Rating Rationale
August 30, 2024 | Mumbai
Deem Roll-Tech Limited
Ratings reaffirmed at 'CRISIL BBB-/Stable/CRISIL A3'
 
Rating Action
Total Bank Loan Facilities RatedRs.31 Crore
Long Term RatingCRISIL BBB-/Stable (Reaffirmed)
Short Term RatingCRISIL A3 (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 BBB-/Stable/CRISIL A3’ ratings on the bank facilities of Deem Roll-Tech Ltd (DRTL).

 

The ratings continue to reflect the extensive experience of DRTL’s promoters in the industrial machinery and consumables industry, the company’s established customer base and comfortable financial risk profile. These strengths are partially offset by its vulnerability to cyclicality in the end-user industry and to volatility in raw material prices, and its large working capital requirement.

 

Operating income dipped to Rs 101 crore in fiscal 2024 from Rs 103 crore in fiscal 2023, primarily due to lower realisations, though there was moderate volume growth. The operating margin improved to 13.9% in fiscal 2024 from 12.6% in the previous fiscal owing to moderation in raw material prices and lower selling and other overhead expenses. The company has orders of around Rs 54 crore to be executed over the next six months. Decent revenue growth and sustained operating margin will support the business risk profile over the medium term.

 

The financial risk profile was comfortable, with gearing around 0.30 time as on March 31, 2024, and adequate interest coverage of 5.6 times for fiscal 2024. The company got listed on the SME platform of the National Stock Exchange in February 2024 and plans to expand its capacity in fiscal 2025, largely through the proceeds of the initial public offering (IPO) and term loan. The capital expenditure (capex) was earlier planned for the previous fiscal. Ramp-up in scale of operations post capacity addition will remain monitorable. 

Analytical approach:

Unsecured loan from the promoters has been treated as debt.

Key rating drivers & detailed description

Strengths:

  • Extensive experience of the promoters and established clientele:  Experience of over 30 years has given the promoters an understanding of the market dynamics and helped establish longstanding relationships with suppliers and customers. The customers include respected players such as Steel Authority of India, Rashtriya Ispat Nigam Ltd and Durgapur Steel Plant.

 

  • Comfortable financial risk profile: DRTL has a healthy capital structure owing to low reliance on external funds, as indicated by gearing of 0.30 time and total outside liabilities to tangible networth ratio of 0.65 time as on March 31, 2024. The financial risk profile improved in fiscal 2024 because of listing of shares at a premium. Steady debt and buildup in networth through accretion supported the capital structure in the past three fiscals. Debt protection metrics were adequate, as reflected in interest coverage and net cash accrual to total debt ratios of 5.6 times and 0.20 time, respectively, in fiscal 2024. The company plans large  capex in fiscal 2025, which is being funded largely through IPO proceeds and term loan.

 

Weaknesses:

  • Vulnerability to cyclicality in the end-user industry and to volatility in raw material prices: The company’s performance is closely linked to the investment climate in its end-user industry, which is majorly steel and rolling mills. Also, operating profitability is susceptible to volatility in raw material prices. In fiscal 2024, the operating profitability improved driven by stabilisation of prices. Sustenance of the operating profitability remains critical.

 

  • Large working capital requirement: Gross current assets were at 166-343 days over the three fiscals through 2024 (343 days as on March 31, 2024) owing to sizeable receivables, inventory and cash and bank balances. Also, receivables of more than six months have been increasing owing to increased business with government entities. The working capital cycle will remain monitorable.

Liquidity: Adequate

Bank limit utilisation was moderate at 83% on average for the 12 months through June 2024. Cash accrual, expected over Rs 10 crore per annum, will sufficiently cover yearly term debt obligation of Rs 1.5-2 crore over the medium term, and will cushion liquidity. The company has also received enhancement in its working capital limits, which will further cushion liquidity.

 

Current ratio was healthy over 2 times as on March 31, 2024. Low gearing and comfortable networth support financial flexibility, which will help withstand adverse conditions or downturns in the business.

Outlook: Stable

CRISIL Ratings believes DRTL will continue to benefit from the extensive experience of its promoter and established relationships with clients.

