Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 751.52 Crs. of SMC Power Generation Ltd.
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (31 Dec 2021) |
Present | ||
Fund Based | 742.84 | 741.52 | Long Term |
BWR BBB+/Stable
Reaffirmation |
BWR BBB +
/Stable Reaffirmation |
(5.50) | (5.50) | ||||
(40.00) | (40.00) | ||||
(38.00) | (38.00) | ||||
(20.00) | (20.00) | ||||
(30.00) | (30.00) | ||||
(80.00) | (80.00) | ||||
Non Fund Based | (7.00) | (7.00) | Long Term |
BWR BBB+/Stable
Reaffirmation |
BWR BBB +
/Stable Reaffirmation |
10.00 | 10.00 | Short Term |
BWR A2+
Reaffirmation |
BWR A2 +
Reaffirmation |
|
Grand Total | 752.84 | 751.52 | (Rupees Seven Hundred Fifty One Crores and Fifty Two lakhs Only) |
Brickwork Ratings (BWR) reaffirms long-term rating of BWR BBB+ (Stable) and short-term rating of BWR A2+ respectively for the enhanced bank loan facilities of SMC Power Generation Ltd (SPGL or the company).
The rating reaffirmation factors in the company’s experienced promoters, established long track record of over 15 years in current line of business, proximity to raw material and customers, established reputation and brand name in the region, integrated operations, support of group companies namely SMC Foods Ltd and Creamy Foods Ltd via corporate guarantee given for the loan amount of Rs. 420 Cr taken for the new plant in favor of the lenders of SPGL and improved & comfortable solvency position. BWR notes that SPGL has acquired assets of Rs. 290 Cr from Concast Steel & Power Limited under NCLT (National Company Law Tribunal) with a capacity of 5 lac MTPA of sponge iron/billets/TMT bars which will be operationalized in two phases. The commercial operations of first phase with 2.5 lac MTPA capacity was operationalized in March 2021. However, these strengths are partially offset by the increasing debt levels undertaken by the company in order to fund its capex, leading to pressure on credit metrics in the medium term, susceptibility to cyclicality and fluctuation in raw material prices and inherent risk of the industry along with intense competition. The outlook remains Stable backed by positive demand and margin outlook for the steel industry backed by pick up in construction activity. BWR has principally relied upon the standalone audited financial results of SPGL upto 31st March 2021, provisional financials submitted upto 8MFY22 and projected financials for FY22, FY23 & FY24 and clarifications provided by the company’s management. KEY RATING DRIVERSCredit Strengths:
SPGL manufacturing facilities are vertically integrated. It produces sponge iron, which is captively consumed in manufacturing billets, which in turn is used to produce TMT (thermo-mechanically treated) bars. This vertical integration helps in bringing considerable operational efficiencies and favorable cost structures. The company has a manufacturing plant in Orissa which acts as a hub for raw materials and customers helping the company save costs on transportation and procurement costs.
SPGL is a part of SMC group with two well established companies namely SMC Food Ltd and Creamy Foods Ltd. The companies are into dairy products and sell their goods under the brand name Madhusudan which enjoys a good brand and market presence specially in Northern India. Both companies have strong financials and have given corporate guarantee for the term loans taken by SPGL to the tune of Rs 420 Cr.
SPGL is promoted by Mr Mool Chand Aggarwal having an experience of more than 40 years in the steel and other businesses. The management team has a good mix of experienced and young professionals giving it a good balance. The company has established presence is Orissa and sells TMT under the brand name "Majboot" which enjoys good reputation in the market.
The company has maintained comfortable debt metrics with the ISCR and DSCR stood at 7.07x and 2.89x in FY21 as compared to 7.60x and 2.12x in FY20. The net profit margin and operating profit margin improved to 8.40% and 16.22% for the FY21 as compared to 8.26% and 15.71% reported in FY20 despite decline in sales by 10.99% in FY21. The operating margins are slightly better than the industry standards of 15%. As the commercial operations of Phase I of new Jharsuguda manufacturing unit commenced from Mar 2021, the company has achieved an improved total operating income of Rs. 1029.65 Crs in 8MFY22 (Prov.). Also, the company has shown an improvement in EBITDA per tonne as it rose to Rs. 6002 in FY 21, as compared to Rs. 5233 in FY20.
