Sarda Energy and Minerals Limited

Sarda Energy and Minerals Limited March 22, 2018 Ratings Facilities Amount (Rs. crore) Long Term Bank Facilities 318.92 (reduced from 367.01) Short term Bank Facilities 442.08 (enhanced from 380.90) Total 761.00 (Rupees Seven Hundred Sixty One Crore only) Commercial Paper (Carved Out) 50.00 (50.00) Rating 1 CARE A; Stable (Single A; Outlook: Stable) CARE A1 (A One) CARE A1 (A One) Rating Action Reaffirmed Reaffirmed Reaffirmed Non- Convertible Debentures 0.00* - Withdrawn *Entire o/s against Non-Convertible Debentures has been repaid. Details of instruments/facilities in Annexure-1 Detailed Rationale& Key Rating Drivers The reaffirmation of the ratings assigned to bank facilities and instrument of Sarda Energy & Minerals Limited (SEML) derives comfort from the experience of SEML s promoters in the steel and ferro industry, captive source of power, improved liquidity profile as well as comfortable capital structure and debt coverage indicators. The ratings also derive strength from the improved profitability during 9MFY18 as well as infusion of majority of equity committed in project stage companies. Additional comfort can be drawn from liquid investments in promoter entities, Chhattisgarh Investment Ltd (CIL) and CSP Investment, which would be made available to SEML in case of shortfall in meeting any obligation. The ratings are, however, constrained by elevated working capital cycle, project risk associated with time and cost over run in the hydro power project under Madhya Bharat Power Corporation limited as well as inherent cyclical nature of the steel and ferro alloys industry. The ability of SEML to further improve its revenue and profitability, maintain the capital structure while successfully completing the on-going project within the revised cost structure and timelines will be the key rating sensitivities. Detailed description of the key rating drivers Experienced Promoters in the steel and ferro industry with financial support expected from promoter companies to meet shortfall in any obligation SEML is currently managed by Mr. K. K. Sarda (Chairman & Managing Director) who has over four decades of experience in steel industry. He is assisted by his son Mr. Pankaj Sarda (Joint Managing Director) who has over twelve years of experience in the industry. The promoters are also supported by qualified & experienced management with more than two decades of experience in the industry. During current year FY18, SEML has already infused required equity of Rs.114.64 cr in Madhya Bharat Power Corporation Limited (MBPCL). However, CARE has taken comfort from liquid investments (equity shares) held by the promoter group entities (Chhattisgarh Investment Limited and CSP Investment), having market value of Rs. 711.82 cr as on March 6, 2018, which are expected to be liquidated to finance future support if required by SEML towards any shortfall in meeting its obligations. Moreover, SEML itself has liquid investments (Equity shares) having market value of Rs. 82.05 cr which are available for meeting future obligations. 2 Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited

Comfortable capital structure and improved debt coverage indicators At consolidated level, overall gearing of the company remains comfortable at 1.05x as on March 31, 2017 (PY: 1.05x). Due to improved profitability, total debt to Gross cash Accrual (GCA) reduced to 8.22x in FY17 compared to 13.17x in FY16 and Interest coverage ratio increased to 2.85x in FY17 from 1.97x in FY16. The standalone overall gearing of the company continued to be comfortable at 0.36x as on March 31, 2017 as compared to 0.41x as on March 31, 2016. The total debt to GCA improved to 2.54x in FY17 (PY: 4.53x) on account of higher profits generated during the year. Interest coverage ratio also improved to 4.87x in FY17 from 2.84x in FY16. Improvement in liquidity The company had received Rs. 26.41 cr in Q3FY17 from the government as compensation amount for the coal washery consequent to deallocation of the coal block. On consolidated basis, the working capital cycle of the company improved marginally but remained elongated to 82 days in FY17 (PY: 94 days) mainly due to high inventory holding period. Debtor days marginally increased from 31 days in FY16 to 33 days in FY17. SEML only accepts orders from the companies which have given advances or letters of credit from their bankers. The average utilisation of fund based working capital limits of SEML remained moderate at 59.45% for 12 month ended January, 2018. Captive source of power with partial coal linkages SEML has 81.50 MW captive coal based power plant at Raipur which meets almost entire power requirements of its Raipur facility. The company has coal linkages with South Eastern Coalfields Limited (SECL) and Coal India Limited towards 75% of its requirement and is also planning to participate in further coal auctions to meet its balance requirements which are currently met through open markets. Additionally, the company has also set up 80 MW captive power plant at Vizag in its wholly owned subsidiary Sarda Metals and Alloys Limited (SMAL) to support its ferro alloys operations. The coal requirement for SMAL is met through external market. Improvement in utilisation of ferro alloy capacity The utilisation of the ferro alloy plant under SMAL improved in FY17 to 62% and further 83% in 9MFY18 as against 36% in FY16 due to improved demand. At present, SMAL does not have any long term contract for sale of surplus power and to maintain the balance between both the revenue segment i.e. ferro alloys and power. SMAL is planning to set-up one more furnace for ferro alloys which will increase its captive consumption of surplus power. Improvement in financial performance in FY17 and 9MFY18 On a consolidated basis, SEML s total operating income declined slightly in FY17 to Rs. 1,622 cr from Rs. 1,635 cr in FY16 on account of fall in steel prices partially offset by improved realizations from ferro alloys. However, consolidated PBILDT margin of the company improved to 16.51% during FY17 (PY: 13.46%) owing to low cost inventory sold during the year at higher prices. The PAT margin of the company increased to 7.83% during FY17 (PY: 0.78%). During 9MFY18, the standalone revenue of SEML has improved to Rs. 1175 cr from Rs. 918 cr in 9MFY17 due to increased sales realisation under steel and ferro alloys segment. The PBILDT margins also improved to 21.86% during 9MFY18 from 17.67% during 9MFY17 on account of increase in sales partially offset by increase in price of raw material. The overall production during the period has decreased due to replacement of turbines but sales realisation had improved on account of increase in the price of steel and ferro alloys. SEML has reported standalone PAT of Rs.133 cr in 9MFY18 as against Rs. 113 cr in 9MFY17. Key Rating Weaknesses Commencement of operations at iron ore mine however full mechanization could not be attained due to social unrest SEML s iron ore mine at Rajnandgaon, Chhattisgarh (which was non-operational since December 2008 due to social unrest) commenced operation in July 2014. Presently, the company is fulfilling only approx. 40% of its iron ore requirement from this mine as it is not able to achieve full mechanization due to social unrest in the area and is currently depending on manual labor to extract iron ore. For remaining requirement, the company has to rely on purchase of Iron ore from open market. The company procures manganese ore and coal from open market both domestically and internationally. 2 CARE Ratings Limited

