Mohit Minerals Ltd.(Formerly known as Mohit Minerals Pvt. Ltd.)

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 150.00 Crs. of Mohit Minerals Ltd. (formerly Mohit Minerals Pvt. Ltd.) with a change in outlook to Stable from Negative

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (23 Dec 2020)	Present
Fund Based	50.00	50.00	Long Term	BWR A-/Negative Reaffirmation	BWR A - /Negative to Stable Reaffirmation
Non Fund Based	100.00	100.00	Short Term	BWR A2+ Reaffirmation	BWR A2 + Reaffirmation
Grand Total	150.00	150.00	(Rupees One Hundred Fifty Crores 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

The revision in Rating Outlook to Stable takes into account Mohit Minerals Pvt. Ltd’s (MMPL or the company) better financial performance after H1FY21, as compared to Brickwork Ratings’s (BWR)’s and the management’s expectations, on a sustained basis. The company’s FY 21 financials and H2 FY21 performance are better as compared to the FY21 management estimates due to pent up demand after H1FY21 and an improvement in consumption demand and overall economic activity. The Debt Service Coverage ratio (DSCR) was expected to decline to 1.78x in FY21 as compared to 2.11x in FY20, but on the contrary, the Debt Service Coverage ratio (DSCR) improved to 4x in FY21, and the overall debt protection metrics are expected to be in a comfortable range in the near term due to additional orders, which company is expected to receive from the top two major customers Nabha Power Ltd and Talwandi Sabo Power Limited. This is expected to improve the company’s scale of operations and profitability. The company’s operations have not been impacted much in the current FY22 by the second and third waves of the Covid -19 pandemic; the debt protection metrics are expected to improve in FY22 and FY23 due to an improvement in consumption demand.

The reaffirmation of BWR A- of Mohit Minerals Limited (MML ) for the bank loan facilities is due to its reasonable scale of operations and capital structure over the years. The ratings assigned to MML’s bank facilities continue to derive strength from its experienced promoters and long track record of operations with an established presence in the imported coal trading business. The ratings also derive comfort from MML’s reasonable scale of operations, established coal sourcing arrangement and geographical diversification with long-standing relations with customers, coupled with a strong capital structure and low gearing position, and a reasonable cash conversion cycle; however, it continues to remain constrained by the risk associated with the volatility in coal prices and foreign exchange rate fluctuations, exposure to the weak credit quality of its customers, the susceptibility of imported coal trading volumes to the availability of domestic coal and inherent risks associated with trading businesses. 

KEY RATING DRIVERS

Credit Strengths:

• Experienced promoters and long track record of operations of the group in coal trading business: :

  MML, which was started as a family business in 1992, has exhibited good growth over the last nearly three decades under the guidance of its promoters. Mr. Chandan Bhushan, the promoter director, has vast experience in the coal trading business.

• Established coal sourcing arrangement: :

  The company has developed strong relations with miners through professional consultants in Indonesia and South Africa for the procurement of imported coal, which has led to the timely delivery of the same for many years in the past. The company also purchases on a high seas basis. While direct import constitutes 36.36% of the total procurement, the balance procurement is by way of high seas purchases and the cash and carry mode. In quantitative terms, the company sold 2834273.0 MT coal in FY21, compared with 3367686.0 MT in FY20.

• Geographical diversification and long-standing relations with customers: :

  There is no geographical concentration risk as the company supplies coal across India. The company has developed relations with customers across various user industries, including power, ceramic, textile, cement and pharmaceutical. Revenue is not overdependent on any specific sector. The company has established long-standing relations with customers; however, there is customer concentration risk as the major sales was to two reputed customers before FY21, but the top ten customers have covered less than 50% of the sales in the past and in FY21.

• Reasonable scale of operations :

  The company achieved a total operating income of Rs 1147 Cr in FY21, compared with Rs 1625 Crs in FY20 due to degrowth in volumes (15.83% y-o-y) coupled with decline in the price realization by 16.12% because of the slowdown in demand from power due to the Covid-19 pandemic. The company, however, clocked in sales of Rs 1276.37 Crs until 31 December 2021, and thus, a projected topline of Rs 1510 Cr seems to be achievable.

• Low gearing and strong capital structure: :

  The company’s capital structure is strong; the tangible net worth (TNW) stood at Rs 317.06 Crs as on 31 March 2021, as compared to Rs 288.96 Crs as on 31 March 2020. The company’s gearing is low, as indicated by a total debt/TNW of 0.16x.

Credit Risks:

• Thin profitability margins: :

  The operating profit margins are moderate, led by the trading nature of the business. The operating profit (EBITDA) margins declined to 4.20% in FY21 as against 4.80% in FY20. The Profit after Tax margin also remained low, while it improved to 2.44% in FY21, compared to 2.16 % in FY20. However, the company has been able to sustain the operating profit margin above 4%, on average, for the last three fiscal years because of high volumes.

