Rating Rationale

Rating Rationale

January 07, 2025 | Mumbai

Hira Ferro Alloys Limited

Ratings Reaffirmed; Rated amount enhanced for Bank Debt

Rating Action

Total Bank Loan Facilities Rated	Rs.147 Crore (Enhanced from Rs.137 Crore)
Long Term Rating	CRISIL A+/Stable (Reaffirmed)
Short Term Rating	CRISIL 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 Hira Ferro Alloys Ltd (HFAL).

The ratings continue to reflect the strong financial and operational support that HFAL receives from its parent, Godawari Power & Ispat Ltd (GPIL; 'CRISIL AA-/Stable/CRISIL A1+'), and the company’s healthy financial risk profile with limited external debt as on September 30, 2024.

HFAL's operating income moderated by ~20% to Rs 356 crore in fiscal 2024 (compared with Rs 455 crore in fiscal 2023) owing to reduced utilisation and lower realisation. However, utilisation and the realisation improved in the current fiscal with the company reporting operating income of Rs 260 crore in first half of fiscal 2025, compared with Rs 167 crore during the first half of fiscal 2024, led by growth in product volume.

The operating margin increased to approximately 9% in fiscal 2024, from 6.5% in fiscal 2023, driven by decline in power and fuel charges. HFAL had undertaken capital expenditure (capex) of ~Rs 265 crore during fiscals 2023 and 2024 to set up a solar photovoltaic plant of 52 megawatt (MW), which was commissioned in fiscal 2024, thereby reducing the power and fuel charges for the company. Furthermore, the operating margin increased to 14% in the first half of fiscal 2025, from 8% in the corresponding period of last fiscal, supported by a further decline in raw material and power costs. The margin is expected at 12-14% for fiscal 2025.

These strengths are partially offset by exposure to volatility in raw material and finished goods prices, cyclicality in the ferroalloy 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 held 91.83% stake in HFAL (as on March 31, 2024), which gives GPIL almost the entire control over HFAL. The promoters’ experience of more than two decades in the steel and ferroalloy industry and their healthy relationships with customers and suppliers have helped HFAL establish its market position amid competition. HFAL also benefits from the shared parentage of the Hira group, and the centralised raw material procurement and treasury operations. HFAL will continue to receive continuous operational and managerial support and need-based financial support from GPIL. Any significant deviation from this understanding or change in stance of parent to support HFAL will be a key rating sensitivity factor.

Healthy financial risk profile: The capital structure remains comfortable, as indicated by gearing and total outside liabilities to adjusted networth ratio of 0.24 time and 0.44 time, respectively, as on March 31, 2024 (compared with 0.57 time and 0.78 time a year ago). Debt protection metrics may continue to be adequate, reflected in the interest coverage ratio of 2.6 times and net cash accrual to total debt ratio of 0.12 time, during fiscal 2024 (compared with 6.6 times and 0.09 time, respectively, in fiscal 2023). The financial risk profile should remain comfortable over the medium term, supported by expected improvement in net cash accrual, limited external debt and absence of any major, debt-funded capex.

Weaknesses:

Average scale of operations: Revenue of Rs 356 crore in fiscal 2024 reflects modest scale of operations (of HFAL). Given that the realisation is expected to remain rangebound, the operating revenue is also expected to remain rangebound over the medium term. Average scale restricts the pricing power with customers and suppliers. Moreover, the industry is highly competitive as indicated by the presence of numerous players, which restricts significant growth in revenue.

Exposure to volatility in prices of raw materials and finished goods and cyclicality in the ferroalloy industry: The operating margin remains vulnerable to volatility in prices of inputs (such as manganese ore, power and coke) and realisation of finished goods. Prices and supply of key raw materials including manganese ore, directly impact the realisation of manganese-based ferroalloys, and any sharp change in input prices with no similar movement in realisation can dent the operating profitability. As ferroalloys are intermediates for the steel industry, prospects of the ferroalloy industry are linked to those of the inherently cyclical steel industry. Downswing in the steel industry during fiscals 2009 and 2016 led to a sharp fall in demand for, and prices of, ferroalloys. The performance of HFAL will remain susceptible to volatility in raw material prices and volume of steel produced.

Liquidity: Strong

Cash and equivalents stood at Rs 9 crore as of September 2024, with 12-month average utilisation of the fund-based working capital facility (sanctioned limit of Rs 30 crore) at 70% and for non-fund-based limit (sanctioned limit of Rs 100 crore) at 80% during the 12 months of fiscal 2024. Existing cash and equivalents, unutilised bank lines and expected annual cash accrual of Rs 35-40 crore should be adequate to meet debt obligations, capex and incremental working capital requirement over the medium term. Moreover, HFAL held ~3.5% of shares in GPIL, valued at ~Rs 500 crore as on December 13, 2024.

