Rating Rationale Shri Bajrang Power and Ispat Limited 5 Nov 2018 Brickwork Ratings downgrade the rating to BB+ ()/ A4+ for Bank loan facilities amounting to Rs. 953 Cr of Shri Bajrang Power and Ispat Limited (SBIPL) Particulars Brickwork Ratings () has downgraded the rating to BB+ ()/ A4+ from A- ()/A2+ for the bank loan facilities amounting to Rs. 953 Crs of Shri Bajrang Power and Ispat Limited ( SBPILor Company ). Facility Rated Amount (Rs. Crs) Tenure Rating * Previous Present Previous Present Fund Based Term Loan Cash Credit 452.65 325.00 408.00 325.00 Long Term Long Term A- BB+ Bills Discounting 50.00 50.00 Short Term A2+ A4+ Non-Fund Based Bank Guarantee/ Letter of Credit 170.00 170.00 Short Term A2+ A4+ Total Rs. 997.65 Crores Rs. 953 Crores (Rupees Nine Hundred Fifty Three Crores Only) ^ Please refer to website www.brickworkratings.com/ for definition of the ratings 1 5 Nov 2018
Rationale The rating revision takes into account deterioration in liquidity profile on account of significant long term equity investment in group Company and declaration by the Company mentioning delays in servicing of debt obligations in its draft red herring prospectus (DRHP) filed in September 2017. As per DRHP, this delayed were remedied before the financials statement were approved for issue. The ratings continues to factor in experience of the promoters in the iron and steel industry, established brand, strategic location of the plant being close to raw material sources & end user segment and satisfactory revenue growth profile. The ratings continues to remain constrained on account of presence in highly fragmented industry with challenging business environment, volatility in prices of raw materials and finished good, moderately leveraged capital structure and significant investment in group Company. Key rating strength Long Standing Experience and track record of the group in Iron & Steel industry SBPIL, promoted by Goel group of Raipur (Chhattisgarh), is an established player in the steel industry in the region. The promoters have over two decades of experience in the business of steel & related products and have an established brand name. The group entered into the steel industry in the year 1991 by setting up a Re-rolling mill in the name of Shri Bajrang Alloys Limited with an installed capacity of 30,000 MTPA. Integrated nature of operations along with captive iron ore and captive power plant SBPIL has three captive power plants of overall 56 MW across the three manufacturing unit which meet the entire of the company s power requirement. Financials risk profile: On account of higher realization and higher capacity utilization the company has reported increase in gross sales by ~ 16.2%. Operating profit margin has improved marginally on account of higher realization coupled with benefits of partially integrated nature of operations. Net profit was supported by higher other income resulting in increased in net profit margins. The Company has converted its short-term loan and advances extended to group company IA Hydro Energy Limited ( BB) into Equity Shares amounting to Rs. 220 Crs. As a result, current ratio and leverage level deteriorated as reflected from total debt/adjusted tangible net worth. Key rating weakness Significant Investment in-group Company and deteriorate current ratio Company has converted short-term loans and advances extended to IA Hydro Energy Private Limited into E. Capital amounting to Rs. 220 Cr. This amount in previous year was in the nature of short-term loan and advances. As a result, adjusted leverage level has deteriorated to 2.08 times from 1.63 times and current ratio has deteriorated from 1 times to 0.77 times. 2 5 Nov 2018
Intense competition from the unorganized sector The steel industry is characterized by high degree of fragmentation due to the presence of the large numbers of unorganized players. As a result, SBPIL faces intense competition from the organized as well as unorganized sector players Exposure to volatility in raw material prices The major raw material requires are iron ore, and coals. While the company has its own iron ore mines it has to depend on purchases from external sources to meet the requirement. For Coal the coal the company has tie up with South Eastern Coal Field Limited. Since the prices of majority of these products are volatile, any adverse movement in the prices without corresponding movement in finished good price might affect the performance of the company. Rating sensitivities: The ability of the Company to manage liquidity, maintain adequate capital structure, limit the exposure to the Group Company and timely repayment of debt obligation are the key rating sensitivities. Rating believes the Shri Bajrang Power and Ispat Limited s business risk profile will be maintained over the medium term. The outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures. About the Company SBPIL was incorporated in 2002 by Goel family based out of Raipur in Chattisgarh. SBPIL is engaged in manufacturing of intermediate products like sponge iron & billets and also value added products like TMT bars, HB wire etc. In the year 1991, the Group entered into the business of Iron & Steel with a Re-Rolling Mill in the name of Shri Bajrang Alloys Ltd., with an installed capacity of 30,000 MTPA. Since then, the group has gradually grown into an integrated steel player. SBPIL have successfully completed backward integration initiatives like setting up of iron ore beneficiation of ~10 lakh tonne and pellets 12 lakh tonne plant and expansion of sponge iron capacity to 150,000 MT power 16 MW. Financial Performance The Company has reported Total Operating Income of Rs. 1782.5 Cr and PAT of Rs. 79.89 Cr in FY18 against total operating income of Rs. 1398.18 Cr and PAT of Rs. 31.12 Cr in FY17. Total debt stood at Rs. 741.16 Cr as on March 2018. 3 5 Nov 2018
Key Parameters 2017 2018 Units Result Type Audited Audited Total Operating Income Cr 1398.18 1,782.54 EBITDA Cr 213.30 275.00 PAT (Loss) Cr 31.12 79.89 Tangible Net worth Cr 499.15 356.02 Total Debt/Tangible Net worth Times 1.62 2.08 Current Ratio Times 1.00 o.77 Rating History for the last three years Current Rating Rating History Sr.N o Instrument/Facility Type Amt Rating 2017 2016 2015 1 FB- Term Loan FB- Cash Credit FB- Bill Discounting LT LT ST 408.00 325.00 50.00 BB+ A4+ 2 NFB- Bank Guarantee/Letter of Credit LT/ST 170.00 A4+ Assigned Status of non-cooperation with previous CRA: NA Hyperlink/Reference to applicable Criteria 4 5 Nov 2018
General Criteria Approach to Financial Ratios Manufacturing Companies Analysts Mr. Balkrishna Pipariya CGM - Ratings analyst@brickworkratings.com Media media@brickworkratings.com Relationship Contact bd@brickworkratings.com For print and digital media Phone: 1-860-425-2742 The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by. alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media. Note on complexity levels of the rated instrument: complexity levels are meant for educating investors. The complexity levels are available at www.brickworkratings.com/download/complexitylevels.pdf Investors queries can be sent to info@brickworkratings.com. About Brickwork Ratings Brickwork Ratings (), a SEBI registered Credit Rating Agency, accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a leading public sector bank, as its promoter and strategic partner. has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations. has rated debt instruments/bonds/bank loans, securitized paper of over 13,22,500 Cr. In addition, has rated over 7000 MSMEs. Also, Fixed Deposits and Commercial Papers etc. worth over 62,000 Cr have been rated. has rated over 30 PSUs/Public Sector banks, as well as many major private players. has a major presence in ULB rating of nearly 102 cities DISCLAIMER Brickwork Ratings () has assigned the rating 5 5 Nov 2018
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