Brickwork Ratings upgrades the Long Term Ratings for the Bank Loan Facilities of Rs. 38.68 Crs. and reaffirms the Short Term Ratings for the Bank Loan Facilities of Rs. 1.00 Crs. of Mangal Sponge and Steel Pvt. Ltd.
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (15 Oct 2020) |
Present | ||
Fund Based | 46.45 | 38.68 | Long Term |
BWR BBB- /Stable
Assignment |
BWR BBB
/Stable Upgrade |
Non Fund Based | 1.00 | 1.00 | Short Term |
BWR A3
Assignment |
BWR A3
Reaffirmation |
Grand Total | 47.45 | 39.68 | (Rupees Thirty Nine Crores and Sixty Eight lakhs Only) |
RATING ACTION: Long Term Ratings upgraded to BWR BBB (Stable) and Short Term Ratings reaffirmed at BWR A3
RATING OUTLOOK: Stable
BWR has essentially relied upon the audited financial statements of Mangal Sponge and Steel Pvt. Ltd. of FY19, FY20, FY21 and projected financial statements of FY22, FY23, publicly available information, and information/clarifications provided by the entity’s management.
BWR has upgraded a rating and Stable Outlook to the bank facilities of Mangal Sponge and Steel Pvt Ltd ("MSSPL" or "The Company") based on the vast business experience of the promoters and the long-standing presence in the industry, establishing a relationship with its customers and suppliers, Y-o-Y growth in the scale of operations, the moderate but improving financial risk profile of the company, and the advantage of unit's location in proximity to the availability of the raw materials.
However, the rating is constrained on account of the volatility in the input cost, intense competition in the steel industry, and the risk associated with the inherent cyclicality in the industry coupled with the uncertainty in the market due to the ongoing COVID 19 pandemic. The rating is further constrained on account of fluctuating profitability margins.
KEY RATING DRIVERSCredit Strengths:
The promoters have more than two decades of experience in the manufacturing and sale of sponge iron and steel products.MSSPL commenced its operation in 1997 and since then the company has been involved in the production of sponge iron, further expanding to billets manufacturing in 2005. The company is managed by Mr. Moolchand Agrawal (MD), a commerce graduate and is ably supported by experienced professionals in day-to day operations.
The group has an established relationship with its customers and suppliers with which it has been dealing over the years. Majority of the customers of the company are based out of Raipur (Chhattisgarh) and are engaged in trading of iron and steel products.The company has well diversified customers, since top 3 customers contribute only 12.64 % of sales. The company procures major part of its raw material requirement from the rich resource belt of Odisha, while coal is sourced through local dealers.
The company has an average financial risk profile as reflected by a low gearing of 1.22X in FY21 on account of high Tangible Net Worth intune of Rs 56.21cr in FY21. The coverage ratios as reflected by DSCR and ISCR of the company stand at 1.89X and 3.28X respectively in FY21 indicating company’s adequacy to meet its debt obligations. The company has an improving current ratio of 1.48X in FY21 improving on a Y-o-Y basis.
The revenue of the company have been increasing on Y-o-Y basis and currently stand at Rs 282.72cr in FY21 improving from Rs 215.16cr in FY20. The company has achieved sales in tune of Rs 266.89cr for a period of April to October 21.
The company is operating in competitive and fragmented nature of industry specially in primarily steel producing industry. There are several players who are engaged in the sponge iron and billets manufacturing business in organized and unorganized sector. Moreover, the profit margins and sales of the company remains exposed to inherent cyclicality in the steel industry. Adverse volatility in steel prices will have an adverse effect on company’s performance in view of MSSPL’s direct linkage to the fortunes of Steel industry.
Profitability margins as reflected by OPM and NPM were 6.73% & 1.06% in FY21 respectively declining marginally from 8.42% and 1.30% in FY20.
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 Company to scale up its operations, improve overall financial risk profile of the company backed by profitability margins, gearing levels, coverage indicators, ability to service debt repayment timely and efficiently manage its working capital would be key rating sensitivities
Positive: The Ratings may be Upgraded in case of improvement in capacity utilisation levels leading to growth in revenue and profitability, infusion of funds by way of share capital/unsecured loans projected.
Negative: The Ratings may be Downgraded in case of a deterioration in the financial risk profile, withdrawal of subordinated debt before entire repayment of outside debt obligations, any long-term debt-funded capex expansion plan impacting leverage & achieving the projected financials of the Company.
Incorporated in 1997, Mangal Sponge & Steel Private Limited (MSSPL) is primarily engaged in the manufacturing of sponge iron and billets. MSSPL operates from its head office adjoining its manufacturing facility in Bilha, district Bilaspur in Chhattisgarh, which is around 100 km away from the capital city Raipur. MSSPL started its commercial production of manufacturing sponge iron in FY05, further expanding to manufacturing mild steel billets in FY10. The company currently has a sponge iron manufacturing capacity of around 90,000 Metric Tonnes (MT) per annum, while the billet capacity has expanded from 50,400 MT p.a. during FY18 to around 86,400 MT p.a. during FY20. The company has also recently set up a 10 MW captive power plant which is now operational since FY19. The day-to-day operations of the company are being looked after by Mr. Moolchand Agrawal. The company has installed a furnace unit which has led to an increase in their billet capacity to 1, 22, 400 MT p.a. and which is operational since May 20. The Rolling mill is expected to be operational from the mid of FY21-22. which shall enable the company to make the finished product TMT Bars. The 10MW captive power plant is expected to cover the increased capacity of the Rolling Mill which shall be operational from FY21.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 282.72 | 215.16 |
EBITDA | Rs.Crs. | 19.02 | 18.11 |
PAT | Rs.Crs. | 3.00 | 2.79 |
Tangible Net Worth | Rs.Crs. | 56.21 | 53.21 |
Total Debt/Tangible Net Worth | Times | 1.22 | 1.18 |
Current Ratio | Times | 1.48 | 1.19 |
Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|---|---|
Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
Fund Based | LT | 38.68 |
BWR BBB/Stable
(Upgrade) |
NA |
NA
|
15Oct2020 |
BWR BBB- Stable
(Assignment) |
NA |
NA
|
Non Fund Based | ST | 1.00 |
BWR A3
(Reaffirmation) |
NA |
NA
|
15Oct2020 |
BWR A3
(Assignment) |
NA |
NA
|
Grand Total | 39.68 | (Rupees Thirty Nine Crores and Sixty Eight 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.
Hyperlink/Reference to applicable CriteriaAnalytical Contacts | |
---|---|
Siddhi Kadakia Ratings Analyst Board : +91 22 2831 1426, +91 22 2831 1439 siddhi.k@brickworkratings.com |
Sushil Kumar Chitkara Director - Ratings Board : +91 22 2831 1426, +91 22 2831 1439 sushilkumar.c@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 | Punjab National Bank | Term LoanSanctioned | 13.68 | _ | 13.68 |
2 | Punjab National Bank | Cash CreditSanctioned | 25.00 | _ | 25.00 |
3 | Punjab National Bank | Letter of CreditSanctioned | _ | 1.00 | 1.00 |
4 | Punjab National Bank | OverdraftSanctioned | _ | _ | 0.00 |
Total | 38.68 | 1.00 | 39.68 | ||
TOTAL (Rupees Thirty Nine Crores and Sixty Eight lakhs Only) |
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