NBM Iron and Steel Trading Pvt Ltd.

Brickwork Ratings reaffirms the ratings for the enhanced Bank Loan Facilities of Rs. 120.36 Crs. of NBM Iron and Steel Trading Pvt Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (07 Oct 2021)	Present
Fund Based	(15.45)	(17.70)	Long Term	BWR BBB- /Stable Reaffirmation	BWR BBB - /Stable Reaffirmation
Non Fund Based	105.00	120.36	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Non Fund Based	(0.00)	(118.00)	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
Grand Total	105.00	120.36	(Rupees One Hundred Twenty Crores and Thirty Six lakhs 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

RATINGS: BWR BBB-/Stable/ BWR A3 (Reaffirmed)

The reaffirmation of ratings for enhanced bank loan facilities of NBM Iron and Steel Trading Pvt Ltd takes into account experienced and resourceful promoters, presence of the Company at Alang which is one of the largest ship breaking yards of the country, and NBM having various certifications for Green Recycling and its adequate financial risk profile along with adequate liquidity position.

The ratings are, however, continue to remain constrained by susceptibility of its profitability to adverse movement in steel scrap prices and foreign exchange rates along with its exposure to regulatory and environmental hazard risk and cyclicality associated with ship breaking industry . The ratings also take into account that the Company is exposed to intense competition from players operating in and around Alang, along with international competitors.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that NBM’s business risk profile will be maintained over the medium term.

KEY RATING DRIVERS

Credit Strengths:

Extensive experience of promoters :
Mr. Nazir H. Kaliwala,the key promoter, possesses experience of over three decades in the ship-breaking industry. The Company originally incorporated in 1997 as Hussain Sheth Ship Breakers Private Limited has been successfully able to operate its business through various industry cycles. The established presence and long-standing relationships with various stakeholders across the value chain have supported the performance across the industry cycles. The promoters are well versed with the price dynamics of the ship-breaking industry which helps in buying ships at competitive rates depending on the prevailing market scenario. Further, the promoters have, on a need basis, infused funds in the form of unsecured loans/capital to support business operations.
Locational Advantage :
NBM is located in Alang – Sosiya Ship Breaking yard, world’s largest shipbreaking yard which ensures easy availability of ship, labour and infrastructure.
NK Class and various other certification for Green Recycling :
NBM possesses certifications from Nippon Kaiji Kyokai (NK) which certifies the operations of the ship-breaking yards from the environmental and worker safety points of view, including secure management of hazardous waste generated from the ship-breaking activities. These certifications give NBM an advantage to source ships at marginally better prices compared with market rates.
Optimal management of LC maturity :
NBM procures ships against a letter of credit(LC) facility. FD balances are persistently built up from the first month of dismantling activities, ensuring adequate liquidity to service the maturing LC debt.
Adequate financial Risk profile :
TNW of the company is Rs. 23.42 Crs in FY21. The company has no long-term debt which provides it with some financial flexibility. The capital structure remained improved marked by Total debt/TNW of 0.19times in FY21 compared to 0.96times in FY20 along with comfortable interest and debt coverage indicators-ISCR at 1.79 times (PY- 1.54 times). Net cash accrual for FY21 was around 3.72 CRs and the expected NCA for the next two years is around 4-6 Crs which should be sufficient in the absence of any term loan obligation.

Credit Risks:

Cyclical nature of ship breaking industry :
The ship breaking industry is cyclical in nature as ship procurement depends on the current trends in the ship breaking industry and the international economic situation, which affect its revenues and thus the profit margins. Further, the company is also exposed to regulatory risks pertaining to environmental and human right-related issues
Susceptibility of its profitability to adverse movement in steel scrap prices and foreign exchange rates :
On purchase of ship, NBM is required to immediately pay the entire purchase value of the ship by availing LC limit from the bank whereas its sales happen over a period of time. Accordingly, it is exposed to the volatility in steel prices driven by demand and supply conditions in the global as well as local markets. Any adverse price movement for the uncut ship inventory as well as unsold inventory of steel scrap held by the Company can impact its profitability. Further, it is exposed to forex risk during LC usance period. The revenue and profitability are also exposed to intense competition from numerous
players operating in Alang, apart from competition from players in Bangladesh and Pakistan.

