Press Release Worldwide Metals Private Ltd. December 14, 2017 Rating Instrument / Facility Long term Bank Facilities Short term Bank Facilities Amount Rating Rating Action Rs.96.00 crores IVR BB+/Stable Outlook (IVR Double B Plus with Stable Outlook) Assigned Rs.4.00 crores IVR A4 (IVR A Four) Assigned Details of Facility are in Annexure 1 Detailed Rationale The ratings are constrained by the regular overdrawal of working capital limits, low profitability, high gearing and weak debt protection metrics, working capital intensive business operations with high collection period and high competition. However, the ratings derive comfort from the experience of promoters, infusion of capital and unsecured loans from promoter, moderate size of operations and long standing relationship with suppliers and customers. Leverage position, conduct of cash credit accounts, profitability and liquidity are the key rating sensitivities. List of Key Rating Drivers Low profitability High Gearing and weak debt protection metrics Working capital intensive business operations with high collection period Regular overdrawal of working capital limits Very short period of existence High competition Susceptibility to price fluctuations Experienced promoters www.infomerics.com 1
Infusion of fresh capital and unsecured loans from promoters Moderate size of operations Long standing relationship with suppliers and customers Detailed Description of Key Rating Drivers Low profitability The company is a pure trading entity that deals in Aluminium and Copper products. It procures the materials from the primary producers and sells them to its customers. As is typical of trading companies, the margins are very fine. The PAT margin for FY17 stood at 0.55%. High Gearing and weak debt protection metrics The company relies very heavily on the debt for carrying on its day to day operations. The company had outstanding working capital debt of Rs.96.00 crore and interest-free unsecured loans from the promoters of Rs.15.96 crore as on March 31, 2017 (provisional). The overall gearing ratio of the company was high at 5.6x and the interest cover was low at 1.28x. Working capital intensive business operations with high collection period The company procures the materials from the primary producers on advance payment for their purchases, while it offers credit period of anywhere between 120-150 days to their customers. Due to this, it relies extensively on working capital facilities from banks. The average collection period for the company stood at 141 days for FY17. Since the company is not extended any credit period by the suppliers, it has an elongated operating cycle as well at 141 days for FY17. Regular overdrawal of working capital limits The company has availed CC facility from two banks and both the facilities were overdrawn beyond the sanction limit multiple times over the last one year. One of the facilities remained overdrawn for a period of over 30 days in the past one year. In www.infomerics.com 2
addition, the average monthly utilisation of the facilities was high at 95% in the last one year. Very short period of existence The company was incorporated only in October 2015, but has effectively been operating for only one financial year. But, the fact that the promoters are experienced has ensured that the company has been able to generate sales revenue of Rs.255 crore in FY17. High competition The metal trading business is highly fragmented with several players in the market where the companies face fierce competition. The pricing power of the group is low given that volume discounts offered by the company and the credit period extended to its customers being the only tools to attract and retain customers. Susceptibility to price fluctuations The company is susceptible to fluctuations in the price of the products that it trades in. The prices of these commodities can be volatile and linked to the London Metal Exchange (LME). The average price of copper per Kg has fallen to Rs.430.60 in FY17 from Rs.461.76 in FY16, while the average price per Kg of Aluminium ingot and and wire rods fell to Rs.151.97 and Rs.156.31 in FY17 from Rs.171.88 and Rs.182.07 in FY17 respectively. But, the company places orders with the primary producers based on the orders from their customers. Only 5-10% of the purchases of the company is placed for holding as stock for sales. Thus, reducing the risks associated with price fluctuations. Experienced promoters Mr. Prem Chand Gupta and Mrs. Madhu Lata are Directors since inception. Mr. Gupta has more than 37 years of experience in metal trading. He started his career as broker and built his business as proprietorship before incorporating his first trading company. He has incorporated four trading companies namely Oyster Steel & Iron Pvt Ltd www.infomerics.com 3
