Rating Rationale
March 14, 2024 | Mumbai
Bajaj Steel Industries Limited
Ratings reaffirmed at 'CRISIL A/Stable/CRISIL A1'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.194 Crore (Enhanced from Rs.158 Crore)
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank loan facilities of Bajaj Steel Industries Ltd (BSI).

 

The company achieved revenue of Rs 377 crore in the nine months of fiscal 2024, which will remain flat in fiscal 2024, owing to sluggish domestic sales. Operating margin moderated to 14.5% as of December 2023 from 17.4% as of December 2022 because of increase in labour and logistics costs (increase in freight cost owing to the Red Sea crisis) and operating deleverage. The operating margin is expected at 14-15% in fiscal 2024.

 

The company has a healthy order book, which provides revenue visibility. It maintains a healthy bid pipeline and has expanded its geographic reach to more than 40 countries, which will sustain order inflow. It is increasing its revenue mix from pre-engineered buildings (PEB) and electrical panel segments in addition to exports to diversify growth. It is also diversifying into new segments such as heavy engineering, steel doors and fire-fighting equipment.

 

The financial risk profile will remain strong, with gearing expected below 0.2 time and interest coverage ratio above 10 times in the medium term. Liquidity was healthy, as reflected in unencumbered cash and equivalent of Rs 70 crore as on January 31, 2024, and average bank limit utilisation ~64% over the 12 months through November 2023.

 

The ratings continue to reflect the long track record and extensive experience of the promoters in the cotton ginning machinery business, the improving geographical diversity of the company and its strong financial risk profile. These strengths are partially offset by limited scale of operations, susceptibility to economic downturns and to volatility in cotton demand-supply and prices, and moderate working capital requirement.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of BSIL and its wholly owned subsidiaries—Bajaj Coneagle LLC, USA, and Bajaj Steel Industries (U) Ltd, Uganda - because of their strong financial and operational linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Long track record and extensive experience of the promoters: The company has been manufacturing cotton ginning machinery since 1961. In 2008, it was awarded Largest and Modern Cotton Ginning & Pressing Machinery Manufacturer in India by the Ministry of Textiles, Government of India. It is one of the few integrated ginning machinery manufacturers in India and has substantial market share. It manufactures cotton ginning machinery based on all four technologies available in the industry. Besides strong domestic presence, the company exports to several countries in the Indian subcontinent, the US, Southeast Asia, Africa, Australia and Europe, and has been able to secure several international clients.

 

Furthermore, benefits from the extensive experience of the promoters (members of the Bajaj family), who have been in the cotton business for around 60 years. The current promoters, led by Mr Rohit Bajaj (managing director), are actively involved in operations and extend timely, need-based financial support.

 

  • Improving geographical diversification, providing stability to profitability: The company has been increasing its international footprint (presence in over 40 countries) owing to high competition from the unorganised sector in the domestic market and to safeguard from the cyclicality of domestic cotton production. Exports, which accounted for around 14% of sales in fiscal 2016, rose to 50% in fiscal 2023, indicating the ability to successfully cater to international markets. The operating margin moderated to 14.5% as of December 2023 and is expected to be healthy at 14-15% over the medium term. Furthermore, the order book is well-diversified across multiple clients, reducing counterparty risk.

 

  • Strong financial risk profile: Debt was small around Rs 27 crore as on September 30, 2023. Networth was healthy at Rs 298 crore as on the same date, supported by steady improvement in cash accrual. Total outside liabilities to tangible networth ratio and gearing are expected below 0.7 time and 0.2 time, respectively, over the medium term. The interest coverage ratio is expected to be healthy above 10 times over the medium term.

 

Weaknesses:

  • Susceptibility to economic downturns and to volatility in cotton demand-supply and prices: Demand for the company’s products comes from new ginning capacities being set up, and replacement demand from current ones, and is linked to cotton production levels. Domestic production of cotton is volatile and linked to monsoons; it is also impacted by various factors such as pest infestation and farmers switching to more profitable crops. Though the company has been diversifying into different regions to mitigate these risks, growth will continue to be constrained by the volatility in global cotton production. Additionally, economic growth and policy changes, such as reduced subsidies or minimum support price from government, can impact the performance of the company. However, the company’s susceptibility to slowdown in a geography has reduced significantly in the past 4-5 years.

 

  • Limited scale of operations: Although the company started operations in 1961, revenue is expected to remain modest above Rs 500 crore in fiscal 2024. Going forward, with improving diversification, the scale is expected to improve gradually with sustained profitability levels.

 

  • Moderate working capital requirement: Gross current assets (GCAs; net of cash) stood at 128 days as on March 31, 2023, compared with 120 days a year earlier. GCAs (net of cash) are expected at 130-140 days over the medium term. The company maintains inventory of ~90 days, which is order backed, limiting the impact of volatility in raw material prices on profitability. However, the impact of higher execution of export orders on the working capital cycle will remain a key monitorable.

