Brickwork Ratings removes from the Issuer Non-Cooperating category and reaffirms the ratings for the Bank Loan Facilities of Rs. 65.72 Crs. of Shanti Gopal Concast Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (07 May 2021) |
Present | ||
| Fund Based | 39.06 | 44.83 | Long Term |
BWR BBB- (Stable) (Issuer did not Cooperate. Based on the best available information)
Reaffirmation |
BWR BBB -
/Stable Reaffirmation |
| Non Fund Based | 20.89 | 20.89 | Long Term |
BWR BBB- (Stable) (Issuer did not Cooperate. Based on the best available information)
Reaffirmation |
BWR BBB -
/Stable Reaffirmation |
| Grand Total | 59.95 | 65.72 | (Rupees Sixty Five Crores and Seventy Two lakhs Only) | ||
Reaffirmation in the ratings of Shanti Gopal Concast Ltd. ( SGCL or ‘the company’) factors in growth in revenues, improvement in the production capacity utilisation, comfortable gearing and debt coverage metrics. Overall liquidity in the company is adequate with sufficient cash accruals to support debt obligations, comfortable NWC and cash balances.
Going forward, BWR expects revenues, production capacity utilisation and profit margins to improve along the projected lines. As the company has not proposed any debt funded capex or any other additional term debt facility, overall gearing is expected to improve with the maturity of existing term debt. Debt coverage DSCR and ISCR and overall liquidity in the company are expected to remain at moderate levels during FY22 and FY23. The rating is, however, constrained by low profit margins, cyclicity in industry, volatility in input prices and customer concentration risks.Outlook: Stable
BWR believes that Shanti Gopal Concast Ltd.'s business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. KEY RATING DRIVERSCredit Strengths:
Sponge iron is supplied to buyers located in Muzaffarnagar and Ghaziabad in UP and Kashipur, Kotdwar and Roorkee in Uttarakhand. Steel billets are supplied to buyers located in Bhiwandi in Rajasthan and Ghaziabad and Chunar in UP.
Gearing as indicated by Total Debt/TNW and TOL/TNW has improved from 1.74x and 2.45x respectively in FY19 to 1.56x and 1.90x respectively in FY20. On a provisional basis, gearing indicators are 1.86x and 2.28x respectively during FY21.
Debt coverage as indicated by DSCR and ISCR have been at 1.10x and 1.61x respectively during FY20. Decline in debt coverage profile during FY20 was on account of lower profits whereas borrowing expenses and debt obligations remained firm. However, the same marginally improved to 1.21x and 1.90x respectively during FY21 (Prov.).
Against installed capacity of 1,20,000 MT for Sponge Iron and 70,800 MT for Billets, capacity utilisation for Sponge Iron during FY20 and FY21 has been 45% and 55% respectively. Capacity utilisation for Steel Billets has been 18% and 28% respectively.
Operating revenues of the company have improved from Rs.122 crs in FY20 to Rs.182 crs in FY21 (Prov.) on account of better demand for steel products. On a provisional basis, the company has generated revenues of Rs.76 crs during Q1FY22 and has work orders of Rs.17.25 crs for next 15 days and the revenues of the company are expected to grow along the projected lines.
Credit Risks:
Steel industry is cyclical in nature and depends heavily on key industries such as Infrastructure, Real Estate and Automobiles for growth. Economic slowdown, shortage of public spending, cheaper imports, volatility in global steel prices and demand are the few factors that have high bearing on the performance of the industry.
Finished goods prices are highly susceptible to prices of key inputs such as iron ore, coal and coke. High competition and low bargaining buyers of the players makes it challenging for the manufacturers to pass on the increase in input prices to the end users, thereby impacting the profitability margins of the companies.
Due to the volatile steel industry and inherent nature of the business, operating profit margin and net profit margin are thin. OPM and NPM during FY20 are 7.89% and 0.35% respectively and during FY21 (Prov.) are 6.55% and 1.21% respectively.
Two major customers have accounted for approx. 50% of the revenues in FY20 and have resulted in customer concentration risks.
For arriving at its ratings, BWR has applied its rating methodology on a standalone basis as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Upward :Substantial and sustainable improvement in scale of operations, operating margins, and debt coverage indicators would support upward rating action.
Downward: Decline in revenues, operating margins, debt coverage indicators and overall liquidity in the company would attract adverse rating action.
