| Hira Ferro Alloys Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 revised its outlook on the long-term bank facilities of Hira Ferro Alloys Ltd (HFAL; part of the Hira group) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL A'. The rating on the short-term facilities has been reaffirmed at 'CRISIL A1'.
The revision in outlook factors in the revision in outlook of the parent, Godawari Power and Ispat Ltd [GPIL; rated 'CRISIL A+/Positive/CRISIL A1'] while the business risk profile may also strengthen with the commissioning and ramp-up of the ongoing capital expenditure (capex) i.e. a captive solar power project of 60 mega-watt [MW].
The operating performance of the company improved during fiscal 2022 with increase in plant utilisation and realisation. The earnings before interest, tax, depreciation and amortisation (EBITDA) increased to Rs 166 crore (operating margin: 27.8%) compared to Rs 31 crore (9.9%) the previous fiscal. The operating performance moderated during the first half of fiscal 2023 (EBITDA: Rs. 30 crore) mainly due to correction in realisation. However, it should remain healthy over the medium-term supported by expected commissioning of captive solar power plant and some debottlenecking projects by end of fiscal 2023, which is likely to improve the operating efficiency of the plant. Timely commissioning along with ramp-up of operations will remain a monitorable.
The ratings continue to reflect the strong financial and operational support HFAL receives from its parent, GPIL and the company's healthy financial risk profile. These strengths are partially offset by exposure to volatility in raw material and finished goods prices and cyclicality in the ferroalloys industry, and average scale of operations. |
Analytical Approach CRISIL Ratings has applied its criteria for notch-up of ratings based on parent support. |
Key Rating Drivers & Detailed Description Strengths: Strong financial and operational support from the parent: GPIL infused Rs 70 crore in HFAL in fiscal 2022, which resulted in HFAL turning into its subsidiary from an associate. Post this, GPIL has acquired more shares with current stake holding in the company standing at ~92%. More than two-decade-long experience of the promoters in the steel and ferroalloys industry and their healthy relationships with customers and suppliers have helped HFAL establish its market position amidst competition. HFAL also benefits from the Hira group's shared logo, and centralised raw material procurement and treasury operations. CRISIL Ratings believes HFAL will receive operational and managerial support on an ongoing basis and financial support on need basis from GPIL.
Healthy financial risk profile: Capital structure remains comfortable as indicated by gearing and total outside liabilities to adjusted networth ratios of 0.3 and 0.54 time, respectively, as on March 31, 2022 (0.17 and 0.56 time, respectively, a year earlier). Capital structure is expected to remain at current levels with healthy internal accrual and no major capex plans other than the ongoing capex. Debt protection metrics also improved during fiscal 2022 with adjusted interest coverage of over 37 times as compared to 6.1 times during the previous fiscal. Despite moderation in realisation and EBITDA levels, adjusted interest coverage ratio should remain above 5 times over the medium term.
Weaknesses: Average scale of operations: Revenue although increased to Rs 597 crore in fiscal 2022 from Rs 315 crore the previous fiscal reflects the moderate scale of operations of HFAL. The increase was driven mainly by increased realisation, which has started correcting due to moderation in demand. The average scale restricts the bargaining power with customers and suppliers. Moreover, intense competition due to the presence of numerous players and surplus supply in the domestic market restrict significant growth in revenue.
Exposure to volatility in raw material and finished goods prices and cyclicality in the ferroalloys industry: The operating margin is vulnerable to fluctuations in input prices (such as manganese ore, power, and coke) as well as realisations of finished goods. The prices and supply of the main raw material, manganese ore, directly impact realisations of manganese-based ferroalloys, and any sharp change in input prices with no similar change in realisations can dent profitability. As ferroalloys are intermediates for the steel industry, the prospects of the ferroalloy industry are linked to the fortunes of the steel industry, which is inherently cyclical. The downswing in the steel industry during fiscals 2009 and 2016 resulted in a sharp fall in the demand for, and prices of, ferroalloys. HFAL's performance will remain susceptible to fluctuations in raw material prices and volume of steel produced. |
Liquidity: Strong Cash and liquidity stood at Rs 27 crore as on March 31, 2022, with 12-month average utilisation of the fund-based working capital facility at 25% till August 2022. Existing cash and equivalents, unutilised bank lines and expected annual cash accrual of more than Rs 50 crore should be adequate to meet the debt obligations, capex and incremental working capital requirements over the medium term. Moreover, HFAL also holds shares in GPIL valued at Rs 134 crore as on September 30, 2022. |
Outlook: Positive HFAL will continue to benefit from the strong linkages with its parent, along with the expected improvement in operating performance post completion of ongoing projects. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company HFAL is a closely held public limited company set up in 1990. It manufactures manganese-based ferroalloy and has capacity of 60,500 metric tonne per annum (MTPA) with plant located in Raipur, Chhattisgarh. HFAL also has power generation capacity of 30 MW (20 MW thermal, 8.5 MW biomass and 1.5 MW windmill). Mr Narayan Prasad Agrawal and his family members manage operations. It was delisted from the Bombay Stock Exchange in July 2014. |
About the parent GPIL was established as Ispat Godawari Ltd in 1999 by Mr B L Agrawal and got its current name in 2001. The company has two captive iron ore mines (3 million tonne [MT]), pellet plant (2.7 MT) and vertically integrated steel plant in Raipur. The steel plant manufactures sponge iron (495,000 TPA), billets (400,000 TPA), mild steel rounds (400,000 TPA), hard bright (HB) wires (400,000 TPA), ferroalloys (16,500 TPA) and pre-fabricated structures (110,000 TPA). |
Key Financial Indicators*
*As per analytical adjustments made by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
&EPC/PCFC/FBP/FBD/EBRD/PSCFC/collection bill negotiation of foreign bills under LC limit of Rs 9 crore sublimit of LC and cash credit combined, SBLC for buyer's credit limit of Rs 9 crore sublimit of LC and cash credit combined, bank guarantee limit of Rs 9 crore sublimit of LC and cash credit combined ^EPC/PCFC/FBP/EBR limit of Rs 10 crore sublimit of CC; One way interchangeability from CC to LC to Rs. 10 crore %Bank guarantee limit of Rs 30 crore sublimit of LC $Bank guarantee limit of Rs 25 crore sublimit of LC #Capex letter of credit (LC)/standby LC (SBLC) for buyer's credit limit of Rs 150 crore sublimit of term loan @Guaranteed emergency credit line |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 13-Dec-2022 in line with the lender-wise facility details as on 09-Dec-2021 received from the rated entity
&EPC/PCFC/FBP/FBD/EBRD/PSCFC/collection bill negotiation of foreign bills under LC limit of Rs 9 crore sublimit of LC and cash credit combined, SBLC for buyer's credit limit of Rs 9 crore sublimit of LC and cash credit combined, bank guarantee limit of Rs 9 crore sublimit of LC and cash credit combined
^EPC/PCFC/FBP/EBR limit of Rs 10 crore sublimit of CC; One way interchangeability from CC to LC to Rs. 10 crore
%Bank guarantee limit of Rs 30 crore sublimit of LC
$Bank guarantee limit of Rs 25 crore sublimit of LC
#Capex letter of credit (LC)/standby LC (SBLC) for buyer's credit limit of Rs 150 crore sublimit of term loan
@Guaranteed emergency credit line
Criteria Details
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