Agrasen Sponge Pvt. Ltd.

Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.23.85 Crs. of Agrasen Sponge Pvt. Ltd.

Particulars

Facility**	Amount (Rs.Crs)	Tenure	Rating*
Fund Based
Cash Credit - Sanctioned Term Loan - Sanctioned GECL - Sanctioned	15.00 01.50 02.85	Long Term	BWR BB + (Stable)
Sub Total	19.35
Non-Fund Based
Bank Guarantee - Sanctioned	04.50	Short Term	BWR A4 +
Sub Total	04.50
Grand Total	23.85	(Rupees Twenty Three Crores and Eighty Five lakhs Only)

*Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank facilities are provided in Annexure-I RATING ACTION / OUTLOOK : Stable

Brickwork Ratings has assigned the rating of BWR BB+ with a Stable Outlook to the long term bank loan facilities of Rs.19.35 Crs of Agrasen Sponge Pvt. Ltd, and a rating of BWR A4+ to their short term bank loan facilities of Rs. 4.50 Crs. (aggregate rated amount Rs. 23.85 Crs.). The rating factors in the company’s long track record, stable financial parameters, diversification of activities, locational advantage, as well as adequate liquidity. However, the ratings are constrained by competition in the industry, geographical concentration of customers, volatility in input prices and realisations, as well as high working capital requirements.   

BWR believes that the business risk profile of Agrasen Sponge Pvt. Ltd. will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.

KEY RATING DRIVERS

Credit Strengths:

• Long track record of operations, and management experience :

  The company has been in existence for 18 years and has seen complete business cycles. The promoters of the company have more than 16 years of experience in the Iron and Steel Industry.

• Stable financial parameters with low debt :

  Net worth of the company is increasing Y-O-Y due to retention of profits. DSCR and ISCR of the company stand at 3.43 and 3.61 respectively in FY20 indicating the company’s adequacy to meet its debt obligations. The gearing was moderate at 0.46 times as on March 31, 2020 and it has reduced to 0.25 times as on March 31, 2021. The profitability margins are also comfortable. Operating profit margin was 9.73% in FY 20, whereas net-profit margin was 5.05% in FY 20. The operating profit margin has increased to16.33% and the net profit margin has increased to 9.59% in FY21, as the company has managed to reduce the production cost while keeping the sales figures intact,

• Recent Diversification :

  To diversify the business of the Company from its sole business of Iron & Steel, the Company had approached the Govt. of Odisha for Mining lease. In the meantime, the Company has obtained the licence for mining of Manganese Ore Mines from the Govt. of Odisha on a 50 yrs lease basis, with effect from April 01, 2020.

• Locational Advantage :

  The company is located near Kansbhai cluster and thus has a competitive advantage in terms of skilled labor, logistics, production knowledge and vendors making the company more efficient and cost effective.

Credit Risks:

• Competition in the Industry :

  Entry barriers in the industry are low on account of limited capital and technology requirement and also low differentiation in the end product leading to intense competition and limiting the pricing power resulting in low profitability

• Customer Concentration :

  Most of the small customers are concentrated around the company due to the presence of several induction furnaces in the adjoining areas, which serve as regular customers for the business, giving rise to geographical concentration of its customers.

• Exposure to volatility in raw material prices :

  The demand for sponge iron is dependent on production in the iron and steel industry. Thus, the price of sponge iron remains subject to volatility. The price of the main raw material, iron ore, is volatile, as is the price of sponge iron. Profitability is thus likely to remain exposed to volatile realizations and raw material prices.

• Large working capital requirement :

  Operations are working capital intensive, as reflected in gross current assets, driven by a high amount of advances extended to suppliers. Raw materials are procured on an advance payment basis. Iron ore is procured from Orissa Mining Corporation Ltd, KJS Ahluwalia Group and Essel Mining Industries Ltd, while coal is bought from Mahanadi Coalfields Ltd.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

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 Triggers: The rating may be upgraded in case of sustained increase in scale of operations, as well as improvement in margins and debt protection metrics of the company.

Negative Triggers: Any delays in servicing of debt obligations, deterioration in liquidity and debt protection metrics, and decline in sales volume, delay in commencement of commercial operations from the casting unit, may lead to negative rating action.

