Kamal Trading Corporation.

Brickwork Ratings upgrades the rating for the Bank Loan Facilities of Rs. 52.38 Crs. of Kamal Trading Corporation.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (03 Dec 2021)	Present
Fund Based	39.45	52.38	Long Term	BWR BB- /Stable Downgrade/ISSUER NOT COOPERATING*	BWR BB + /Stable Upgrade
Grand Total	39.45	52.38	(Rupees Fifty Two Crores and Thirty Eight 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
Note: 1. The firm has availed a term loan from SIDBI amounting to Rs.5.60 Crs, which is not considered for the rating purpose at the request of the firm. 2. The present rating action includes the removal of ratings from ISSUER NOT COOPERATING* category. *Issuer did not cooperate; based on best available information

RATING ACTION / OUTLOOK

The upgradation of ratings of bank loan facilities of Kamal Trading Corporation. ('KTC' or 'the Firm') takes into account the consistent business and financial risk profile of the firm. The firm's year-to-date performance has improved on the back of improved demand post two years of subdued, yet fairly stable, business profile due to the Covid-19 disruptions. The sales till 10MFY22 have already surpassed the sales of the last fiscal. The firm's profitability, debt protection metrics and liquidity have remained stable and adequate during FY20, FY21 and year to date.

The ratings continue to draw strength from the extensive industry experience of the promoters, above-average financial risk profile, long-standing relationship with suppliers and customers, established position as an authorized distributor for a reputed steel manufacturer. The ratings remain constrained by the thin profitability margins, exposure to intense competition in steel trading industry and cyclicality in the end user industry. Moreover, the rating factors in the risks associated with partnership firms like the withdrawal of capital and dissolution of the firm "At Will" by giving a notice of 3 calendar months.

BWR notes that the firm had availed relief under the COVID-19 moratorium package during Mar'20 - Aug'20 involving deferment of interest and emergency credit lines. The firm has been regular in debt obligation payments in the post-moratorium period, as confirmed by the lenders. BWR also notes the firm has not availed for one-time restructuring (OTR) of loans under RBI Resolution Framework for Covid-19 related Stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. Brickwork Ratings believes that KTC’s business and financial risk profile will be maintained over the medium term. The outlook may be revised to Positive if there is a significant improvement in the sales, profitability, debt protection metrics and overall working capital management. The outlook may be revised to Negative if lower than expected revenue or profitability leading to deterioration in the business risk profile, elongation of working capital cycle and deterioration in the liquidity profile.

KEY RATING DRIVERS

Credit Strengths:

Experience of the promoters :
The partners of the firm are Mr. Kamalnarayan K Mehta, Mrs. Lata K Mehta and Mr. Mohit K Mehta who have extensive industry experience. The firm’s management is supported by a team of qualified professionals. They have around three decades of experience in the steel trading industry. The firm benefits from the management’s understanding of the dynamics of the industry and established relationships with customers.
Above-average financial risk profile :
The firm’s financial risk profile is considered above-average as reflected by the modest scale of operations, adequate gearing and liquidity. The firm achieved a turnover of Rs.281.03 Crs in FY21 as against Rs.306.79 Crs in FY20. The decline is mainly on account of the impact of Covid-19 on the economy. The EBITDA improved to Rs.5.65 Crs in FY21 as against Rs.3.12 Crs in FY20 resulting in improvement in operating margin from 1.02% in FY20 to 2.01% in FY21 The partner's capital of the firm stood at Rs.34.29 Crs as on 31 Mar 2021 as against Rs.36.51 Crs as on 31 Mar 2020. The gearing is adequate at 1.53 times as on 31 Mar 2021 as against 1.11 times as on 31 March 2020. The ISCR and DSCR were adequate at 1.91 times and 2.74 times in FY21 when compared to 0.99 times and 3.34 times in FY20. The firm has achieved sales of ~Rs.296.75 Crs for 10MFY22.
Established position as an authorised distributor for reputed steel manufacturer :
The firm has been the authorised distributor of JSW Neosteel TMT bars and JSW HR plates for more than 25 years. The firm procures around 95% of its products from JSW Steels, which ensures an uninterrupted supply of steel. Although it exposes the firm to supplier concentration risk, the firm’s established track record of operations and the long-term association with the company mitigates this risk.

