Madhav Alloys Private Limited

Transcription

1 Madhav Alloys Private Limited Ratings Facilities Amount (Rs. crore) Long-term Bank Facilities Short-term Bank Facilities 70 Ratings1 CARE A- [Single A Minus] CARE A2+ [A Two Plus] Remarks Revised from CARE BBB+ [Triple B Plus] Revised from CARE A2 [A Two] Total Bank Facilities (Rupees one hundred and fifty one crore and eighty four lakh only) Rating Rationale The revision in the ratings assigned to the bank facilities of Madhav Alloys Private Limited (MAPL) takes into account the improved financial performance of the company in FY16 (refers to the period April 01 to March 31) characterized by steady scale-up of operations, improved profitability margins and improvement in the overall solvency position. The ratings continue to derive strength from the experience and resourcefulness of the promoters, long track record of MAPL s operations and its comfortable working capital cycle. The ratings, however, are constrained by the susceptibility of profitability margins to raw material price fluctuation & foreign exchange risk and risks associated with the inherent cyclicality in the steel industry. Going forward, the ability of the company to profitably scale up it s the operations with improvement in overall solvency position and efficient management of working capital requirements will remain the key rating sensitivities. Background Madhav Alloys Pvt Ltd (MAPL) was incorporated by Mr Dev Dutt Goyal in June The company is engaged in the manufacturing of TMT (Thermo Mechanically Treated) bars and structural steel products such as MS angles, MS channels & MS Beams. The company has a total of three units, two situated at Mandi Gobindgarh, Punjab; one of which is leased from MAPL s group concern Madhav Stelco, while the other is owned and a third unit located at Akalgarh, Patiala. The manufacturing facilities have a total installed capacity of 1,20,000 Metric Tonnes Per Annum (MTPA) for structural steel products; 3,10,000 MTPA for TMT bars and 2,40,000 MTPA for billets and blooms. The billets and blooms manufactured at Akalgarh plant are primarily used for captive consumption. MAPL sells its products to corporate clients as well as through channel sales under the brand name of Jyoti which is owned by another promoter owned company, Madhav Udyog Pvt. Ltd (MUPL). Credit Risk Assessment Improvement in overall financial risk profile The total operating income of MAPL grew by about 7% in FY16 y-o-y. A new TMT bars unit was installed in FY15, the operations of which stabilised towards the end of the year. However, full benefits of the resultant enhanced production capacities and operational integration (with the billets/ blooms plant) were witnessed in FY16. This coupled with increase in the demand witnessed during FY16 led to an increase in the total operating income. Post stabilisation of operations at the new TMT unit, the operations of the company achieved high level of forward integration with the billets and blooms manufactured in-house being primarily used in-house to further manufacture TMT bars. This resulted in a higher proportion of income from sale of TMT bars which has more value addition and therefore better realisations & profitability margins as compared to billets/ blooms being directly sold earlier. The new unit was also in line with the latest technology which also led to improved production and cost optimisation. Owing to this, the PBILDT and PAT margins of the company improved considerably from 3.99% and 0.40% respectively in FY15 to 6.74% and 2.82% respectively in FY16. The capital structure of the company continued to remain comfortable and improved further with long-term debt-to-equity ratio and overall gearing improving from 0.57x and 0.84x respectively, as on March 31, 2015 respectively to 0.37x and 0.54x respectively, as on March 31, This was primarily due to the healthy accretion of profits to the networth. The debt coverage indicators like the total debt to GCA ratio and interest coverage ratio also improved to 1.89x as on March 31, 2016 and 5.68x in FY16, respectively from 5.67x, as on March 31, 2015 and 2.17x in FY15, respectively. The liquidity position of the company also remained comfortable with the operating cycle at a comfortable 19 days (PY: about 15 days) as on March 31, 2016 and average monthly utilization of the working capital limits at about 24% for the 12 month period ended July, In Q1FY17 (Provisional) MAPL achieved a total operating income of Rs crore with a PBILDT margin of 6.37%. Experienced and resourceful promoters Since its incorporation in 2003, MAPL was promoted by Mr Dev Dutt Goyal, who has an experience of more than 26 years in the iron and steel industry. The company is currently being managed by its 4 directors, Mr Sanjeev Goyal, Mr Sudhir Goyal, Mr 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 Munish Goyal and Mrs Minu Goyal. The directors of the company have more than a decade, each, of experience in the iron and steel industry. The promoters of the company are resourceful and have infused funds on regular basis to meet various business requirements. The promoters infused additional funds of Rs.0.80 crore in FY16, taking the total unsecured loans to Rs crore, as on March 31, An additional Rs.0.16 crore was also infused in FY16 in the form of equity capital. Exposure to raw material price volatilities and forex fluctuation risk Although MAPL has been able to integrate its operations to a considerable extent subsequent to the commissioning of the new TMT bars unit, it has to necessarily procure some amount of MS Billet and Blooms from approved suppliers like Steel Authority of India Ltd (SAIL) etc. to manufacture certain structural steel products. There is no long term contract for procurement of any of the raw material and company sources the same on need basis. During FY16, raw material cost contributed about 72% of the total sales, thus any volatility in the prices of the same shall impact the profitability of the company. Major raw material for the induction furnace is iron and steel scrap, which the company mostly imports from Middle East, South Africa and the remaining from the local vendors. The imported raw material cost comprised of around 42% of the total raw material purchased during FY16. To counter the dollar fluctuations, the company employs hedging mechanisms where the company hedges around 33% of the import and rest is kept open which also makes the profitability margins of MAPL susceptible to adverse changes in exchange rates. Cyclicality inherent in the steel industry The steel industry is sensitive to the shifting business cycles, including changes in the general economy, interest rates and seasonal changes in the demand and supply conditions in the market. Apart from the demand side fluctuations, the highly capital intensive nature of steel projects along-with the inordinate delays in the completion hinders the responsiveness of supply side to demand movements. This results in several steel projects bunching-up and coming on stream simultaneously leading to demand supply mismatch. Furthermore, the value addition in the steel construction materials like TMT bars, MS angles and channels, etc. is also low, resulting into low product differentiation in the market. The producers of steel construction materials are essentially price-takers in the market, which directly exposes their cash flows and profitability to volatility in the steel prices. Prospects Currently, the domestic steel industry is suffering from subdued demand and sharp decline in steel prices. Several steps have been taken by the Indian Government like imposing of MIP (minimum import prices) to protect domestic players from the onslaught of imports from China, Japan, South Korea, etc. These moves are expected to reduce imports and stabilize steel prices thereby improving realizations and hence profitability for the domestic steel manufacturers. Financial Performance (Rs. Cr) For Y.E./ as on March 31, m, A 12m, A 12m, A Working Results Net Sales Income from Operations PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity Share Capital Net Worth* Total capital employed Key Ratios Growth (%) Growth in total income (%) Growth in PAT (after D.Tax) (%) Profitability (%) PBILDT / Total OI APAT / Total OI ROCE RONW

