RATING RATIONALE
22Oct2020
Mittal Enterprises (Hapur)
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.14.75 Crs. of Mittal Enterprises (Hapur)
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||||
|---|---|---|---|---|---|---|---|
| Fund Based | |||||||
| Term Loan Proposed | 13.75 | Long Term | BWR | ||||
| Cash Credit Proposed | 01.00 | ||||||
| Sub Total | 14.75 | ||||||
| Grand Total | 14.75 | (Rupees Fourteen Crores and Seventy Five lakhs Only) | |||||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
BWR assigns the Long term rating to M/s Mittal Enterprises as BWR BB- with Stable outlook. BWR has principally relied upon the firm's Economic Viability Report, projected financials upto FY29, and other information/clarifications provided by the management of the company.
M/s Mittal Enterprises is proposing to establish a Bio CNG Bottling and Bio Fertilizer Plant which will produce Bio CNG (Purified Bio Gas) and organic fertiliser in Hapur district of Uttar Pradesh with expected commissioning w.e.f Aug, 2021. The ratings derive strength from the experience of the promoters having business tie-ups with experienced consultants for running the business smoothly, Strategic Geographical Location with close proximity to Raw Materials, Government thrust on enhancement of green fuel base, Strong Customer Base and Financial risk profile. The ratings are, however, constrained due to project execution risks, intense competition, regulatory risk and Limitation of being a partnership concern. The rating will be reviewed after 6 months as the financial closure and commissioning of the project is yet to take place.
KEY RATING DRIVERSCredit Strengths:
- Experienced partners having business tie-ups with experienced consultant for running the business smoothly :
The partners of the firm Mr. Amit Shukla has experience of around 20 years in Real Estate Business and Mr. Mukul Sharma is an Architect by profession since last 20 years. It is their's first experience in this new venture. The firm has associated with M/s CEID Consultants & Engineering Private limited, Punjab for the commissioning of this project. The company is a project development company focused on prospecting and promoting Biogas Bottling & Fertilizer Plant, Solar, Hydel, and Petrochemical based technologies since 25 years.
- Government thrust on enhancement of green fuel base :
Bioenergy is a fairly under-explored sector. Adopting biofuels as an alternative source of energy can significantly improve farmers’ income, generate employment opportunities, reduce imports, augment waste to wealth creation, etc. Therefore, the government, through several events, promotes the production and adoption of biofuels.
- Strategic Geographical Location with close proximity to Raw Materials :
The major raw material required for the purpose of bio generation process is Press Mud which is the final waste obtained after the entire process of sugar manufacturing is done. The plant is located in Hapur cluster which is the major hub of sugar manufacturing industry. Therefore, the firm will enjoy the competitive advantage in terms of skilled labour, availability of raw material and technology.
- Strong Customer Base :
The firm has entered MOU with Indraprastha Gas Ltd for the purpose of selling entire compressed Bio Gas to them. The firm also has option to pump the gas in IGL pipeline network which will be beneficial for the firm as it will eliminate transportation expenses and reduce power consumption on account of compression of gas into cylinder cascades.
- Financial Risk Profile :
The commercial operations of the firm will start from August 2021. The firm has projected the turnover of Rs. 6.48 Cr in FY 22 and net profit margin would be 3.31% approx. The coverage indicators of the firm are also moderately projected with ISCR at 3.08x and DSCR at 1.12x for the FY 22.
Credit Risks:
- Limitation of partnership concern: :
Being a partnership firm, the firm is exposed to inherent risk of withdrawals by the partners due to personal exigencies which may impact the capital structure of firm.
- Intense competition :
The Government of India has envisaged 5000 bio gas CNG Plants to reduce the crude imports dependence and move towards a de-carbonised economy, which will be commissioned in a phased manner across India over the next five years. Therefore, this may create competition for the firm due to the presence of large number of players in the organised and unorganised sector which might limit the bargaining power due to the tender based industry.
- Project Implementation Risk :
The firm is developing entirely new manufacturing infrastructure. Any delay in implementation of the project is subject to the risk of cost and time overrun. However, due to present situation of Covid- 19, the civil construction work of the factory unit was delayed by five months which might impact the commencement of its commercial operations.
- Regulatory Risk :
Instability of National and International Govt. Policies, particularly related to Environment, Pollution, Safety and Hazards, Workers’ Welfare, etc., and any deviation from compliance & provisions related to any of the concerned Act(s) or Law(s), including related to Environment, Factories Act, Labour Laws, Electricity, Excise, Customs, etc., may affect the operations of the Firm.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Going forward, the ability of the firm to implement the project timely, achievement of projected cash flows and maintain its profitability margins, the debt servicing capability & liquidity would be key rating sensitivities.
Positive: The outlook may be revised to positive in case of timely commissioning of the Project and surpassing of the projected cash flows with significant margins.
Negative : The outlook may be revised to negative in case of delays in implementation of the project and failure to meet the desired profitability.
LIQUIDITY INDICATORS -
Against total project cost of Rs.21.47 crs, the partners propose to infuse Rs.7.72 crs through Partner' capital and the balance of Rs.13.75 crs through proposed medium bank term loans.
Total Partner's Capital as per Prov FY 20 is Rs. 3.10 Cr. Commercial Production will start from Aug 2021. Capacity utilisation is projected at 75% for the First year. The firm has projected the turnover of Rs. 6.48 Cr. Debt protection metrics will improve in FY 22 as projected by ISCR of 3.08x and DSCR of 1.12x for FY 22. Current Ratio is projected at 6.14 times for FY 22.
Overall the liquidity position of the firm is fairly projected to be adequate.
ABOUT THE ENTITYMittal Enterprises is a Hapur based firm incorporated on 01st April, 2011. The firm is proposing to establish a Bio CNG Bottling and Bio Fertilizer Plant with an installed capacity of 5600 Kg per day Bio CNG (Purified Bio Gas) and organic fertiliser of about 30000 Kg per day (also known as Bio Fertilizer) . The registered Office of the firm is situated at Urmila Chitralok Building, Bulandshahr Road, Distt. Hapur and manufacturing unit of the firm is situated at 1412, Chittora, Mahiuddinpur, Tehsil, Garhmukteshwar, Hapur.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 18-19 (Audited) |
FY 17-18 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 1.59 | 3.03 |
| EBITDA | Rs.Crs. | 0.07 | 0.08 |
| PAT | Rs.Crs. | 0.03 | 0.05 |
| Tangible Net Worth | Rs.Crs. | 0.82 | Not Available |
| Total Debt/Tangible Net Worth | Times | 0.24 | 219.36 |
| Current Ratio | Times | 0.93 | 1.10 |
NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY ANY OTHER INFORMATION RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended) COMPLEXITY LEVELS OF THE INSTRUMENTS -
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 | |
|---|---|
|
Sanskriti Jain Lead Analyst sanskriti.j@brickworkratings.com |
Satvinder Kumar Gakhar Associate Director - Ratings Board : +91 11 2341 2232 satvinder.g@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|
| 1 | Term LoanProposed | 13.75 | _ | 13.75 |
| 2 | Cash CreditProposed | 1.00 | _ | 1.00 |
| Total | 14.75 | |||
| TOTAL (Rupees Fourteen Crores and Seventy Five lakhs Only) | ||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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