TMT Steels Private Limited

Transcription

1 Ratings TMT Steels Private Limited Facilities Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities 5 CARE BB- (Double B Minus) Assigned Short-term Bank Facilities 5 CARE A4 (A Four) Assigned Total Facilities 10 Rating Rationale The ratings of TMT Steels Private Limited (TSPL) are constrained by relatively small scale of operation, trading nature of business with thin profitability margins, working capital-intensive nature of business, susceptibility to price fluctuation risk, leveraged capital structure and intense competition in the industry. The ratings are, however, underpinned by satisfactory experience of the promoters, reputed suppliers and effective operating cycle management. The ability of the company to increase its scale of operation with improvement in profitability and cash accruals and manage the working capital efficiently are the key rating sensitivities. Background Incorporated in April 2005, TSPL has been promoted by Mr Duvvuru Vijaya Kumar Reddy. The company is engaged in steel trading and has been operating the trading activities in Nellore and Bangalore. It majorly deals in steel products of Rashtriya Ispat Nigam Limited (RINL), Steel Exchange India Limited (SEIL). The company is also the sole distributor for Simhadri TMT brand of TMT bars of SEIL for Coastal and Rayalaseema districts of Andhra Pradesh and for Bangalore (Karnataka). Credit Risk Assessment Satisfactory experience of promoters The promoter of TSPL, Mr Vijaya Kumar Reddy has been present in the steel trading business for more than a decade and has been operating as a trader of steel and allied products of RINL and SEIL in Nellore, Chittoor and Bangalore since a long period of time. He looks after the financial administration and trading business of the company from Vishakapatnam. He is supported by the other directors Mrs Duvuru Rekha Reddy and Mr Duvuru Abhishek Reddy. The long established presence of the promoter in the steel trading business has enabled the company to become sole supplier for steel products of SEIL in the coastal and rayalseema region of A.P. Relatively moderate scale of operation The company has been present in steel trading industry for almost a decade but still has relatively small scale of operations with turnover of Rs.47 crore Rs.125 crore in last three years with a small networth base of Rs.2.03 crore as on March 31, The company deals only in the domestic market and is dependent on the supplies from two of its major suppliers; RINL and SEIL which restricts the business growth and subjects the business to risk associated with change in business plan of the said two player. Reputed suppliers and dealer distributor network The company procures majority of the steel products from reputed companies like RINL and SEIL. Furthermore, TSPL is the sole distributor of Simhadri TMT brand of TMT bars of SEIL for Coastal and Rayalaseema distrcts of A.P and also for Bangalore (Karnataka). It operates through a dealer distributor network and has 29 delaers in Prakasam, Nellore and Chittoor districts of Andhra Pradesh. Given the high dependence on products of SEIL, TSPL supplies the products from its stockyard at Malliveedu, Vizianagaram (nearer to SEIL s plant facilities). The major clients for the company are the steel players located in South India. The top eight clients of the company contributed about 91% to the total income in FY14 (refers to the period April 01 to March 31). Susceptibility to price fluctuation risk TSPL is engaged in trading of various steel products like M.S. plates, M.S. angles, channels, beams, TMT bars, M.S. rounds, billets, bloom and other long steel products. Prices of steel products are very volatile in nature which are driven by the global prices and are also dominated by the demand supply scenario prevailing on a particular day. Hence, any adverse fluctuation in the prices can adversely affect the profitability margins of the company, which already remain low due to the trading nature of operations. 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 Trading nature of business with thin profitability margins Total operating income witnessed CAGR of 63.4% during FY12-FY14 with substantial y-o-y growth of 122% in FY14 over FY13. The increase in scale of operation has been backed by increased sales volume with gradual revival of the steel industry which has resulted in increased demand in the region. However, the PBILDT margin remains significantly low given the low value additive trading nature of the business, lower bargaining power with the major suppliers and intense market competition which restricts the ability to pass on hike in the input prices. Lower PBILDT level and margin coupled with relatively higher interest cost (on working-capital borrowings) has led to low PAT level and margin in the last three years. Leveraged capital structure The overall debt profile of the company majorly constitutes working capital borrowings only. Given the significant growth in the scale of operation, the working capital borrowings and utilizations have increased over the years which coupled with relatively low profit levels have resulted in leveraged capital structure with overall gearing ratio of 1.47x as on March 31, The other debt coverage indicators, viz, interest coverage remain satisfactory; while the total debt/gca remains on the higher side in view of lower profit reported. Effective operating cycle management TSPL operates in a working capital-intensive industry and generally trading business has been associated with high working capital requirements. However, the company experiences relatively low operating cycle majorly led by effective inventory management. The company on an average holds 1-2 weeks of inventory and also has modest collection period with sales realized with a period of days. The creditors days have been on the lower side as the company purchases majorly on cash basis. The average working capital limit utilization of the company has been 77.06% in the last 12 months ended September Fragmented nature of steel trading industry leading to Intense competition The steel trading industry is characterized by low entry barriers due to minimal capital required and easy availability of technology which has resulted in proliferation of large number of small and large traders spread across the country. Highly fragmented nature of the industry has resulted in intense competition within the industry resulting in very thin profit margins. Prospects The ability of the company to expand the supplier base with gradual reduction in dependence on few clients for business and thereby expand the scale of operation would drive the future growth prospects Financial Performance (Rs. Cr) For the period ended / as at March 31, (12m, A) (12m, A) (12m, A) Working Results Net Sales Income from Continuing Operations PBILDT Interest Depreciation PBT PAT (After def Tax) Gross Cash Accruals Financial Position Equity Share capital Net Worth Total Capital Employed Key Ratios Profitability (%) Growth 2

