Rating Rationale
October 04, 2022 | Mumbai
Bhagwati Steel Cast Private Limited
Ratings reaffirmed at 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.45.35 Crore
Long Term RatingCRISIL BBB/Stable (Reaffirmed)
Short Term RatingCRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings on the bank facilities of Bhagwati Steel Cast Private Limited (BSCPL; part of Bhagwati group).

 

The ratings continue to reflect extensive experience of promoters in the steel industry, above-average financial risk profile and efficient working capital management. These strengths are partially offset by modest and volatile operating margin and exposure to intense competition in the highly fragmented steel industry.

Analytical Approach

For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of BSCPL and Bhagwati Ferro Metal Private Limited (BFMPL). This is because these entities, together referred to as the Bhagwati group, have common promoters, are in the same line of business, and have significant operational, managerial, and financial linkages.

 

Unsecured loans of Rs 4.83 crores is considered as debt.

 

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:

  • Extensive experience of the promoters in steel industry: Promoters have over three-decade of experience in the steel industry, which has helped develop understanding of industry dynamics and navigate business cycle over the years. The have established strong relationships with customers and suppliers. It has a large customer base with top 5 customers contributing to less than 50% revenues. Revenues have increased to Rs 1098 crores in fiscal 2022 from Rs 904 crores in fiscal 2020. CRISIL Ratings believes, benefits from the extensive industry experience of the promoters would continue over the medium term.

 

  • Above-average financial risk profile: Group’s net worth is healthy at Rs 123.48 crores with comfortable capital structure indicated by moderate total outside liabilities to adjusted net worth (TOLANW) at around 1.13 time, as on March 31, 2022, on back of low reliance on external debt.  Debt protection metrics is adequate with interest coverage ratio of over 8.5 times and net cash accruals to adjusted debt of 0.35 times for fiscal 2022. Group’s financial risk profile is expected to remain healthy over the medium term due to absence of debt funded capex and healthy accretion to reserves. 

 

  • Efficient working capital cycle: Group’s gross current assets (GCA) continued to remain low reflecting efficient working capital management. GCA has remained in range of 57-90 days over past three years through March 31, 2022. While debtors have remained in range of 15-30 days, inventory has also remained low in range of 19-36 days during same period. This has also led to low utilization of working capital limits. Going forward, with better management of inventory and receivables, working capital cycle is expected to remain efficient.

 

Weaknesses:

  • Exposure to volatility in steel prices leading to thin margins: Profitability remains susceptible to fluctuations in prices of key raw materials, i.e, steel scrap and sponge iron, which have been volatile over the past few years and it has impacted the operating margins due to which operating margins have been low. at 2.86% in fiscal 2022 and have remained in the range of 1.4-2.9 % in the past 5 fiscals.

 

  • Exposure to intense competition and cyclicality in the steel industry: The steel industry is highly fragmented because of low capital requirement, especially in the secondary/steel re-rolling business. Intense competition restricts bargaining power of individual players, who are generally price takers. Furthermore, since demand for steel is closely linked to economic activity, players are susceptible to cyclicality in the industry.

Liquidity: Adequate

Liquidity is adequate with expected cash accruals of Rs 21-23 crores against repayment obligations of Rs 8.4 crores and Rs 9 crores in Fiscal 2023 and 2024 respectively. Bank limit utilization has been low at around 11% for the last 12 months ended August 2022. Cash and bank balance stood at Rs 32.59 crores as on March 31, 2022. CRISIL Ratings expects internal accruals and cash and cash equivalents to be sufficient to meet incremental working capital requirement and the group’s repayment obligations.

Outlook: Stable

CRISIL Ratings believes the group will continue to benefit from its promoters’ extensive industry experience and healthy relationship with its customers and suppliers.

Rating Sensitivity factors

Upward factors:

  • Significant and sustained improvement in revenues coupled with higher operating  margins leading to cash accruals sustaining above Rs. 20 Crores
  • Sustenance of financial risk profile and working capital management

 

Downward factors:

  • Decline in revenues or operating profitability leading to cash accruals below Rs. 12 Crore
  • Deterioration in financial or liquidity  profile on account of large debt funded capex, significant stretch in working capital cycle .

About the Group

BSCPL, incorporated in 1984, and BFMPL, incorporated in 2003, is promoted by Mr. M K Agrawal and  Mr. Amit Burakia. The group manufactures mild-steel billets and thermo-mechanically-treated (TMT) bars. BSCPL and BFMPL have their manufacturing unit in Sinnar, Nashik.

Key Financial Indicators

As on / for the period ended March 31

 

2022

2021

2020

Operating income

Rs crore

1097.90

549.38

883.23

Reported profit after tax

Rs crore

14.76

6.57

5.79

PAT margins

%

1.34

1.20

0.64

Adjusted Debt/Adjusted Net worth

Times

0.54

0.53

0.79

Interest coverage

Times

8.58

6.14

4.45

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of
instrument		 Date of
allotment		 Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity 
levels		 Rating assigned
with outlook
NA Bank Guarantee NA NA NA 10 NA CRISIL A3+
NA Cash Credit NA NA NA 10 NA CRISIL BBB/Stable
NA Letter of Credit Bill Discounting NA NA NA 16 NA CRISIL A3+
NA Proposed Fund-Based Bank Limits NA NA NA 9.35 NA CRISIL BBB/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Bhagwati Ferro Metal Private Limited

Full

Common Promoters and same line of business

Bhagwati Steel Cast Private Limited

Full

Common Promoters and same line of business
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 35.35 CRISIL A3+ / CRISIL BBB/Stable   -- 09-09-21 CRISIL BBB/Stable 10-09-20 CRISIL A3+ / CRISIL BBB/Stable 18-09-19 CRISIL A3+ / CRISIL BBB/Stable CRISIL BBB/Stable
      --   -- 06-07-21 CRISIL BBB/Stable   -- 31-07-19 CRISIL BBB/Stable --
Non-Fund Based Facilities ST 10.0 CRISIL A3+   -- 09-09-21 CRISIL A3+ 10-09-20 CRISIL A3+ 18-09-19 CRISIL A3+ CRISIL A3+
      --   -- 06-07-21 CRISIL A3+   -- 31-07-19 CRISIL A3+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 10 State Bank of India CRISIL A3+
Cash Credit 10 State Bank of India CRISIL BBB/Stable
Letter of Credit Bill Discounting 16 State Bank of India CRISIL A3+
Proposed Fund-Based Bank Limits 9.35 Not Applicable CRISIL BBB/Stable

This Annexure has been updated on 04-Oct-2022 in line with the lender-wise facility details as on 24-Aug-2021 received from the rated entity.

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 Steel Industry
CRISILs Criteria for Consolidation

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com

Ankita Gupta
Associate Director
CRISIL Ratings Limited
D:+91 22 4097 8104
ankita.gupta@crisil.com

Himanshu Khare
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
Himanshu.Khare@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html