• Commodity price risk :

  The company does not have back-to-back transactions to mitigate commodity price risk. The company’s business model is to procure, store and sell. Any adverse movement in the price of coal may affect the profitability. However, commodity risk is mitigated to some extent because of the long track record of the company’s promoters and their long-term relations with a diverse customer base. Additionally, since there is no long-term contract with buyers; this exposes the company to volatility in raw material prices

• Exposure to foreign exchange fluctuation :

  The company has exposure to currency risk due to volatility in the forex market and the appreciation in the dollar compared to the rupee; full imports are still not being hedged, which resulted in forex losses and put a strain on the profitability margins. However, 50% of forex risk is hedged, and the company passes on the increase in the cost of hedging to customers.

• Industry risk and intense competition :

  The company majorly deals in imported coal. The import of commodities is regulated by government guidelines. Any adverse government guidelines may impact the availability of imported coal, which may in turn negatively impact the company’s business. The industry is characterized by high competition due to a large number of players, both small and big, present in the market owing to low entry barriers. Additionally, the commoditized nature of the coal industry restricts the pricing power of industry players. The procurement of coal is a key concern as currently the company depends on import, and not domestic sources; there is overreliance on import sources.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology on a standalone basis, as detailed in the Rating Criteria below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive: BWR may revise the ratings upward if there is an improvement in the scale of operations on a sustained basis with an increase in the proportion of good credit quality customers, along with the company establishing a track record of no major write-off of bad debt, coupled with an improvement in profitability margins, marked by an EBITDA margin of above 7% on a sustained basis, along with the TOL/TNW below 1 x. 

Negative: BWR may revise the ratings downward if there is decline in the scale of operations , decline in the profitability margins marked by an EBITDA margin of less than 3% on a sustained basis, a deterioration in the capital structure marked by the overall gearing beyond 1.50x, along with a significant write-off of debtors or an increase in debtors.

LIQUIDITY INDICATORS - Strong

The company’s liquidity position is strong, as indicated by the current ratio of 2.10x in FY21. Working capital utilization is around 18% for seven months ending February  2022 for fund-based and 82% for non-fund-based limits, which shows that there is sufficient headroom for the utilization of limits. In FY21, the company had cash accruals of Rs 39.32 Crs, against a repayment of Rs 0.57 Crs. In FY22, the cash accruals are expected to be around 55.25 Crs against the repayment of Rs 0.61 Crs, as per management projections shared by the company.

ABOUT THE ENTITY

The company is engaged in the import and trading of non-coking steam coal. It was established as a proprietorship concern named M/s. Mohit Minerals in 1992 with proprietor Shri Chander Bhushan Bajaj. Mohit Minerals Pvt Limited was incorporated in 2004 by way of taking over the entire assets and liabilities of erstwhile proprietorship firm M/S Mohit Minerals. It was converted into a limited company in FY18. The company is based in Delhi. Mr. Chander Bhushan Bajaj and Mrs Suman Bajaj are the company’s directors. The promoters have over 25 years of experience in coal trading activities.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	1146.83	1625.07
EBITDA	Rs.Crs.	48.19	79.25
PAT	Rs.Crs.	28.00	35.09
Tangible Net Worth	Rs.Crs.	317.06	288.96
Total Debt/Tangible Net Worth	Times	0.16	0.23
Current Ratio	Times	2.14	2.09

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	50.00	BWR A-/Negative to Stable (Reaffirmation)	NA	NA	23Dec2020	BWR A-Negative (Reaffirmation)	29Nov2019	BWR A-Stable (Reaffirmation)
Non Fund Based	ST	100.00	BWR A2+ (Reaffirmation)	NA	NA	23Dec2020	BWR A2+ (Reaffirmation)	29Nov2019	BWR A2+ (Reaffirmation)
Grand Total		150.00	(Rupees One Hundred Fifty Crores 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

• General Criteria
• Approach to Financial Ratios
• Trading Entities
• Short Term Debt

Analytical Contacts
Karan Ahluwalia Senior Rating Analyst Board : +91 11 2341 2232 karan.a@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@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	Canara Bank	Cash Credit - Sanctioned	10.00	_	10.00
2	Canara Bank	Letter of Credit - Sanctioned	_	10.00	10.00
3	Central Bank of India	Letter of Credit - Sanctioned	_	35.00	35.00
4	Central Bank of India	Cash Credit - Sanctioned	15.00	_	15.00
5	Punjab National Bank	Cash Credit - Sanctioned	25.00	_	25.00
6	Punjab National Bank	Letter of Credit - Sanctioned	_	55.00	55.00
Total			50.00	100.00	150.00
TOTAL (Rupees One Hundred Fifty Crores Only)