Rating Rationale
July 31, 2024 | Mumbai
Garg Furnace Limited
'CRISIL BBB-/Stable' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.15 Crore
Long Term RatingCRISIL BBB-/Stable (Assigned)
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 assigned its ‘CRISIL BBB-/Stable’ rating on the long term bank loan facilities of Garg furnace Ltd (GFL).

 

The ratings reflect the extensive experience of promoters and their healthy financial risk profile.  These strengths are partially offset by the moderate scale of operations and volatility in the operating profitability.

Key rating drivers and detailed description

Strengths:

  • Extensive experience of promoters: More than four-decade-long experience of the promoters in the steel industry, their strong understanding of market dynamics and healthy relationships with customers and suppliers, will continue to support the business risk profile. The company has recorded the revenue of Rs 258 crore in fiscal 2024, as against Rs 238 crore, a year ago. And already attained the revenue of Rs 62.33 crores in the Q1 of fiscal 2025 and expected to book a steady growth in their revenue in the ongoing fiscal as well. With the establishment of new rolling mills, the overall revenue is likely to improve, along with a rise in volume.

 

  • Healthy financial risk profile: Capital structure is likely to remain healthy over the medium term, aided by steady accretion to reserves and no major outgo via dividends. Networth and gearing are estimated at Rs 49 crore and 0.03 time, respectively, as on March 31, 2024 (vis-à-vis 0.23 time as on March 31, 2023). Debt protection metrics also estimated to be comfortable with interest coverage and NCAAD of 43.71 times and 4.80 times respectively. With the steady accretion of reserves and no major debt funded capex plans in the business, the financial risk profile will continue to stand healthy in fiscal 2025 as well.

 

Weaknesses:

  • Moderate scale of operations: Despite the healthy compounded annual growth of 29% over the past three fiscals, the revenue of Rs 258 crores attained in fiscal 2024 stands moderate. The business is operating at its full capacity, and to showcase a further growth in the revenue, the company will be required for the expansion in their installed capacity. For this, the company is planning to make the capital expenditure of Rs 10-15 crores during financial year 2026, and its slight impact is likely to be visible in fiscal 2026 and onwards. Timely stabilization of capex and its impact in the growth of volumetric sales will remain a monitorable.

 

  • Susceptibility to fluctuations in raw material prices and forex rates: Material cost comprises 85-88% of revenue and any sharp fluctuation in raw material prices could adversely impact profitability. Operating margin got slightly impacted in fiscal 2024 at 2.33% from 3.22% during fiscal 2023, due to the price volatility and with this the EBITDA/ton also got impacted. Moreover, the company imports scrap steel as raw material for manufacturing billets, which exposes the margin to volatility in forex rates. With the value addition products of alloy round steel bars into the business, the operating profitability are likely to improve, however, its impact will remain monitorable.

Liquidity: Adequate

Liquidity gets supported with the sufficient cash accruals, estimated at Rs 7-7.2 crores as on Mar 24, which is likely to further improve at 8-8.5 crores over a medium term, supported by the steady expected growth in the business. In the absence of any major term debt obligations, the accruals will aid the liquidity position of the company. With efficient working capital management, the dependency on the external working debt of Rs 2.75 crores is NIL over the past 12 months, which further support the liquidity. Cash and cash equivalents are estimated at Rs 8 crores in fiscal 2024. Current ratio is estimated to be healthy at 4.06 times as on Mar 24.

Outlook: Stable

CRISIL rating believes that company’s business risk profile will continue to benefit from the extensive experience of promoters.

Rating Sensitivity factors

Upward factors:

  • Steady growth in the volumetric sales, while sustaining the margins at above 3%, leading to the healthy cash accruals.
  • Prudent working capital management leading to the sustenance of healthy financial risk profile.

 

Downward factors:

  • Steep decline in revenue and operating profitability at below 2%, leading to the lower cash accruals.
  • Stretch in the working capital cycle or any major debt funded capex into the business, deteriorating the financial risk profile.

About the Company

GFL was incorporated in Dec 1973 is engaged in the business of manufacturing of Non-alloy steel round bars, wire rods, billets etc. With the annual installed capacity of 40000 tons p.a.

 

Operations are managed by Mr. Devinder Garg, Mrs. Vaneera Garg and Mr. Toshak Gag who are the key managing person in the organization.

Key Financial Indicators

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

258.31

238.24

Reported profit after tax

Rs crore

5.7

5.94

PAT margin

%

2.21

2.49

Adjusted debt/adjusted networth

Times

0.03

0.23

Interest coverage

Times

43.71

47.10

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 Cr) Complexity Levels Rating Assigned with Outlook
NA Proposed working capital facility NA NA NA 15 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 15.0 CRISIL BBB-/Stable   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Working Capital Facility 15 Not Applicable CRISIL BBB-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies

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