3 Growth in Total income (%) Growth in PAT (after D.Tax) (%) Profitability PBILDT / Total OI APAT / Total OI ROCE Average cost of borrowing Solvency(times) Debt Equity Ratio Overall Gearing Total Outside Liabilities to Net worth Interest coverage (Times) Term Debt/Gross Cash Accruals (years) Total Debt/Gross Cash Accruals (years) Liquidity (times) Current ratio Quick ratio Turnover Avg. Collection Period (days) Avg. Inventory (days) Avg. Creditors (days) Op. cycle (days) Details of Rated Facilities 1. Long-term Bank Facilities (Rs. crore) 1.A. Fund-based Limits Sr. No. Name of Bank Fund-based Limits Cash credit Others Total Fund-based Limits 1 State Bank of Patiala 5 Nil 5 TOTAL 5 5 Total Long-term Bank Facilities (1.A.): Rs. 5 crore 2.Short-term Bank Facilities (Rs. crore) 2.A. Non-fund-Based Limits Sr. No. Name of Bank Non-fund-Based Limits Letter of Credit Others Tenure 1 State Bank of Patiala 5 Nil 3 months TOTAL 5 Total Bank Facilities (2.A.): Rs.5 crore Total Bank Facilities (1+2): Rs.10 crore Analyst Contact Name: Puja Jalan Tel: puja.jalan@careratings.com (This follows our brief rational for entity published on 09 January 2015) 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. D.R. Dogra Mr. Rajesh Mokashi Managing Director Dy. Managing Director Mobile: Mobile: Ms. Meenal Sikchi Mr. Ankur Sachdeva Vice President - Bank Loan & Instrument Rating Vice President - Bank Loan & Financial Services Mobile: Mobile: meenal.sikchi@carerating.com ankur.sachdeva@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 Other Office: 503, Kaledonia, Sahar Road, Near Andheri Railway Station, Andheri (E), Mumbai Tel: Fax: 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, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com 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 HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Tel: saikat.roy@careratings.com JAIPUR Mr. Harsh Raj Sankhla 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 harshraj.sankhla@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. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC