Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 72.39 Crs. of M. Hanumantha Rao
ParticularsFacilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
---|---|---|---|---|---|
Previous | Present | Previous (03 Jun 2021) |
Present | ||
Fund Based | 35.80 | 69.39 | Long Term |
BWR B+ /Stable
Downgrade/ISSUER NOT COOPERATING* |
BWR BB
/Stable Upgrade |
Non Fund Based | 1.30 | 3.00 | Short Term |
BWR A4
Reaffirmation/ISSUER NOT COOPERATING* |
BWR A4 +
Upgrade |
Grand Total | 37.10 | 72.39 | (Rupees Seventy Two Crores and Thirty Nine lakhs Only) |
The upgradation of ratings of bank loan facilities of M. Hanumantha Rao ('MHR' or 'the Firm') takes into account the consistent business and financial risk profile of the firm. The firm's performance in FY21 and FY22 (Provisional) has shown significant improvement on the back of improved demand with improved margins driven by firmed up prices. 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 experience of the promoters, established operational track record, established relationships with reputed clientele, and above-average financial profile marked by comfortable gearing and debt protection metrics. However, the ratings remain constrained by a moderate scale of operations, customer concentration risks, inherent risk arising from the constitution of the entity, and the highly regulated nature of the industry.
BWR notes that the firm had availed relief under the COVID-19 moratorium package from Mar'20-Aug'20 involving sanctions of emergency credit lines. The firm has been regular in debt obligation payments in the post-moratorium period, as confirmed by the lender. BWR also notes the firm has not availed of one-time restructuring (OTR) of loans under the RBI Resolution Framework for Covid-19 related Stress.
The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The outlook may be revised to Positive if the firm records significantly better-than-expected growth in scale of operations and diversification of its client base. The outlook may be revised to Negative if the firm reports significantly lower than expected performance, resulting in lower than estimated coverage indicators and a weaker liquidity position. Further, any further debt-funded expenditure resulting in deterioration in capital structure and debt coverage indicators may exert downward pressure on the ratings.
KEY RATING DRIVERSCredit Strengths:
The firm commenced operations in 2002 by Late Mr.M Hanumantha Rao and Mr. Shyam Sunder Chirania as a partnership firm. Presently, the second generation has also been inducted in the business. Mr. M Maruthi s/o of M Hanumantha Rao, Mr. Anil Kumar Chirania, and Mr. Arun Kumar Chirania sons of Mr. Shyam Sunder Chirania along with Mr. Shyam Sunder Chirania are the present partners. The partners are well experienced in the industry and are supported by a team of qualified professionals. BWR believes that the experience of the partners and their knowledge in the industry will continue to support the business risk profile.
The plant has an operational track of more than nearly a decade. The firm has entered into a mining lease agreement with the Department of mines and geology, Govt of Karnataka in 2006 for a period valid up to Dec 2055 for the iron ores in Bellary. The production capacity has recently been enhanced to 221150 MTPA for the Hematite ore ( >60% Fe). The plant benefits from proximity to the ores as well as the key Plants of the key customer JSW Steel Ltd.
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.72.34 Crs in FY22(P) as against Rs.65.91 Crs in FY21. The EBITDA improved to Rs. 38.63 Crs in FY22(P) as against Rs.34.79 Crs in FY21 resulting in an improvement in operating margin from 52.77% in FY21 to 53.68% in FY22(P) The partner's capital of the firm stood at Rs.40.85 Crs as on 31 Mar 2022(P) as against Rs.62.07 Crs as on 31 Mar 2021. The gearing is adequate at 0.77 times as of 31 Mar 2022(P) as against 0.39 times as of 31 March 2021. The ISCR and DSCR were adequate at 74.07 times and 9.97 times in FY22(P) when compared to 74.08 times and 12.02 times in FY21.
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.62.05 Crs as on 31 Mar 2021 to Rs.40.85 Crs as on 31 Mar 2022 (Prov) due to withdrawal of capital.
Firm operates in a highly regulated iron ore mining industry, which exposes it to regulatory risks, as any unfavourable change in the Govenrment policy may impact its revenue growth and profitability. Also, the mining sector is considered a ‘highly polluting industry’ causing severe environmental and social problems, the industry is subject to several regulatory provisions to achieve environmentally sustainable mining. The sale of the iron ore is to be done through e-auction committee only.
BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). BWR has adopted a stand-alone approach as the firm does not have any subsidiaries.
RATING SENSITIVITIES
A firm’s ability to increase its revenue, sustain the profitability margins, efficiently manage its working capital requirements, and generate estimated net cash accrual to support the debt obligations would be considered key rating sensitivities.
Positive
Negative
The firm’s liquidity position is considered adequate taking into account adequate net cash accruals, EBITDA and low level of working capital utilisation. The EBITDA at Rs. 38.83 Crs for FY 22(P) was sufficient to cover interest and finance charges of Rs. 0.52 Crs for FY 22(P). The average working capital utilisation has been around ~20% for the last 6 months. The current ratio has been comfortable at 10.57 times in FY21. The cash and cash equivalents remained low at Rs.0.49 crs as on 31 Mar 2021 and Rs.0.27 crs as on 31 Mar 22 (P). Also, the firm has adequate net cash accrual of Rs.34.62 crs in FY21 and ~Rs.39 crs in FY22 (Provisional) to cover the annual debt obligations of Rs.3-4 crs. A similar trend is expected to be maintained in FY23 and FY24. BWR also notes the firm's recent sanction of term debt of Rs.39 crs for setting up of 3 windmills of 2.1 MW capacity each at an approximate cost of Rs.52 crs. The firm's ability to sustain the available free cash flow to adequately cover the recently raised debt is a key rating monitorable.
ABOUT THE ENTITY
M/s M. Hanumantha Rao is a registered partnership firm in the district of Bellary, Karnataka established on 03 September 2002. The firm has two business verticals, mining iron ore, and windmill operations with ~85% of the total revenue of FY22 from its iron ore business. The firm started operations with mining, then entered into the windmill operations in 2014. The firm has entered into a mining lease agreement with the Department of mines and geology, Govt of Karnataka in 2006 for a period valid up to Dec 2055. The firm started the production of iron ore for the permitted annual production of 100000 MTPA which has been granted enhancement to 221150 MTPA from March 2022. Also, the firm has windmills of 12.6 MW capacity. The firm is utilising the power generated for captive usage and the balance is being sold to KPTCL. The firm invested in Windmills manufactured and commissioned by Suzlon Energy Limited. Presently, the firm is undertaking addition to its power generation capacity with setting up of additional 3 windmills each of 2.1 MW capacity. The firm has availed a term loan of Rs.39.00 crs from its lender to part-finance the capex. The firm has already installed one of the three windmills and is expected to complete the erection/ commissioning by Dec-22.
Mr. M Maruti, Mr. Shyam Sunder Chirania, Mr. Anil Kumar Chirania, and Mr. Arun Kumar Chirania are the partners of the firm.
KEY FINANCIAL INDICATORS (Standalone)Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
---|---|---|---|
Operating Revenue | Rs.Crs. | 65.91 | 31.53 |
EBITDA | Rs.Crs. | 34.79 | 14.41 |
PAT | Rs.Crs. | 27.11 | 0.02 |
Tangible Net Worth | Rs.Crs. | 62.05 | 29.52 |
Total Debt/Tangible Net Worth | Times | 0.39 | 0.59 |
Current Ratio | Times | 10.57 | 4.72 |
The terms of sanction of the rated facilities include standard covenants normally stipulated for such facilities.
NA
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 | 69.39 |
BWR BB/Stable
(Upgrade) |
03Jun2021 |
BWR B+ Stable
(Downgrade/ISSUER NOT COOPERATING*) |
23Jan2020 |
BWR BB- Stable
(Downgrade/ISSUER NOT COOPERATING*) |
NA |
NA
|
Non Fund Based | ST | 3.00 |
BWR A4+
(Upgrade) |
03Jun2021 |
BWR A4
(Reaffirmation/ISSUER NOT COOPERATING*) |
23Jan2020 |
BWR A4
(Downgrade/ISSUER NOT COOPERATING*) |
NA |
NA
|
Grand Total | 72.39 | (Rupees Seventy Two Crores and Thirty Nine 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 | |
---|---|
Jithin K. Ratings Analyst jithin.k@brickworkratings.com |
Saakshi Kanwar Senior Manager Ratings saakshi.k@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 | State Bank Of India (SBI) | Term LoanProposed | _ | _ | 0.00 |
2 | State Bank Of India (SBI) | Term LoanSanctioned | 58.70 | _ | 58.70 |
3 | State Bank Of India (SBI) | Cash CreditSanctioned | 4.80 | _ | 4.80 |
4 | State Bank Of India (SBI) | Cash CreditProposed | _ | _ | 0.00 |
5 | State Bank Of India (SBI) | Bank GuaranteeSanctioned | _ | 3.00 | 3.00 |
6 | State Bank Of India (SBI) | GECLSanctioned | 5.89 | _ | 5.89 |
Total | 69.39 | 3.00 | 72.39 | ||
TOTAL (Rupees Seventy Two Crores and Thirty Nine lakhs Only) |
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