In March 2020 the company acquired assets of Concast steel and power limited via a debt equity mix of 3:1 thus leading to decrease in the capital structure of the company with gearing increasing to 1.12 times in FY20 and stood at 1.26x in FY21. SGPL has a net debt to EBITDA ratio of 4.80x in FY21 and this is expected to gradually improve with increased EBITDA from the acquired capacities. Going forward the coverage indicators are expected to remain moderate.
Return on capital employed has seen a sharp fall from 24.68% in FY 19 to 16.15% in FY 20 and further falls to 10.09% in FY21.
The company faces concentration risk as majority of the customer and suppliers are based in and around Orissa. Also the manufacturing plant is situated in Orissa. With the ongoing local lockdowns implemented by various state governments the company may face uncertain times if there is a localized rise in cases in the state.
For arriving at its ratings, BWR has applied its rating methodology as mentioned in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Upward: BWR may revise the ratings upward in the case of a sustained and substantial improvement in the revenues and operations, alongwith improvement in credit metrics.
Downward : BWR may revise the rating downward in the case of a reduction in the EBITDA margins, inability to achieve optimal capacity utilisations from acquired assets and/or deterioration in debt protection metrics.
LIQUIDITY INDICATORS - Adequate
The company has cash credit facility of Rs. 7.50 Crs with an adequate working capital utilization of 50.60% during the last six months ending Nov 2021. The company has an adequate current ratio of 1.31 for the FY 20 which declined to 1.18x for the FY21. Also the debt protection metrics stands healthy at the ISCR being 7.6 times for FY20 and 7.07 times for FY21. Net cash accruals are adequate at Rs.86.66 Cr for FY21 against the long term liability payable in FY 22 of Rs. 48.92 Crs. Also, the company has generated sufficient cash flows from operations of Rs. 56.17 Crs in FY21 which has improved from Rs. 15.05 Crs as reported in FY 20 The company has projected to generate sufficient net cash accruals of around Rs. 146 Cr for the FY22 as against scheduled debt maturities of Rs. 48.92 Cr.
ABOUT THE ENTITYM/s SMC Power Generation Limited (SPGL) is a closely held public limited company incorporated in November 2000 with an objective for setting up sponge iron plant along with related facilities for power generation and manufacturing of billets and TMT Bars. SPGL is promoted by Shri S. C. Aggarwal, Shri M. C. Aggarwal and Shri C. P. Aggarwal belongs to a strong business family and has been in business since long. SPGL has a manufacturing unit at Jharsuguda (Orissa) and corporate office of The Company is at Noida, Uttar Pradesh.
The Steel & Power division of the group, SMC Power Generation Ltd, was incorporated in the year 2000 an integrated Steel Plant, established in the year 2004, under an MOU with the state Govt at Jharsuguda, Odisha. Today the company boasts of an establish integrated manufacturing facility of 0.3 MTPA with Products ranging from Sponge Iron, Billets, TMT Bars & Power Generation. The Company is a part of SMC group which has diversified business interests including Dairy products through their flagship companies namely SMC Foods Ltd. & Creamy Foods Ltd. The company is selling TMT Bars and other products under the brand name "MAJBOOT " The commercial operations of first phase of new Jharsuguda plant with 2.5 lac MTPA capacity was operationalized in March 2021. KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 763.23 | 857.48 |
EBITDA | Rs.Crs. | 123.79 | 134.68 |
