Amba Shakti Steels Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 58.09 Crs. of Amba Shakti Steels Ltd. with a change in outlook from Negative to Stable.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (26 Nov 2020)	Present
Fund Based	41.22	35.59	Long Term	BWR BBB- /Negative Reaffirmation and change in Outlook	BWR BBB - /Stable Reaffirmation and change in Outlook
Non Fund Based	22.00	22.50	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	63.22	58.09	(Rupees Fifty Eight Crores and Nine lakhs 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

BWR has reaffirmed the ratings of BWR BBB- and BWR A3 respectively for the long-term and short-term bank loan facilities of Amba Shakti Steels Limited (ASSL). The company's financial performance has improved in FY21 as compared to FY20 on account of improvement in EBITDA, PAT, tangible net worth, gearing, profit margins, current ratio and debt protection metrics (ISCR & DSCR). The financial performance in the first 10 months of FY22 has also improved as compared to FY21 driven by a total sales of Rs. 259.20 Cr. in the first 10 months of FY22 where the company has been achieving an average sales of Rs. 25.92 Cr. each month and is expected to achieve a total sales of Rs. 305.60 Cr. by 31st Mar’22.

The outlook of the company has been revised from "Negative" to "Stable" on account of a stable operating income in FY21 which is further expected to improve to Rs. 305.60 Cr. in FY22, adequate Liquidity in FY21 & FY22 as compared to a stretched liquidity in FY20, improvement in EBITDA levels from Rs. 8.46 Cr. in FY20 to Rs. 8.72 Cr. in FY21 which is further expected to be at Rs. 9.61 Cr. in FY22, improvement in profitability margins in FY21 and improvement in debt protection metrics (ISCR and DSCR) which have improved from 1.43X and 0.90x in FY20 to 1.75x and 1.20x in FY21 and is expected to remain at 1.75x and 1.20x in FY22.

However, the ratings are constrained by very thin profitability margins due to the highly competitive and fragmented nature of industry. For assigning the rating, BWR has relied upon the last 3 years of audited financials till FY21, interim performance for 10MFY22 and projections of FY22 & FY23, publicly available information and clarifications provided by management.

KEY RATING DRIVERS

Credit Strengths:

Experience of the promoters and management :
The promoters have more than 3 decades of experience in the business of Mild Steel (MS) bars/Thermo Mechanically Treated (TMT) bars manufacturing. The directors of the company are Mr. Pankaj Goel, Mr. Rakesh Kumar Gupta, Mr. Alok Tiwari, Mr. Pawan Kumar Mittal and Ms. Archana who are all graduates having vast experience in the same line of business.
Locational advantage :
The plant site at Meerut Road,Muzzaffarnagar has a locational advantage of being strategically located in western Uttar Pradesh which has emerged as a major industrial hub. The company has ease of access to raw material as the plant site is well connected by road and rail to all major big cities and towns.
Stable Credit Metrics :
EBITDA in FY21 has improved to Rs. 8.72 Cr. as compared to Rs. 8.46 Cr. in FY20 and is expected to improve further to Rs. 9.61 Cr. in FY22. Debt protection metrics (ISCR and DSCR) have improved in FY21 to 1.75x and 1.20x as compared to 1.43x and 0.90x in FY20. As per the analyst estimates ISCR and DSCR is expected to remain at 1.75x and 1.20x in FY22. The company has a modest tangible net worth of Rs. 33.52 Cr. and a gearing of 0.98x in FY21 which have both improved from FY20.
Operating Income and Profitability :
The company has achieved an operating income of Rs. 276.82 Cr. in FY21 as compared to Rs. 278.80 Cr. in FY20 which is a minor dip of 0.71% YoY. The company has achieved an operating income of Rs. 259.20 Cr. in the first ten months of FY22 which is expected to increase to Rs. 305.60 Cr. by 31st March 2022. The company has a net profit of Rs. 1.19 Cr. in FY21 as compared to Rs. 0.79 Cr. in FY20. As per the analyst estimates, the company will be able to achieve a bottom line of Rs. 1.62 Cr. in FY22.

