Term	BWR BBB + /Stable Assignment
	(25.00)	Short Term	BWR A2 Assignment
Non Fund Based	20.00	Short Term	BWR A2 Assignment
Grand Total	125.00	(Rupees One Hundred Twenty Five Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK

Brickwork Ratings has relied upon Audited financials of the company for FY 19, FY 20, FY 21 and the Provisional financials for FY 22 along with the projected financials of FY 23, information available in public domain as well as feedback from the company and its bankers for arriving at the present rating. The assignment of the ratings factors in extensive experience of the promoters and established market position, their robust financial profile, including adequate liquidity and strong credit metrics, as well as the benefits of the merger of BRGD with SUL Steel Pvt Ltd (SUL) to strengthen the business profile of the consolidated entity, with reduction in operational costs. The rating is, however, constrained by the vulnerability of the revenues and profitability to fluctuations in raw material and finished goods prices, exposure to inherent cyclicality in the steel industry, and Intense competition in the industry. 
 
The 'Stable' outlook indicates a low likelihood of rating change over the medium term. BWR believes that the business risk profile of HMB Ispat Pvt. Ltd. will be maintained over this period. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures on a continuous basis.

KEY RATING DRIVERS

Credit Strengths:

• Established market position and extensive experience of the promoters :

  The presence of more than two decades in the present line of business and strong expertise of the promoter will continue to support the business. Moreover its merger with SUL Steel Pvt Ltd has subsequently added significant capacity which has strengthened its market position. The Company’s finished goods brands (“SUL”) already have an established market presence and acceptability among large institutional clients as well as retail consumers.

• Robust financial profile and strong credit metrics :

  A significant improvement in steel demand and merger with SUL has led to a robust growth in the Company’s operating income. The Company’s revenue grew by 13.6% as per FY22(P) to approximately Rs. 1100.00 Crs from Rs. 968.50 Crs in FY21 (A) on the back of robust demand and higher price realization. Revenue growth is expected to continue in FY23 fiscal, driven by favorable demand in the iron and steel Industry. The operating profit margins historically have remained in the range of 4.7% to 5.8%, and the margins are expected to remain at the same level. The company has strong debt service coverage metrics marked by the interest service coverage ratio and debt service coverage ratio at around 9.71 times and 5 times respectively in FY22(P), as against 8.32 times and 5.23 times respectively in FY21 (A). Total debt to tangible net worth stood at 0.55 times (FY21: 0.60 times) in FY22(P).

• Merger of BRGD with SUL Steel Pvt ltd (SUL) to strengthen the business profile of the consolidated entity and reduction in Operational costs :

  Post Merger, the consolidated entity’s business profile is likely to be strengthened from an increase in scale, diversification of products and increased market penetration, reduction in maintenance costs and pooling of cash flows to create an entity with a stronger balance sheet and higher earnings. Moreover the Company’s upcoming forward integration in the form of TMT Bar production from Billets at the Burdwan unit itself, has provided an opportunity for reduction in operational costs, including reduction in maintenance costs and transportation costs which the Company was previously incurring at the Paharpur unit.

Credit Risks:

• Vulnerability to fluctuations in raw material and finished goods prices :

  Company’s operating income and margins are exposed to fluctuations in the input prices mainly steel scraps and sponge iron, prices of which are determined by the market demand supply scenario. The prices of its finished products also generally move in line with the input costs, however there could be short-term mismatches in the input costs and end product prices.

• Exposure to inherent cyclicality in the steel industry :

  Profitability and cash flows of the Company are also  likely to be volatile due to the inherent cyclicality in the steel industry and dependency of the end-user segments. Moreover, a challenging operating environment caused by the Covid-19 pandemic and ongoing Russia-Ukraine war has disrupted the supply chain and has sent steel prices soaring to its highest levels in the domestic market.

• Intense competition in the industry :

  The steel industry is highly fragmented with the presence of both organized and unorganized players in the downstream segment providing similar products/services. Hence, the company faces competition from regional players leading to intense competition and pricing pressures, which in turn affect the profitability margins of the company.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology on a standalone basis, The standalone approach has been considered as the two entities have merged into one single unit HMB Ispat Pvt Ltd as per NCLT final order dated 18th March, 2021. 