LIQUIDITY POSITION

The liquidity position of the company is "adequate". The average utilization of cash credit facility stands at 67.30% in the last seven months (December 2020 to June 2021). The EBITDA of the company was Rs. 7.81 Crs. in FY20 and Rs. 12.93 Crs. in FY21(Prov.) and the Net Cash Accruals was Rs. 5.30 Crs. in FY20 and Rs. 8.92 Crs. in FY21(Prov). Cash and Cash Equivalents stood at Rs. 0.04 Crs. In FY20 and Rs. 2.07 Crs. In FY21. The Current Ratio of the company stood 1.9 times in FY20 and 2.04 times in FY21. All these figures look sufficient against Interest and Finance charges of Rs. 2.16 Crs. in FY20 and of Rs. 1.98 Crs. in FY21. The Current portion of Long Term Debt shows a value of Rs. 0.75 Crs. in FY20 and of Rs. 1.17 Crs. in FY21.

PROFILE

The Company, M/s Agrasen Sponge Pvt. Ltd., bearing the CIN U27102OR2003PTC007124, was incorporated at ROC, Cuttack on 22nd April 2003. At present the Company is having Sponge Iron and related business. It has a Sponge Iron unit of 200 TPD (i.e. 4 x 50 TPD) at Mandiakudar, Chungimati, Kansbahal-770034, Dist- Sundargarh (Odisha). Shri Raj Kumar Dadhich-Managing Director, Shri Murari Lal Sharma and Shri Mukesh Kumar Dadhich are the directors of the company. The Company started commercial production of its first 50TPD Sponge Iron plant on 9th February 2004 and thereafter at 3 more 50TPD Sponge iron unit in stages.
To diversify the business of the Company from its Iron & Steel Business to Mining activities, Company approached the Govt. of Odisha for Mining lease. In the mean time, Company got the Manganese Ore Mines from Govt. of Odisha on a 50 yrs lease basis. The Mine is the “Katasahi Manganese Ore Block” located at Katasahi, Po-Chormalda, Via – Koira, under Barbil Tehsil of Keonjhar District of Odisha. The Company got these Mines from Govt. of Odisha on a 50 years lease basis starting from 1st April 2020. The total area of the mines is of 200.509 Hectare and the installed capacity of the Mines is 19000 MTPA.

KEY FINANCIAL INDICATORS

Key Parameters	Units	FY 19-20 (Audited)	FY 18-19 (Audited)
Operating Revenue	Rs.Crs.	80.33	81.34
EBITDA	Rs.Crs.	7.81	4.68
PAT	Rs.Crs.	4.06	2.66
Tangible Net Worth	Rs.Crs.	40.61	26.11
Total Debt/Tangible Net Worth	Times	0.45	1.36
Current Ratio	Times	1.90	1.26

RATING HISTORY (INCLUDING WITHDRAWAL AND SUSPENSION)

S.No	Current Rating (2021)				Rating History
	Facilities	Tenure	Amount (Rs.Crs)	Rating	2020	2019	2018
Fund Based
1	Cash Credit - Sanctioned Term Loan - Sanctioned GECL - Sanctioned	Long Term	15.00 01.50 02.85	BWR BB+ (Stable)	NA	NA	NA
Non-Fund Based
2	Bank Guarantee - Sanctioned	Short Term	04.50	BWR A4+	NA	NA	NA
Total			23.85	(Rupees Twenty Three Crores and Eighty Five lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS

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 :

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies

For More Information Contact:

Analytical Contacts
Pranaydeep Jana Lead Analyst pranaydeep.j@brickworkratings.com	Anuradha Gupta Director - Ratings anuradha.g@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	UCO Bank	Cash Credit - Sanctioned	15.00	_	15.00
2	UCO Bank	Term Loan - Sanctioned	1.50	_	1.50
3	UCO Bank	GECL - Sanctioned	2.85	_	2.85
4	UCO Bank	Bank Guarantee - Sanctioned	_	4.50	4.50
Total			19.35	4.50	23.85
TOTAL (Rupees Twenty Three Crores and Eighty Five lakhs Only)