RATING RATIONALE
25Mar2022
Bhaskar Steel and Ferro Alloy Pvt. Ltd.
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 49.00 Crs. of Bhaskar Steel and Ferro Alloy Pvt. Ltd. and removes the ratings from Issuer Not Cooperating category.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (15 Mar 2022) |
Present | ||
| Fund Based | 46.10 | 49.00 | Long Term |
BWR BBB/Positive to Stable
Reaffirmation with a Change in Outlook/ISSUER NOT COOPERATING* |
BWR BBB
/Stable Reaffirmation |
| Non Fund Based | 2.90 | 0.00 | Short Term |
BWR A3
Reaffirmation |
BWR A3
Reaffirmation |
| (2.00) | (2.00) | ||||
| (0.00) | (2.90) | ||||
| (0.00) | (2.90) | ||||
| Grand Total | 49.00 | 49.00 | (Rupees Forty Nine Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
RATING ACTION / OUTLOOK
BWR has removed the ratings of for the bank loan facilities (aggregating Rs.49Crs) of Bhaskar Steel and Ferro Alloys Pvt Ltd. from the Issuer Not Cooperating category and reaffirmed the ratings at BWR BBB,Stable/BWR A3 on a standalone basis.
The rating reaffirmation is based on the sustained growth in revenues and profitability in FY21, takeover of the Company by an established industry player-The KAI Group of Rourkela, the proposed CAPEX at BSFAPL aimed at setting up an integrated steel manufacturing unit as well as an expected enhancement in exisiting installed capacities resulting in increase in scale of operations and improved profitability. The ratings also takes into account the satisfactory feedback on the account by the lender. The ratings are, however, constrained by the susceptibility of operating margins to volatility in input costs and cyclicity in the steel sector. The rating further factors in the stiff competition in the sector due to the fragmented nature of the iron and steel industry, with a large number of organised and unorganised players.
BWR believes the business risk profile will be maintained over the medium term. The 'Stable' outlook indicates a low likelihood of a rating change over the medium term.The outlook will be revised to ‘Positive’, incase there is improvement in the company’s financial performance. The rating outlook may be revised to ‘Negative’ if the company is not able to achieve revenue or operating profitability as per expectations.
BWR has essentially relied upon Bhaskar Steel and Ferro Alloys Pvt Ltd.’s Audited financials upto FY21 and projected financial statements from FY22 to FY23, publicly available information and information/clarifications provided by the Hospital’s management, and their bankers.
The lenders/investors may note to exercise due caution while using the above rating which mentions "Issuer Not Cooperating" since the rating lack any projections or forward looking component as it is arrived at based on the best available information without any management/banker's interaction.
KEY RATING DRIVERSCredit Strengths:
-
Business Profile and Experience of the Promoters :
BSFAPL is an integrated Billet manufacturer operating a sponge iron plant of 1,20,000 MTPA, a Billet manufacturing facility with an installed capacity of 86400 MTPA and a captive power plant of 12MW in Rourkela, Odisha. The Company benefits from integration with its sponge iron unit and the power plant. The installed capacities are ~70% utilised in FY21 (FY20 Capacity Utilization; Billet:92.48%; Sponge Iron: 87.71%). BSFAPL was acquired by the KAI Group from the SRMB Group of Kolkata in September 2021.
-
Improved financial profile in FY21 :
BSAFPL’s total revenues improved ~5% y-o-y to Rs.495Crs in FY21 driven by higher volumes and sales realisations. Sales projections for FY22 are muted as the facilities were shut down for repair and maintenance post acquisition by the KAI group. However, revenues in FY23 are expected to around the present level with optimum utilisation on capacities and improved sales realisations. Operating profit margin improved to 7.24% in FY21 from 5.68% in FY20 with improved sales realisations on the back of improving billets and spong iron prices in the industry. Net profit margin also improved from 2.33% in FY20 to 4.33% in FY21. In the past, the Company has benefitted from debottlenecking of the existing manufacturing process to improve operational and production efficiency, as well as prudent raw material management, which is evident from the reduction in the input price to sales ratio from 91.62% in FY19 to 89.96% in FY20 which further improved to 85% in FY21.