RATING SENSITIVITIES

Positive factors: Substantial and sustained growth in revenue across a diversified customer base while improving profitability, debt coverage indicators and gearing on a sustained basis.

Negative factors:  A negative rating action can result from decline in revenues and operating margins, resulting in lower cash flows leading to the weakening of coverage indicators or the liquidity profile.

LIQUIDITY INDICATORS - Adequate

Liquidity is adequate, as characterized by EBITDA of Rs.53.39 Crs. in FY22(P) (Rs.45.35 Crs for FY21) which was sufficient to cover the interest and finance charges of Rs.5.50 Crs (Rs.5.45 Crs for FY21). Net cash accruals was Rs.36.39 Crs for FY22(P) as against Net cash accruals of Rs.28.47 Crs in FY21. Current ratio was 1.81 times in FY22(P) (FY21: 1.53 times). ISCR was 9.71 times in FY22(P) as compared to ISCR of 8.32 times in FY21. The average utilization of WC limits from  HDFC in the past 6 months is at around 50% to 60% as confirmed by the bankers. The company has also availed GECL aggregating to Rs.7.16 Crs from its lenders to meet its operational liabilities. Future cash accruals are expected to be sufficient to cover the debt obligations arising out of these loans. In FY23, EBITDA is expected to be at around Rs.63.25 Crs and cash Accruals at around Rs.42.50 Crs, as against interest and finance charges of Rs.7.75 Crs and current portion of long term debt at Rs.2.50 Crs. 

 

ABOUT THE ENTITY

Incorporated in 2005, BRGD Ingot Pvt Ltd (BRGD) started its operations in 2008 as a manufacturer and trader of Ingots. Later in the year 2010, the present promoters acquired the Company and continued its operations. BRGD merged with SUL Steel Pvt ltd (SUL) as per NCLT final Order dated 18 March 2021 and continued its operations as a Iron and Steel item manufacturer. Company’s name was later changed to HMB Ispat Pvt. Ltd. ("HMBIPL" or "the company") on 03 November 2021. Presently the Company is engaged in manufacturing of Steel products i.e., MS Billet, TMT Bars, MS Round, Flats, Angle, Channels and other structural items. The Company is also engaged in trading of items such as Ferro Alloy , Pig iron, Mild Steels and Scraps. The Company operates under the brand name “ SUL “ & “ HMB “ . Manufacturing units of the Company are  located at Burdwan {with an Installed capacity of 175000 MT PA (M S BILLET), 120000 MT PA (SHAPES & SECTION)}, and {50000 MT PA (TMT Bars)} at Paharpur Unit. 

(In the following table FY 19-20 financials are standalone and  FY 20-21 financials are post merger of the two companies.)

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	968.45	471.03
EBITDA	Rs.Crs.	45.35	22.51
PAT	Rs.Crs.	28.54	11.01
Tangible Net Worth	Rs.Crs.	109.81	45.84
Total Debt/TNW	Times	0.60	0.65
Current Ratio	Times	1.53	2.06

KEY COVENANTS OF THE FACILITY RATED

Usual covenants for bank loan facilities. 

RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating  (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	105.00	BWR BBB+/Stable (Assignment)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(25.00)	BWR A2 (Assignment)	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	20.00	BWR A2 (Assignment)	NA	NA	NA	NA	NA	NA
Grand Total		125.00	(Rupees One Hundred Twenty Five Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Analytical Contacts
Saroj Kumar Das Ratings Analyst sarojkumar.d@brickworkratings.com	Anuradha Gupta Director - Ratings anuradha.g@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	HDFC Bank	Term Loan - Sanctioned	10.14	_	10.14
2	HDFC Bank	Term Loan - Proposed	7.70	_	7.70
3	HDFC Bank	Cash Credit - Sanctioned	70.00	_	70.00
	Sub-Limit (EPC/ PCFC) - Sanctioned		(25.00)
4	HDFC Bank	Cash Credit - Proposed	10.00	_	10.00
5	HDFC Bank	Bank Guarantee - Sanctioned	_	20.00	20.00
6	HDFC Bank	GECL - Sanctioned	7.16	_	7.16
Total			105.00	20.00	125.00
TOTAL (Rupees One Hundred Twenty Five Crores Only)