Project risk with time and cost over run in the hydro power project The 24 MW hydro power plant under Chhattisgarh Hydro Power LLP (CHP) at Gullu has started generating power. The plant has generated 51.45 mn Kwh power till 9MFY18 and repayment of loan will start from Q1FY19. The firm has signed long term Power purchase agreement with Chhattisgarh State Power Distribution Co. Ltd for supply of power. The 96 MW power plant under Madhya Bharat Power Corp. Ltd (MBPCL; rated CARE BB; Stable/A4) is facing time and cost overrun on account of unexpected geographical complexities for tunneling of head race tunnel including its surge shaft & Pressure Shaft. The project has been appraised by lenders independent engineer (LIE) with the total cost increase to Rs. 1,187 cr with revised COD in June 2018. Total project loan has increased to Rs. 772 Cr and increased amount has been shared by the lenders. The company is expecting further delays in completion of the project by another year. Inherent cyclicality of 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. The producers of steel construction materials are essentially pricetakers in the market, which directly exposes their cash flows and profitability to volatility in the steel prices. Prospects The iron & steel sector in India contributes to nearly 2% of the GDP. Domestic finished steel production (alloy + non alloy) capacity expanded from 75 Million Tonnes Per Annum (MTPA) in FY10 to about 120 MTPA in FY17. In the coming financial year 2018-19, steel production is expected to remain higher. This will be backed by an expected revival in consumption. An increase in infrastructure allocation by the government in the Union Budget 2018-19 is expected to drive the pace of construction and infrastructure in the country. Apart from this, the National Steel Policy 2017 released by the government also aims to increase steel production. Analytical approach:care has analyzed the company on a consolidated approach. Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition Criteria for Short Term Instruments Rating Methodology: Factoring Linkages in Ratings Rating Methodology-Manufacturing Companies Rating methodology Steel Companies Financial ratios Non-Financial Sector About the Company Since its incorporation as Raipur Wires & Steel Limited in 1973, Sarda Energy & Minerals Ltd (SEML) has converted itself from a standalone steel melting shop to an integrated steel, power and ferro alloys producer in a phased manner. Presently, the company is engaged in the manufacturing and selling of pellets, sponge iron, steel billets, wire rods, ferro alloys and power from its plant located at Raipur. In March 2013, SEML commissioned a 80 MW power plant at its wholly owned subsidiary Sarda Metals & Alloys Ltd (SMAL; rated CARE BBB-; Stable/CARE A3) while the 1 MTPA ferro alloy plant at the same premises became operational in June 2014. Under Parvatiya Power ltd, 4.8 MW hydro power project is operational. Apart from this, SEML s 24 MW hydro power project executed under Chhattisgarh Hydro Power Ltd. (CHPL) was completed in March, 2017 and started generation from July, 2017. 96 MW hydro power project under Madhya Bharat Power Corporation Limited is under project stage. Apart from the above, SEML has invested in several other subsidiaries/special Purpose Vehicles (SPVs)/Joint Ventures (JVs) with interests in power plants and mining blocks. However, most of these subsidiaries are yet to commence operations. 3 CARE Ratings Limited