Rating sensitivity factors

Upward factors

  • Sustained revenue growth by  30% and steady operating margin, leading to cash accrual of over Rs 14 crore
  • Maintenance of comfortable financial risk profile and adequate liquidity
  • Improvement in the working capital cycle

 

Downward factors

  • Decline in operating profitability leading to net cash accrual of less than Rs 7 crore
  • Large, debt-funded capex or further stretch in the working capital cycle

About the company

Incorporated in 2003, DRTL manufactures cast iron and steel rolls such as hot rolling mills, alloy steel bases, ring rolls, indefinite chill alloy cast iron and alloy rolls. The company’s manufacturing facilities are at Chhatral and Mehsana in Gujarat and at Hooghly in West Bengal. It is promoted by Mr Jyoti Bhattacharya.

Key financial indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

101.10

103.91

Reported profit after tax (PAT)

Rs crore

7.81

7.07

PAT margin

%

7.72

6.80

Adjusted debt/adjusted networth

Times

0.30

0.54

Interest coverage

Times

5.60

6.90

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 Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Bank Guarantee NA NA NA 4.00 NA CRISIL A3
NA Cash Credit NA NA NA 20.00 NA CRISIL BBB-/Stable
NA Letter of Credit NA NA NA 3.15 NA CRISIL A3
NA Term Loan NA NA 31-Mar-27 3.85 NA CRISIL BBB-/Stable
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 23.85 CRISIL BBB-/Stable   -- 21-06-23 CRISIL BBB-/Stable 28-06-22 CRISIL BBB-/Stable 30-04-21 CRISIL BB+/Stable --
Non-Fund Based Facilities ST 7.15 CRISIL A3   -- 21-06-23 CRISIL A3 28-06-22 CRISIL A3 30-04-21 CRISIL A4+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 4 State Bank of India CRISIL A3
Cash Credit 20 State Bank of India CRISIL BBB-/Stable
Letter of Credit 3.15 State Bank of India CRISIL A3
Term Loan 3.85 State Bank of India CRISIL BBB-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

Media Relations
Analytical Contacts
Customer Service Helpdesk

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


Himank Sharma
Director
CRISIL Ratings Limited
D:+91 124 672 2152
himank.sharma@crisil.com

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

Vishnu Patel
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 20 4018 1900
Vishnu.Patel@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, an S&P Global Company)

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 leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It 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') provided by CRISIL Ratings Limited ('CRISIL Ratings'). For the avoidance of doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for use only within the jurisdiction of India. 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 provision or intention to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

The report is a statement of opinion as on the date it is expressed, and it is not intended to and does not constitute investment advice within meaning of any laws or regulations (including US laws and regulations). The report is not an offer to sell or an offer to purchase or subscribe to 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 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 and its associates do not act as a fiduciary. The report is based on the information believed to be reliable as of the date it is published, CRISIL Ratings does not perform an audit or undertake due diligence or independent verification of any information it receives and/or relies on for preparation of the report. THE REPORT IS PROVIDED ON “AS IS” BASIS. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAWS, CRISIL RATINGS DISCLAIMS WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR OTHER WARRANTIES OR CONDITIONS, INCLUDING WARRANTIES OF MERCHANTABILITY, ACCURACY, COMPLETENESS, ERROR-FREE, NON-INFRINGEMENT, NON-INTERRUPTION, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR INTENDED USAGE. In no event shall CRISIL Ratings, its associates, third-party providers, as well as their directors, officers, shareholders, employees or agents 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.

The report is confidential information of CRISIL Ratings and CRISIL Ratings reserves all rights, titles and interest in the rating report. The report shall not be altered, disseminated, distributed, redistributed, licensed, sub-licensed, sold, assigned or published any content thereof or offer access to any third party without prior written consent of CRISIL Ratings.

CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains or its associates. Ratings are subject to revision or withdrawal at any time by CRISIL Ratings. 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.

CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For more detail, please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the Securities and Exchange Board of India regulations (and other applicable regulations, if any), are made available on its websites, www.crisilratings.com and https://www.ratingsanalytica.com (free of charge). CRISIL Ratings shall not have the obligation to update the information in the CRISIL Ratings report following its publication although CRISIL Ratings may disseminate its opinion and/or analysis. Reports with more detail and additional information may be available for subscription at a fee.  Rating criteria by CRISIL Ratings are available on the CRISIL Ratings website, www.crisilratings.com. For the latest rating information on any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

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.crisilratings.com/en/home/our-business/ratings/credit-ratings-scale.html