-
Comfortable Credit Profile :
BSAFPL reported comfortable credit profile in the last couple of years as is evident from it’s interest coverage ratio of over 14.0x in FY20 and FY21; Net Cash Accruals/Total Debt of 0.79x (0.83x); Total Debt/TNW of 0.51x (0.29x) and TOL/TNW of 2.42x (2.6x). The Company does not have any term debt with fixed repayment obligations except for the GECL loans availed in January 2021 and January 2022. However, change in credit metris with the upcoming CAPEX will be the key moniterable.
-
Upcoming CAPEX :
The Company is undertaking a CAPEX aimed at setting up an intergated steel manufacturing unit. The CAPEX has a proposed pallet plant, a billet plant and a TMT Bar unit as well a captive power plant. The pellet plant will have installed capacities of 0.6mn MTPA to produce sponge iron, majority of which will be used captively for production of Billets. Iron ore fines,the major raw material is to be procured from the nearby mine owner. The proposed TMT facility will have installed capacity of 25TPH i.e. ~200000MTPA resulting in forward integration. CAPEX in Bhaskar Steel which is expected to be completed by the last quarter of FY23. This will boost revenues and improve profitability going forward. KAI group is an established player and has the capabilities and experience of building up and implementing the above CAPEX involving costs of Rs.250Crs (to be funded by Rs.100Crs of promoter funds and Rs.150Crs of bank finance).
-
 Volatile Finished Goods and Raw Material Prices :
BSFAPL is vulnerable to the volatility in the raw material and finished goods prices. The prices of key raw materials, such as iron ore and coking coal, have shown a volatile trend over the years and are determined by market forces. However the raw material cost volatility has been passed on to the ultimate buyers although with a lag as reflected in the range bound margins. Also, the Company has been managing volatility in finished goods prices by increasing its sales volumes.
-
Cyclicality in steel industry :
The steel industry is highly cyclical in nature and is correlated with economic development, which directly affects its fortunes. This is the inherent risk of the steel industry.
-
Intense Competition :
The Company faces competition from the various organised and unorganised players in the Iron and Steel industry - given the fragmented nature of the industry.
Positive: Successful implementation of the upcoming CAPEX resulting in increase in scale of operations, as projected and sustained operating margins at 5% and above with DSCR of over 2.0x post acqusition, may trigger a positive rating action going forward.
Negative: Decline in scale of operations due to the non implementation of the CAPEX leading to lower than projected EBITDA margins, resulting in a decline in ISCR from the present levels as well as a decline in DSCR to below 1.0x on a sustained basis, may trigger a Negative rating action going forward
LIQUIDITY INDICATORS - Adequate
The liquidity of the company stands adequate as reflected by the moderate utilisation of 60% to 70% of the cash credit limits. The undrawn working capital limits provide cushion to meet future liquidity requirements, if needed.Current ratio of has improved to 2.26x in FY21 from1.37x in FY20 indicating adequate liquidity position of the company. Adequate liquidity was on account of efficient management of working capital cycle. In spite of the working capital intensive nature of business, the company is able to manage its cash conversion cycle efficiently. The company reported a net cash cycle of 63days in FY21. There is no long term debt obligation except for GECL loans. Healthy net cash accruals of Rs.26.84Crs in FY21 (FY20: Rs25Crs) against repayment obligations of ~Rs.1.5crs, also indicate adequate liquidity position of the company.