Credit Risks:

Thin profitability margins and exposure to intense competition in steel trading industry :
The firm’s profit margin has remained low given the trading nature of operations with minimal value addition. The operating margins stood at 2.01% in FY21 as against 1.02% in FY20. Intense competition, inadequate product differentiation and limited bargaining power also restrict the profit margin. The firm’s competitors are a large number of organised and unorganised players, which restricts its pricing flexibility
Cyclicality in the end user industry :
The firm’s profitability and cash flows remain vulnerable to the cyclicality inherent in the steel trading business. Demand for steel products is highly correlated to the trend in the end-user industries such as railways, infrastructure, construction etc. These key user industries in turn depend on various macroeconomic factors, such as consumer confidence, employment rates, interest rates and inflation rates, etc. and any downturn in the economic cycle will adversely impact the demand and realisations.
Inherent risks in a partnership firm :
Being a partnership firm, it is exposed to inherent risks of capital being withdrawn at a time of personal contingency, risks of dissolution and limited avenues to raise capital. BWR notes that the partner's capital of the firm declined from Rs.36.51 Crs as on 31 Mar 2020 to Rs.34.29 Crs as on 31 Mar 2021 due to withdrawal of capital. The partnership business is "At Will" where the partners may seek a dissolution by giving a notice of 3 calendar months but not in the event of death, retirement, incapacity from working, or on account of disease/ailment.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has adopted a stand-alone approach as the firm does not have any subsidiaries.

RATING SENSITIVITIES

Going forward, the ability of the firm to significantly increase the scale of operations, improve profitability, efficiently manage its working capital requirements, strengthen its capital structure and overall credit profile would be the key rating sensitivities.

Positive:

Significant improvement in the scale of operations, profitability and debt protection metrics on a sustained basis.
Improvement in working capital management and capital structure.

Negative:

Weaker than expected growth in revenue and profitability margins leading to deterioration in business and financial risk profile.
Any significant deterioration in the capital structure.
Specific credit metrics which may result in a rating downgrade include a deterioration in EBITDA margin to <1%, gearing above 2.00 times and DSCR and ISCR declining to below 1.50 times on a sustained basis

LIQUIDITY INDICATORS - Adequate

The liquidity is adequately marked by the firm's net cash accrual of Rs.8.15 Crs in FY21 which are sufficient against the maturing debt repayment obligations of ~Rs.2.00 Crs in FY21. The net cash accrual for FY22 and FY23 are expected to adequately cover the debt obligations of ~Rs.2-3 Crs. The average utilization of the fund-based working capital limits was ~90-95% for the last 6 months. Cash and cash equivalents stood at Rs.0.81 Crs as on March 31, 2021. The operating profit of Rs.5.65 Crs in FY21 was sufficient to cover the interest and finance expenses of Rs.2.95 Crs. The current ratio was average at 1.15 times as on 31 Mar 2021 as against 1.41 times as on 31 Mar 2020.

ABOUT THE ENTITY

Kamal Trading Corporation (KTC) a partnership firm based at Hubli was established in 1970, by Mr. Kamalnayan K Mehta, Ms. Lata K Mehta, Mr. Mohit K. Mehta and Skyler Enterprises Pvt Ltd (erstwhile KKSS Builders Pvt Ltd.). The firm is involved in the trading of Iron Steel and cement in pan India. The firm's major distribution facilities are based in Hubli and Belgaum and Goa. The firm trades Steel plates, H.R Sheets, Angles, Channel, Joist, Round, Flats, C.R Sheets, TMT Steel and Galvanised Products. All the partners have experience in the iron & steel field for around four decades. The firm is an authorized distributor of JSW Neosteel TMT bars and JSW HR plates. The firm has three associate concerns involved in similar lines of business namely Kamal Ispat, Kiran Agencies and Skyler Enterprises Pvt Ltd (erstwhile KKSS Builders Pvt Ltd.)

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	281.03	306.79
EBITDA	Rs.Crs.	5.65	3.12
PAT	Rs.Crs.	6.91	7.37
Tangible Net Worth	Rs.Crs.	34.29	36.51
Total Debt/Tangible Net Worth	Times	1.53	1.11
Current Ratio	Times	1.15	1.41

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

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	52.38	BWR BB+/Stable (Upgrade)	03Dec2021	BWR BB- Stable (Downgrade/ISSUER NOT COOPERATING*)	13Jul2020	BWR BBStable (Downgrade/ISSUER NOT COOPERATING*)	06Mar2019	BWR BB+ Stable (Upgrade)
Grand Total		52.38	(Rupees Fifty Two Crores and Thirty Eight 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
Priyanka RS Rating Analyst Board : +91 044 24663326 priyanka.rs@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Kamal Trading Corporation.

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	State Bank Of India (SBI)	Cash Credit - Sanctioned	35.00	_	35.00
2	State Bank Of India (SBI)	Cash Credit - Sanctioned	5.00	_	5.00
3	State Bank Of India (SBI)	Cash Credit - Proposed	2.00	_	2.00
4	State Bank Of India (SBI)	GECL - Sanctioned	10.38	_	10.38
Total			52.38	0.00	52.38
TOTAL (Rupees Fifty Two Crores and Thirty Eight lakhs Only)

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