ANALYTICAL APPROACH - Standalone

Analytical Approach: Standalone

While assigning the Ratings, BWR has applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive:

Substantial growth in scale along with adequate profit margins

Infusion of funds, effective working capital management- Strengthening of financial risk profile

Negative:

Significant decline in revenue or profitability

Withdrawal of capital/ deterioration in capital structure

LIQUIDITY INDICATORS - Adequate

The company largely requires non-fund-based working capital limit in the form of Letter of Credit for the sole purpose of purchasing the ships for ship breaking activity. The tenure for the same depends upon the size of the ships which ranges from anywhere between 90-300 days. With the ongoing ship-breaking activity it needs to build up FD with its LC banker as per the given schedule by the bank. These FDs are lien marked against the LC obligation. This mechanism ensures gradual buildup of reserve funds to meet the LC obligations on maturity date. The company has to keep an upfront minimum 15% as LC margin. Due to large inventory as the ship breaking process takes 3-10 months, the company has sizeable working capital requirements. Further, it requires fund-based working capital limit to pay upfront customs duty & GST on ship price which is usually squared up within 1-2 weeks of commencement of ship breaking activity. NBM has a sanctioned LC limit of Rs. 118 Crs and 15% of Non fund base limit as CC limit (sublimit of LC) . The average working capital utilization was moderate at around 70% for past 12 months. It does not have any term debt repayment obligations which provides it with some financial flexibility.

ABOUT THE ENTITY

NBM Iron & Steel Trading Private Limited was originally incorporated in August 1997 as Hussain Sheth Ship Breakers Private Limited, in Bhavnagar. After temporarily suspending ship-breaking activities, the company was renamed as NBM Iron and Steel Trading Private Limited in 2005 and resumed ship-breaking activities in 2009. The Company is managed by Mr. Nazir H. Kaliwala.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	151.16	167.46
EBITDA	Rs.Crs.	9.27	5.51
PAT	Rs.Crs.	3.39	2.10
Tangible Net Worth	Rs.Crs.	23.42	19.98
Total Debt/Tangible Net Worth	Times	0.19	0.96
Current Ratio	Times	1.30	1.38

KEY COVENANTS OF THE FACILITY RATED

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

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	NA	NA	NA	NA	NA	NA	03Jul2019	BWR BB+ Stable (Upgrade)
		NA	NA	NA	NA	NA	NA	11Dec2019	BWR BB+ Stable (Withdrawal)
FB SubLimit	LT	(17.70)	BWR BBB-/Stable (Reaffirmation)	07Oct2021	BWR BBB- Stable (Reaffirmation)	26Aug2020	BWR BBB- Stable (Upgrade)	11Dec2019	BWR BB+Stable (Reaffirmation)
Non Fund Based	ST	120.36	BWR A3 (Reaffirmation)	07Oct2021	BWR A3 (Reaffirmation)	26Aug2020	BWR A3 (Upgrade)	03Jul2019	BWR A4+ (Upgrade)
		NA	NA	NA	NA	NA	NA	11Dec2019	BWR A4+ (Reaffirmation)
NFB SubLimit	ST	(118.00)	BWR A3 (Reaffirmation)	NA	NA	NA	NA	NA	NA
Grand Total		120.36	(Rupees One Hundred Twenty Crores and Thirty Six lakhs 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

Analytical Contacts
Priya Depala Senior Rating Analyst priya.d@brickworkratings.com	Vidya Shankar Principal Director - Ratings Board : +91 80 4040 9940 vidyashankar@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

NBM Iron and Steel Trading Pvt Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

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)	Letter of Credit - Sanctioned	_	118.00	118.00
	Sub-Limit (Cash Credit) - Sanctioned	(17.70)
	Sub-Limit (SBLC Limit) - Sanctioned		(118.00)
2	State Bank Of India (SBI)	Credit Exposure Limit (CEL) - Sanctioned	_	2.36	2.36
Total			0.00	120.36	120.36
TOTAL (Rupees One Hundred Twenty Crores and Thirty Six lakhs Only)

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