ABOUT THE ENTITYBSFAPL was incorporated in 2003. It started commercial operations in May 2006. The Company is involved in the business of manufacturing of Sponge Iron and Billets & also trading of TMT Bars. The Plant unit is located at Rourkela, Odisha with installed capacities of 1,20,000 MT of Sponge Iron and 86400 MT of Billets. BSFAPL also has a Captive Power Plant of 12 MW to support the power requirements of the unit. Majority of the sponge iron production is used for captive consumption in manufacturing of billets, and the rest is sold to its group Company, SRMB Srijan Private Limited. The Company sells its key product, Billets locally and a small portion to SRMB Srijan Private Limited. BSFAPL is also into trading of TMT Bars and mild steel products, and generates about 35%-40% of the total revenue from trading. BSFAPL sells SRMB’s “Top Tech” brand of TMT bars.
BSFAPL was earlier managed by the promoters of SRMB Group, However, the Company was recently acquired by the KAI Group of Uttar Pradesh.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 495.54 | 473.36 |
| EBITDA | Rs.Crs. | 35.89 | 26.90 |
| PAT | Rs.Crs. | 21.44 | 10.90 |
| Tangible Net Worth | Rs.Crs. | 84.10 | 62.66 |
| Total Debt/Tangible Net Worth | Times | 0.32 | 0.51 |
| Current Ratio | Times | 2.26 | 1.37 |
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
As per rating rationale dated May 24, 2021, Infoemrics has Downgraded the ratings of Bhaskar Steel & ferro Alloys Pvt Ltd. from IVR BB+/IVRA4+, Issuer Not Cooperating category to IVRBB/IVRA4 and maitained the ratings under Issuer Not Cooperating category due to lack of cooperation from the Company in sharing information for review of ratings.
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2022) | 2022 (History) | 2021 | 2020 | 2019 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 49.00 |
BWR BBB/Stable
(Reaffirmation) |
15Mar2022 |
BWR BBBPositive to Stable
(Reaffirmation with a Change in Outlook/ISSUER NOT COOPERATING*) |
NA |
NA
|
13Jan2020 |
BWR BBBStable
(Assigned) |
NA |
NA
|
| 0.00 |
NA
|
NA |
NA
|
NA |
NA
|
15Dec2020 |
BWR BBBPositive
(Reaffirmation with a change in Outlook) |
NA |
NA
|
||
| Non Fund Based | ST | 0.00 |
NA
|
15Mar2022 |
BWR A3
(Reaffirmation) |
NA |
NA
|
13Jan2020 |
BWR A3
(Assigned) |
NA |
NA
|
| 0.00 |
NA
|
NA |
NA
|
NA |
NA
|
15Dec2020 |
BWR A3
(Reaffirmation ) |
NA |
NA
|
||
| NFB SubLimit | ST | (2.00) |
BWR A3
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
| (2.90) |
BWR A3
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| (2.90) |
BWR A3
(Reaffirmation) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
NA |
NA
|
||
| Grand Total | 49.00 | (Rupees Forty Nine Crores 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 Criteria| Analytical Contacts | |
|---|---|
|
Madhu Sonthalia Senior Rating Analyst Board : +91 80 4040 9940 madhusonthalia@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 | HDFC Bank | Cash CreditSanctioned | 19.00 | _ | 19.00 | |
| Sub-Limit (Bank Guarantee) Sanctioned | (2.90) | |||||
| Sub-Limit (Letter of Comfort) Sanctioned | (2.90) | |||||
| 2 | State Bank Of India (SBI) | Cash CreditSanctioned | 30.00 | _ | 30.00 | |
| Sub-Limit (Letter of Credit ) Sanctioned | (2.00) | |||||
| 3 | UCO Bank | Cash CreditSanctioned | _ | _ | 0.00 | |
| 4 | UCO Bank | Cash CreditProposed | _ | _ | 0.00 | |
| 5 | UCO Bank | Bank GuaranteeSanctioned | _ | _ | 0.00 | |
| 6 | UCO Bank | Letter of CreditSanctioned | _ | _ | 0.00 | |
| Total | 49.00 | 0.00 | 49.00 | |||
| TOTAL (Rupees Forty Nine Crores Only) | ||||||
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