LIQUIDITY INDICATORS - Adequate
Liquidity in the company is adequate as indicated by cash accruals, debt coverage ratios, NWC and cash balances. During FY21, the company has generated cash accruals of Rs.7.40 crs against term debt obligations of Rs.5 crs. Debt coverage DSCR and interest coverage ISCR are comfortable at 1.21x and 1.90x respectively during FY21 (Prov.). NWC in the company has improved from Rs.20 crs in FY20 to Rs.57 crs in FY21 (Prov.) and is expected to remain at comfortable levels during FY22 and FY23. Cash and equivalents of Rs.12.32 crs in FY21 (Prov.) provide the liquidity buffer to the company to meet any mismatches. During FY21, promoters of the company have infused additional USL of Rs.25 crs and the company has availed 6M loan moratorium and COVID emergency funding of Rs.10.15 crs to meet liquidity mismatches during COVID 19 disruptions. USL of Rs.25 crs are proposed to be retained in the business at least during FY22 and FY23. The company has proposed to enhance the WC limits from current Rs.25 crs to Rs.35 crs to meet growing WC requirements on account of increase in overall scale in operations. Going forward, the company is expected to generate adequate cash accruals to meet regular term debt obligations. UPFC loans of Rs.12.50 crs coming up for repayment in FY22 are proposed to be met through liquidation of fixed deposits of Rs.8.58 crs, additional UPFC loan of Rs.2 crs and recovery of current assets of Rs.2 crs. Any shortage of funds in meeting the liabilities is proposed to be met through infusion of USL by the promoters.
ABOUT THE ENTITYShanti Gopal Concast Limited was incorporated in 2005. The company’s registered office and manufacturing facility is situated in Mirzapur, UP. Shri Ramesh Kumar Chaudhary and Shri Amit Chaudhary are the key promoters of the company. The company is engaged in manufacturing sponge iron and steel billets. The major raw material for the production process is iron ore, coal and pig iron. The total production capacity of the company is 1,20,000 MT of Sponge Iron and 70,800 MT Billet per annum.
| Key Parameters | Units |
FY 19-20 (Audited) |
FY 18-19 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 122.21 | 176.28 |
| EBITDA | Rs.Crs. | 9.64 | 11.87 |
| PAT | Rs.Crs. | 0.43 | 0.50 |
| Tangible Net Worth | Rs.Crs. | 53.11 | 51.94 |
| Total Debt/Tangible Net Worth | Times | 1.56 | 1.74 |
| Current Ratio | Times | 1.33 | 1.47 |
The terms of sanction include standard covenants normally stipulated for such facilities.
(1) CRISIL B (Stable)/A4 (INC) for Rs.71.40 crs as on 19 Oct 2020, (2) ICRA B (Stable)/A4 (INC) for Rs.42 crs as on 21 July 2020.
ANY OTHER INFORMATIONNIL
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2021) | 2021 (History) | 2020 | 2019 | 2018 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 44.83 |
BWR BBB-/Stable
(Reaffirmation) |
07May2021 |
BWR BBB- (Stable) (Issuer did not Cooperate. Based on the best available information)
(Reaffirmation) |
12Feb2020 |
BWR BBB- (Stable)
(Reaffirmation) |
13May2019 |
BWR BBB- (Stable)
(Upgrade) |
28Dec2018 |
BWR BB+ (Stable)
(Upgrade) |
| Non Fund Based | LT | 20.89 |
BWR BBB-/Stable
(Reaffirmation) |
07May2021 |
BWR BBB- (Stable) (Issuer did not Cooperate. Based on the best available information)
(Reaffirmation) |
12Feb2020 |
BWR BBB- (Stable)
(Assignment) |
NA |
NA
|
NA |
NA
|
| Non Fund Based | ST | NA |
NA
|
NA |
NA
|
12Feb2020 |
BWR A3
(Withdrawn) |
13May2019 |
BWR A3
(Upgrade) |
28Dec2018 |
BWR A4+
(Upgrade) |
| Grand Total | 65.72 | (Rupees Sixty Five Crores and Seventy Two 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 Criteria| Analytical Contacts | |
|---|---|
|
Saurabh Agarwal Assistant Manager - Ratings Board : +91 11 2341 2232 saurabh.a@brickworkratings.com |
Ashwini Mital Director - Ratings Board : +91 172 5032 295 / 6 ashwinimital@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 | Union Bank of India | Term LoanSanctioned | 10.93 | _ | 10.93 | |
| 2 | Union Bank of India | Cash CreditSanctioned | 25.00 | _ | 25.00 | |
| 3 | Union Bank of India | Bank GuaranteeSanctioned | 20.89 | _ | 20.89 | |
| 4 | Union Bank of India | CECLSanctioned | 1.25 | _ | 1.25 | |
| 5 | Union Bank of India | GECLSanctioned | 7.65 | _ | 7.65 | |
| Total | 65.72 | 0.00 | 65.72 | |||
| TOTAL (Rupees Sixty Five Crores and Seventy Two lakhs Only) | ||||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate (%) | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| N.A | 0 |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NIL |
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