(OSIPL), Olympus Metal Pvt Ltd (OMPL), Worldwide Metals Pvt Ltd (WMPL) and Draken Metals Trading Pvt Ltd (DMTPL). His extensive experience has helped him build healthy relationships with both suppliers and customers. Mrs. Madhu Lata also has over 20 years of business experience. Infusion of fresh capital and unsecured loans from promoters The combined networth of the four companies grew from Rs.24.9 crores in FY15 to Rs.61.4 crore in FY17, at a CAGR of about 10%. The promoters have also extended interest-free unsecured loans to the companies that cumulatively stood at Rs.42.8 crores as on March 31, 2017. Moderate size of operations The companies have been able to generate gross sales revenue of Rs.789.6 crores for FY17 (provisional), up from Rs.224.3 crores for FY15, growing at a CAGR of 15%. Individually, OSIPL, OMPL and WMPL generated sales in the range of Rs.250-280 crores signifying moderate level of operation. Long standing relationship with suppliers and customers The company has developed long standing relationships both with the primary producers such as Vedanta Ltd and BALCO who supply the materials and with customers. Over three decades of experience of Mr. Prem Chand Gupta, the Promoter, has allowed the group to build a network of over 150 customers across different geographies. Analytical Approach & Applicable Criteria Rating Methodology for Trading Companies Financial Ratios & Interpretation non-financial companies About the Company Worldwide Metals Pvt Ltd (WMPL) was incorporated in October 2015. The other companies in the group are Olympus Metal Pvt Ltd (OMPL), Oyster Steel & Iron Pvt www.infomerics.com 4
Ltd (OSIPL) and Draken Metals Trading Pvt Ltd (DMTPL). All the companies are involved in wholesale trading of mainly metals products such as aluminium wire rods, ingots, extrusions and copper wire rods. The companies procure their trading materials from two main suppliers namely Vedanta Ltd and Bharat Aluminium Co. Ltd (BALCO). The companies operate out of offices in New Delhi, Haryana and Rajasthan and have built up a network of around 150 customers. Financials (Standalone) (Rs. Crores) For the year ended / Rs. Crs 31-03-2016 31-03-2017 Audited Provisional Total Operating Income 3.3 255.3 EBITDA 0.0 10.8 Interest 0.0 8.4 PAT 0.0 1.4 Total Debt 32.4 112.0 Tangible Net worth 5.2 20.0 Ratios a. EBIDTA Margin 1.3 4.1 b. PAT Margin 0.6 0.6 c. Overall Gearing ratio 6.3 5.6 Status of non-cooperation with previous CRA: Not applicable Any other information: Nil Rating History for last three years: S. No. Name of Instrument/Facil ities 1. Long Term Bank Facility - CC Current Rating (Year 2017-18) Rating History for the past 3 years Type Amount outstanding (Rs. crore) Rating Date(s) & Rating(s) assigned Date(s) & Rating(s) assigned in Date(s) & Rating(s) assigned Long Term / 96.00 IVR BB+/Sta in 2016-17 2015-16 in 2014-15 -- -- -- www.infomerics.com 5
Facility 2. Short Term Non- Fund Based Limits- Bank Guarantee Short Term Short Term ble Outlook (IVR Double B Plus with Stable Outlook) 4.00 IVR A4 (IVR A Four) -- -- -- Note on complexity levels of the rated instrument: Infomerics has classified instruments rated by it on the basis of complexity and a note thereon is available at www.infomerics.com. Name and Contact Details of the Rating Analyst: Name: Shri Sriram Rajagopalan Tel: (022) 40036966 Email: srajagopalan@infomerics.com About Infomerics: Infomerics commenced rating & grading operations in April 2015 after having spent over 25 years in various segments of financial services. Infomerics is registered with the Securities and Exchange Board of India (SEBI) and accredited by Reserve Bank of India. It is gradually gaining prominence in domestic rating and/or grading space. Infomerics is striving for positioning itself as the most trusted & credible rating agency in the country and is gradually widening its product portfolio. Company s long experience in varied spectrum of financial services is helping it to fine tune its product offerings to best suit the market. Disclaimer: Infomerics ratings are based on information provided by the issuer on an as is where is basis. Infomerics credit ratings are an opinion on the credit risk of the issue / issuer and not a recommendation to buy, hold or sell securities. Infomerics reserves the right to change, suspend or withdraw the credit ratings at any point in time. Infomerics ratings are opinions on financial statements based on information provided by the management and information obtained from sources believed by it to be accurate and reliable. The credit quality ratings are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. We, however, do not guarantee the accuracy, adequacy or completeness of any information which we accepted and presumed to be free from misstatement, whether due to error or fraud. We are 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 us have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns/association of Persons (AOPs), the rating assigned by Infomerics is based on the capital deployed by the partners/proprietor/ AOPs 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/ AOPs in addition to the financial performance and other relevant factors. www.infomerics.com 6
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Annexure 1: Details of Facility Name of Facility Date of Coupon Maturity Size of Rating Assigned/ Issuance Rate/ IRR Date Facility(Rs. Outlook Crores) CC Facility - - - 96.00 IVR BB+/Stable Outlook (IVR Double B Plus with Stable Outlook) Bank Guarantee - - - 4.00 IVR A4 (IVR A Four) www.infomerics.com 8