Brief Financials (Rs. crore) FY16 (A) FY17 (A) Total operating income 1635 1622 PBILDT 220 268 PAT 13 127 Overall gearing (times) 1.05 1.05 Interest coverage (times) 1.97 2.85 A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information:not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Ms. Sharmila Jain Tel: 022 6754 3638 Email: sharmila.jain@careratiings.com About CARE Ratings: **For detailed Rationale Report and subscription information, please contact us at www.careratings.com CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. 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/outlooks 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 /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook 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 CARE Ratings Limited

Annexure-1: Details of Instruments/Facilities Name of the Instrument Date of Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook Fund-based - LT-Cash Credit - - - 156.42 CARE A; Stable Non-fund-based - ST-BG/LC - - - 402.08 CARE A1 Term Loan-Long Term - - August, 2025 162.50 CARE A; Stable Fund-based - ST-Term loan - - - 40.00 CARE A1 Debentures-Non Convertible Debentures - - - 0.00 Withdrawn Commercial Paper - - - 50.00 CARE A1 5 CARE Ratings Limited

Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities 1. Fund-based - LT-Cash Credit Type Current Ratings Amount Rating Outstanding (Rs. crore) LT 156.42 CARE A; Stable Rating(s) assigned in 2017-2018 Rating(s) assigned in 2016-2017 - 1)CARE A Rating history Rating(s) assigned in 2015-2016 1)CARE A Rating(s) assigned in 2014-2015 1)CARE A+ 2)CARE A+ 2. Non-fund-based - ST- BG/LC ST 402.08 CARE A1-1)CARE A1 1)CARE A1 1)CARE A1+ 2)CARE A1+ 3. Term Loan-Long Term LT 162.50 CARE A; Stable - 1)CARE A 1)CARE A 1)CARE A+ 2)CARE A+ 4. Debentures-Non Convertible Debentures LT - - - 1)CARE A 1)CARE A 1)CARE A+ 2)CARE A+ 5. Fund-based - ST-Term loan ST 40.00 CARE A1-1)CARE A1 1)CARE A1 1)CARE A1+ 2)CARE A1+ 6. Fund-based - LT- External Commercial Borrowings - - - - - 1)Withdrawn 7. Commercial Paper ST 50.00 CARE A1-1)CARE A1 (12-Jan-17) - - - 6 CARE Ratings Limited

CONTACT Head Office Mumbai Ms. MeenalSikchi Mr. AnkurSachdeva Cell: + 9198190 09839 Cell: + 9198196 98985 E-mail: meenal.sikchi@careratings.com E-mail: ankur.sachdeva@careratings.com Ms.RashmiNarvankar Mr. Saikat Roy Cell: + 9199675 70636 Cell: + 9198209 98779 E-mail: rashmi.narvankar@careratings.com E-mail: saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai - 400 022 Tel: +91-22-6754 3456 Fax: +91-22-6754 3457 E-mail: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad - 380 015 Cell: +91-9099028864 Tel: +91-79-4026 5656 E-mail: deepak.prajapati@careratings.com BENGALURU Mr. V Pradeep Kumar Unit No. 1101-1102, 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore - 560 001. Cell: +91 98407 54521 Tel: +91-80-4115 0445, 4165 4529 Email: pradeep.kumar@careratings.com CHANDIGARH Mr. AnandJha SCF No. 54-55, First Floor, Phase 11, Sector 65, Mohali - 160062 Chandigarh Cell: +91 85111-53511/99251-42264 Tel: +91-0172-490-4000/01 Email: anand.jha@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai - 600 002. Cell: +91 98407 54521 Tel: +91-44-2849 7812 / 0811 Email: pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore - 641 037. Tel: +91-422-4332399 / 4502399 Email: pradeep.kumar@careratings.com JAIPUR Mr. Nikhil Soni 304, PashupatiAkshatHeights, Plot No. D-91, Madho Singh Road, NearCollectorateCircle, Bani Park, Jaipur - 302 016. Cell: +91 95490 33222 Tel: +91-141-402 0213 / 14 E-mail: nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata - 700 071. Cell: +91-98319 67110 Tel: +91-33- 4018 1600 E-mail: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi - 110 055. Cell: +91-98117 45677 Tel: +91-11-4533 3200 E-mail: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride KumarSenate, Plot No. 970, Bhamburda, SenapatiBapat Road, ShivajiNagar, Pune - 411 015. Cell: +91-98361 07331 Tel: +91-20- 4000 9000 E-mail:pratim.banerjee@careratings.com CIN - L67190MH1993PLC071691 HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, 3-6-502, Himayat Nagar, Hyderabad - 500 029. Cell : + 91 90520 00521 Tel: +91-40-4010 2030 E-mail: ramesh.bob@careratings.com 7 CARE Ratings Limited