PAT | Rs.Crs. | 64.09 | 70.81 |
Tangible Net Worth | Rs.Crs. | 470.93 | 407.60 |
Total Debt/Tangible Net Worth | Times | 1.26 | 1.12 |
Current Ratio | Times | 1.18 | 1.31 |
NA
NA
ANY OTHER INFORMATIONNA
RATING HISTORY FOR THE PREVIOUS 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 | 741.52 |
BWR BBB+/Stable
(Reaffirmation) |
06Aug2021 |
BWR BBB+Stable
(Reaffirmation) |
08Jun2020 |
BWR BBB+Stable
(Assignment) |
NA |
NA
|
NA |
NA
|
31Dec2021 |
BWR BBB+Stable
(Reaffirmation) |
12Jun2020 |
BWR BBB+Stable
(Reaffirmation) |
NA |
NA
|
||
FB SubLimit | LT | (5.50) |
BWR BBB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
(40.00) |
BWR BBB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
(38.00) |
BWR BBB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
(20.00) |
BWR BBB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
(30.00) |
BWR BBB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
(80.00) |
BWR BBB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
NFB SubLimit | LT | (7.00) |
BWR BBB+/Stable
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
Non Fund Based | ST | 10.00 |
BWR A2+
(Reaffirmation) |
06Aug2021 |
BWR A2+
(Reaffirmation) |
12Jun2020 |
BWR A2+
(Assignment) |
NA |
NA
|
NA |
NA
|
31Dec2021 |
BWR A2+
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
||
Grand Total | 751.52 | (Rupees Seven Hundred Fifty One Crores and Fifty Two lakhs Only) |
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 | |
---|---|
Neha Wahi Ratings Analyst Board : +91 11 2341 2232 nehawahi@brickworkratings.com |
Tanu Sharma Director - Ratings tanusharma@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 | Axis Bank Ltd. | Term LoanSanctioned | 32.86 | _ | 32.86 |
2 | Axis Bank Ltd. | Cash CreditSanctioned | 40.00 | _ | 40.00 |
3 | Axis Bank Ltd. | _ | _ | 0.00 | |
Sub-Limit (Working capital demand loan) Sanctioned | (30.00) | ||||
4 | Axis Finance Limited | Term LoanSanctioned | _ | _ | 0.00 |
5 | HDFC Bank | Term LoanSanctioned | 24.75 | _ | 24.75 |
6 | HDFC Bank | Term LoanSanctioned | 75.83 | _ | 75.83 |
7 | HDFC Bank | Term LoanSanctioned | 90.96 | _ | 90.96 |
8 | HDFC Bank | Cash CreditSanctioned | 20.00 | _ | 20.00 |
9 | HDFC Bank | _ | _ | 0.00 | |
Sub-Limit (Working capital demand loan) Sanctioned | (20.00) | ||||
10 | IDFC First Bank Limited | Cash CreditSanctioned | 80.00 | _ | 80.00 |
11 | IDFC First Bank Limited | _ | _ | 0.00 | |
Sub-Limit (Working capital demand loan) Sanctioned | (80.00) | ||||
12 | IndusInd Bank | Cash CreditSanctioned | 40.00 | _ | 40.00 |
13 | IndusInd Bank | Bank GuaranteeSanctioned | _ | 10.00 | 10.00 |
14 | IndusInd Bank | Term LoanSanctioned | 87.05 | _ | 87.05 |
15 | IndusInd Bank | _ | _ | 0.00 | |
Sub-Limit (Working capital demand loan) Sanctioned | (38.00) | ||||
16 | Others | Cash CreditProposed | 30.00 | _ | 30.00 |
17 | Ratnakar Bank Ltd | _ | _ | 0.00 | |
Sub-Limit (Working capital demand loan) Sanctioned | (40.00) | ||||
18 | RBL Bank | GECLSanctioned | 8.00 | _ | 8.00 |
19 | RBL Bank | Cash CreditSanctioned | 40.00 | _ | 40.00 |
20 | TATA Capital Financial Services Limited | Term LoanSanctioned | 34.76 | _ | 34.76 |
21 | Yes Bank | Term LoanSanctioned | 7.35 | _ | 7.35 |
22 | Yes Bank | Term LoanSanctioned | 50.00 | _ | 50.00 |
23 | Yes Bank | Cash CreditSanctioned | 60.00 | _ | 60.00 |
24 | Yes Bank | GECLSanctioned | 19.96 | _ | 19.96 |
25 | Yes Bank | _ | _ | 0.00 | |
Sub-Limit (Bank Guarantee) Sanctioned | (7.00) | ||||
26 | Yes Bank | _ | _ | 0.00 | |
Sub-Limit (Working capital demand loan) Sanctioned | (5.50) | ||||
Total | 741.52 | 10.00 | 751.52 | ||
TOTAL (Rupees Seven Hundred Fifty One Crores and Fifty Two lakhs Only) |
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