Outlook: Stable

HFAL will continue to benefit from its strong linkage to the parent and expected improvement in the operating performance.

Rating sensitivity factors

Upward factors:

Upgrade in the credit rating of the parent (GPIL) by one or more notches
Significant and sustained improvement in operating performance, supported by backward integration, resulting in strong cash accrual

Downward factors:

Significant weakening of operating performance, impacting the financial risk profile
Downgrade in the credit rating of the parent by one or more notches

About the Company

Established in 1990, HFAL is a closely-held public-limited company. It manufactures manganese-based ferroalloy and has capacity of 60,500 tonne per annum (TPA), with plant located in Raipur (Chhattisgarh). HFAL also has power generation capacity of 82 MW (52 MW solar, 20 MW thermal, 8.5 MW biomass and 1.5 MW windmill). It is managed by Mr Narayan Prasad Agrawal and his family members. The company was delisted from the Bombay Stock Exchange in July 2014.

About the Present

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 MTPA), a pellet plant (2.7 MTPA) and a vertically integrated steel plant in Raipur. The steel plant manufactures sponge iron (capacity of 495,000 TPA), billets (400,000 TPA), mild steel rounds (400,000 TPA), hard bright wires (400,000 TPA), ferroalloys (16,500 TPA) and pre-fabricated structures (110,000 TPA).

Key Financial Indicators (standalone)

As on/for the period ended March 31	Units	2024	2023
Revenue	Rs crore	356	455
Profit after tax (PAT)	Rs crore	8	22
PAT margin	%	2.3	4.8
Adjusted debt/adjusted networth	Times	0.24	0.57
Interest coverage	Times	2.6	6.56

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	Cash Credit^{^}	NA	NA	NA	9.00	NA	CRISIL A+/Stable
NA	Cash Credit^&	NA	NA	NA	31.00	NA	CRISIL A+/Stable
NA	Letter of Credit^#	NA	NA	NA	65.00	NA	CRISIL A1
NA	Letter of Credit^$	NA	NA	NA	35.00	NA	CRISIL A1
NA	Loan Equivalent Risk Limits	NA	NA	NA	7.00	NA	CRISIL A+/Stable

& - EPC/PCFC/FBP/EBR limit of Rs 10 crore sublimit of CC; One way interchangeability from CC to LC to Rs. 10 crore

^ - 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

$ - Bank guarantee limit of Rs 25 crore sublimit of LC

# - Bank guarantee limit of Rs 30 crore sublimit of LC

Annexure - Rating History for last 3 Years

Current

2025 (History)

2024

2023

2022

Start of 2022

Instrument

Type

Outstanding Amount

Rating

Date

Rating

Date

Rating

Date

Rating

Date

Rating

Fund Based Facilities

47.0

CRISIL A+/Stable

18-12-24

CRISIL A+/Stable

20-09-23

CRISIL A+/Stable

13-12-22

CRISIL A/Positive

CRISIL A/Stable

Non-Fund Based Facilities

100.0

CRISIL A1

18-12-24

CRISIL A1

20-09-23

CRISIL A1

13-12-22

CRISIL A1

All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility	Amount (Rs.Crore)	Name of Lender	Rating
Cash Credit^&	10	State Bank of India	CRISIL A+/Stable
Cash Credit^{^}	9	Axis Bank Limited	CRISIL A+/Stable
Cash Credit^&	21	State Bank of India	CRISIL A+/Stable
Letter of Credit^$	35	State Bank of India	CRISIL A1
Letter of Credit^#	65	Axis Bank Limited	CRISIL A1
Loan Equivalent Risk Limits	6	Axis Bank Limited	CRISIL A+/Stable
Loan Equivalent Risk Limits	1	State Bank of India	CRISIL A+/Stable

& - 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 25 crore sublimit of LC

# - Bank guarantee limit of Rs 30 crore sublimit of LC

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

Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

Media Relations	Analytical Contacts	Customer Service Helpdesk
Ramkumar Uppara Media Relations CRISIL Limited M: +91 98201 77907 B: +91 22 3342 3000 ramkumar.uppara@crisil.com Prakruti Jani Media Relations CRISIL Limited M: +91 98678 68976 B: +91 22 3342 3000 PRAKRUTI.JANI@crisil.com Sanjay Lawrence Media Relations CRISIL Limited M: +91 89833 21061 B: +91 22 3342 3000 sanjay.lawrence@crisil.com	Manish Kumar Gupta Senior Director CRISIL Ratings Limited B:+91 124 672 2000 manish.gupta@crisil.com Ankit Hakhu Director CRISIL Ratings Limited B:+91 124 672 2000 ankit.hakhu@crisil.com Paurin Jay Zaveri Senior Rating Analyst CRISIL Ratings Limited B:+91 22 3342 3000 Paurin.Zaveri@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