Liquidity: Strong

Liquidity is supported by healthy cash accrual, moderate unutilised bank lines, and unencumbered cash and equivalent stood at Rs 70 crore as on January 31, 2024. Expected cash accrual of above 60-80 crore, against low repayment obligations over the medium term. Average utilisation of the fund-based bank limit was moderate at ~64% during the 12 months through November 2023. Capex is expected to be moderate at around Rs 40-60 crore annually to be majorly funded through internal cash accrual.

Outlook: Stable

CRISIL Ratings believes credit profile of BSI to remain healthy in the medium term due to its established market position, backed by a strong financial risk profile.

Rating Sensitivity factors

Upward factors:

  • Significant increase in scale of operations with revenue above Rs 800-1000 crore while maintaining the operating margins above 15%
  • Sustenance of the financial risk profile and working capital cycle

 

Downward factors:

  • Sustained decline in profitability with the operating margin remaining below 12%
  • Weakening of scale of operations
  • A significant increase in the working capital cycle or higher-than-expected debt

About the Company

Incorporated in 1961, BSI manufactures cotton processing machinery, equipment and their spare parts, PEBs, electrical panels, fire-fighting equipment, steel doors and heavy engineering equipment. The company is one of the few players with operations across the entire ginning process value chain. It has a registered office and four manufacturing units in Nagpur, Maharashtra.

 

In 2012, BSIL set up Bajaj Coneagle LLC as its wholly owned subsidiary in the US. The company owns another wholly owned subsidiary in Uganda, namely Bajaj Steel Industries (U) Ltd. The subsidiaries market the products of the holding company as well as other products and services.

Key Financial Indicators (Consolidated)

As on/for the period ended March 31

Unit

2023

2022

Revenue

Rs.Crore

535

441

Profit After Tax (PAT)

Rs.Crore

68

36

PAT Margin

%

12.6

8.3

Adjusted debt/adjusted networth

Times

0.13

0.28

Interest coverage

Times

14.8

8.3

*The company has generated revenue of Rs 377 crore and operating margin of 14.5% in the nine months of fiscal 2024.

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank guarantee@ NA NA NA 100 NA CRISIL A1
NA Cash credit^ NA NA NA 30 NA CRISIL A/Stable
NA Non-fund based Limit NA NA NA 39 NA CRISIL A1
NA Long-term loan NA NA Nov-2028 15 NA CRISIL A/Stable
NA Long-term loan NA NA Mar-2028 10 NA CRISIL A/Stable

@ - Includes sublimit of Foreign and Inland letter of Credit of Rs. 30 Cr., sublimit of Counter Bank Guarantee of Rs 40 Cr.

^ - Includes Sublimit of Pre-shipment Finance and Post shipment Finance of Rs. 30 Cr. each, sublimit of Foreign Currency & Indian Rupee WCDL   of Rs. 15 Cr., SBLC sublimit of Rs. 18.25 Cr., sublimit of Post Shipment and Post acceptance finance of Rs. 10 Cr. each. 

Annexure – List of entities consolidated

Entity consolidated

Extent of consolidation

Rationale for consolidation

Bajaj Coneagle LLC, USA

Full

Strong operational and financial linkages

Bajaj Steel Industries (U) Ltd, Uganda

Full

Strong operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 55.0 CRISIL A/Stable   -- 27-03-23 CRISIL A1 / CRISIL A/Stable   -- 30-12-21 CRISIL A2+ / CRISIL A-/Positive CRISIL A2+ / CRISIL A-/Stable
Non-Fund Based Facilities ST 139.0 CRISIL A1   -- 27-03-23 CRISIL A1   -- 30-12-21 CRISIL A2+ / CRISIL A-/Positive CRISIL A2+ / CRISIL A-/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee& 100 HDFC Bank Limited CRISIL A1
Cash Credit^ 30 HDFC Bank Limited CRISIL A/Stable
Long Term Loan 15 HDFC Bank Limited CRISIL A/Stable
Long Term Loan 10 Exim Bank CRISIL A/Stable
Non-Fund Based Limit 36 HDFC Bank Limited CRISIL A1
Non-Fund Based Limit 3 HDFC Bank Limited CRISIL A1
& - Includes sublimit of Foreign and Inland letter of Credit of Rs. 30 Cr., sublimit of Counter Bank Guarantee of Rs 40 Cr.
^ - Includes Sublimit of Pre-shipment Finance and Post –shipment Finance of Rs. 30 Cr. each, sublimit of Foreign Currency & Indian Rupee – WCDL of Rs. 15 Cr., SBLC sublimit of Rs. 18.25 Cr., sublimit of Post Shipment and Post acceptance finance of Rs. 10 Cr. each.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Cotton Textile Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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