Credit Risks:

Price Volatility :
The major raw materials for the company are sponge iron and scrap, the prices of which are very volatile. It is an inherent risk for the companies operating in the steel industry. However, the raw material prices have stabilized in 2022 which should not deter profitability going forward. Operating profit margin in FY21 is 3.15% as compared to 3.04% in FY20 which is further expected to be 3.16% in FY22.
Thin Profitability Margins :
The producers of steel products are essentially price-takers in the market, which directly exposes their cash flows and profitability to volatility in the input prices. The operating profit margin and net profit margin was at 3.04% and 0.28% respectively in FY20, while in FY21 the operating profit margin and net profit margin stood at 3.15% and 0.43% respectively. Both the ratios have been estimated to improve further to 3.13% and 0.53% in FY22 as per the analyst estimates.
Intense Competition :
The steel industry in India is characterised by intense competition and fragmentation with the presence of a large number of units because of low entry barriers.

ANALYTICAL APPROACH - Standalone

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

Positive: BWR may revise the ratings upward, if the company’s scale of operations and profitability improve on a sustained basis.

Negative: BWR may revise the ratings downwards, if there is a deterioration in the company's revenue, profitability and liquidity.

LIQUIDITY INDICATORS - Adequate

The liquidity position of the company in FY21 is adequate, marked by net cash accruals of Rs. 3.95 Cr. against a CPLTD (current portion of long term debt) of Rs. 2.71 Cr. The cash accruals are projected to be at Rs. 4.36 Cr. with a CPLTD of Rs. 2.48 Cr. in FY22. As per the analyst estimates, the company is expected to generate an EBITDA of Rs. 9.61 Cr. against interest cost of Rs. 5.50 Cr. in FY22, which is estimated to be at Rs. 9.86 Cr. and Rs. 5.50 Cr. respectively in FY23. Conversion cycle in FY21 stood at 37 days. Current ratio in FY21 stood at 1.62x which is above the benchmark. ISCR and DSCR in FY22 is expected to remain at 1.75x and 1.20x respectively. The liquidity also gets cushion from the unutilized credit lines as the average cash credit utilization in first three quarters of FY22 is 30.05%. The total cash and bank balance as on 31st Mar'21 stood at Rs. 2.47 Cr. which has increased from Rs. 1.18 Cr. in FY20.

ABOUT THE ENTITY

Amba Shakti Steels Limited is an unlisted public Company established at 7th KM Meerut Road, Muzaffarnagar, UP. The Company is engaged in the manufacturing of Thermo Mechanically Treated bars. The unit started its Commercial Production in 1989. The installed capacity of the unit is 98000 M.T.P.A. (metric tons per annum) for the manufacturing of MS/TMT Bars. The promoters have extensive experience of about four decades in the manufacturing of TMT bars and are well versed with the market dynamics of the sector. The products of the company are well known in Delhi, Haryana, Uttar Pradesh , Punjab and Haryana. The company has been accredited ISO 14001 in the year 2004 and has also won several awards like Udyog Patra, Udyog Vibhushan and 3 Star Industry Awards etc.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	276.82	278.40
EBITDA	Rs.Crs.	8.72	8.46
PAT	Rs.Crs.	1.19	0.79
Tangible Net Worth	Rs.Crs.	33.52	32.32
Total Debt/Tangible Net Worth	Times	0.98	1.44
Current Ratio	Times	1.62	1.12

KEY COVENANTS OF THE FACILITY RATED

N/A

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

N/A

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	35.59	BWR BBB-/Stable (Reaffirmation and change in Outlook)	NA	NA	26Nov2020	BWR BBB- Negative (Reaffirmation and change in Outlook)	12Jul2019	BWR BBB- Stable (Upgrade)
Non Fund Based	ST	22.50	BWR A3 (Reaffirmation)	NA	NA	26Nov2020	BWR A3 (Reaffirmation)	12Jul2019	BWR A3 (Upgrade)
Grand Total		58.09	(Rupees Fifty Eight Crores and Nine lakhs 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.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Arjun Gupta Ratings Analyst arjun.g@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Amba Shakti Steels Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

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 Loan - Proposed	_	_	0.00
2	Punjab National Bank	Term Loan	_	_	0.00
3	Punjab National Bank	Cash Credit	35.00	_	35.00
4	Punjab National Bank	Bank Guarantee	_	7.00	7.00
5	Punjab National Bank	Letter of Credit	_	15.00	15.00
6	Punjab National Bank	Forward Contract	_	0.50	0.50
7	Punjab National Bank	Covid Term Loan	0.59	_	0.59
Total			35.59	22.50	58.09
TOTAL (Rupees Fifty Eight Crores and Nine lakhs Only)

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