3 For Y.E./ as on March 31, m, A 12m, A 12m, A Solvency(times) Debt Equity Ratio Overall Gearing PBILDT/Interest PBIT/Interest Term Debt/GCA Total Debt/GCA Liquidity (times) Current ratio Quick ratio Avg. Collection Period (days) Avg. Inventory (days) Avg. Creditors (days) Op. cycle (days) * Unsecured loans aggregating Rs crore are subordinated to the bank facilities and are hence treated as a part of the networth of the company, as on March 21, 2014, March 31, 2015 and March 31, 2016 A Audited Details of Rated Facilities Long-term facilities 1.A Rupee Term Loan Lender Rated Amount (Rs. Crore) 1. State Bank of India Oriental Bank of Commerce Total Rupee Term Loan B Working Capital Limits (Rs. Cr) Name of Bank Fund-based Limits CC* Others Total Fund-based Limits 1. State Bank of India Oriental Bank of Commerce TOTAL * CC=Cash Credit Short-term facilities 2.A Non-fund-based limits Name of Bank (Rs. Cr) Non-fund-based Limits LCs Others Tenure as per sanction letter 1. State Bank of India 35 - Usance period of days 2. Oriental Bank of Commerce 35 - Usance period of days Total 70 - *LC=Letter of credit Total facilities rated Rs crore Analyst Contact Name: Mr Sudeep Sanwal Cell: sudeep.sanwal@careratings.com (This follows our brief rationale for entity published on 10 October, 2016) 3

4 Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 4

5 CONTACT Head Office Mumbai Mr. Amod Khanorkar Mobile: amod.khanorkar@careratings.com Mr. Saikat Roy Mobile: saikat.roy@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Website: REGIONAL OFFICE AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bengaluru Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal SCF No , First Floor, Phase 11, Sector 65, Mohali sajan.goyal@careratings.com Tel: /02 CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: ramesh.bob@careratings.com JAIPUR Mr. Nikhil Soni 304, PashupatiAkshatHeights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: ; Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: ; Tel: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: pratim.banerjee@careratings.com CIN - L67190MH1993PLC