| Hira Ferro Alloys Limited | ||||||
| Long-term rating upgraded to 'CRISIL A+/Stable'; Short-term rating 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 upgraded its rating on the long-term bank facilities of Hira Ferro Alloys Ltd (HFAL) to 'CRISIL A+/Stable’ from ‘CRISIL A/Positive’. The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1’.
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+').
The rating upgrade reflects a similar rating action on the rated bank facilities of the parent, GPIL, wherein the ratings have been upgraded to 'CRISIL AA-/Stable/CRISIL A1+' from 'CRISIL A+/Positive/CRISIL A1'.
CRISIL Ratings has withdrawn its rating on bank facilities worth Rs. 141 crore of HFAL as per the request from the company and upon availability of no dues certificate from the lender. The withdrawal is in line with the rating withdrawal policy of CRISIL Ratings.
Further, ratings of HFAL also factor in the healthy financial risk profile of the company, with limited external debt as on June 30, 2023. These strengths are partially offset by the average scale of operations, and exposure to volatility in prices of raw materials and finished goods and cyclicality in the ferro alloys industry.
Operating income of HFAL had moderated by more than 20% on year during fiscal 2023 to Rs 30 crore (Rs 166 crore in fiscal 2022), mainly on account of lower realisations. Further, operating margin in fiscal 2023 also moderated to ~7% from 28% in fiscal 2022 due to sharp increase in input costs, primarily due to power and fuel charges. Further, the operating margin remained at 7.3% in Q1 FY24 amid continued high energy prices. However, with moderation in energy prices and expected stabilization of realisation, the operating margins are expected to improve going forward and are expected to be in the range of 7-10% for fiscal 2024.
HFAL undertook large capital expenditure (capex) of around Rs 265 crore over fiscals 2021-23 to set up a 55 MW captive solar photovoltaic plant. The project was funded by GPIL via optionally convertible cumulative redeemable participating preference shares (OCCRPS) worth Rs 110 crore, an equity infusion of Rs 70.2 crore and the balance via internal accrual. The plant has been commissioned in two phases – 30 MW in March 2023 and 25 MW is expected in the second quarter of fiscal 2024. |
Analytical Approach To arrive at the ratings, 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 holds 91.83% stake in HFAL as on 31st March 2023. This gives GPIL almost entire control over HFAL. The more than two-decades-long experience of the promoters in the steel and ferro alloys industry and their healthy relationships with customers and suppliers have helped HFAL establish its market position amidst competition.
The parent had also infused Rs 110 crore via Optionally Convertible Cumulative Redeemable Participating Preference Shares (OCCRPS). HFAL also benefits from the shared parentage of the Hira group, and the centralised raw material procurement and treasury operations. CRISIL Ratings believes HFAL will receive operational and managerial support on ongoing basis and financial support on need basis from GPIL.
Healthy financial risk profile: Capital structure remains comfortable as indicated by gearing and total outstanding liabilities to adjusted net worth (TOL/ANW) ratios of 0.57 time and 0.78 time, respectively, as on March 31, 2023. As on the same date, HFAL had outstanding buyer’s credit (Rs 135 crore) and unsecured loan from GPIL (Rs 25 crore). The same have been repaid during April 2023, through operating accruals and OCCRPS of Rs 110 crore infused by GPIL in March 2023. After considering the repayment of buyer’s credit and GPIL’s unsecured loan in April 2023, the gearing ratio improved to 0.27 time and TOL/ANW improved to 0.48 time.
Debt protection metrics were adequate, reflected in interest coverage of 6.6 times and net cash accrual to total debt ratio of 0.1 time during fiscal 2023. The financial risk profile is expected to remain comfortable going forward supported by expected improvement in net cash accruals, limited existing external debt and no major planned capex over the medium term.
Weaknesses: Average scale of operations: Revenue of Rs 455 crore in fiscal 2023 reflects the moderate scale of operations of HFAL. Given realisations are expected to remain range bound around current levels along with moderate utilization levels, the operating revenue is expected to remain range bound over the medium term. The average scale restricts bargaining power with customers and suppliers. Moreover, the industry is highly competitive marked by the presence of numerous players which restrict significant growth in revenues.
Exposure to volatility in prices of raw materials and finished goods and cyclicality in the ferro alloys industry: Operating margin remains vulnerable to fluctuations in prices of inputs (such as manganese ore, power, and coke) and to realisations of finished goods. Prices and supply of key raw material, manganese ore, directly impact realisations of manganese-based ferro alloys, and any sharp change in input prices with no similar movement in realisations, can dent profitability. As ferro alloys are intermediates for the steel industry, prospects of the ferro alloy industry are linked to the those of the steel industry, which is inherently cyclical. The downswing in the steel industry during fiscals 2009 and 2016 led to a sharp fall in demand for, and prices of, ferro alloys. The performance of HFAL will remain susceptible to fluctuations in raw material prices and volume of steel produced. |
Liquidity: Strong Cash and equivalents stood at Rs 30 crore as of June 2023, with 12-month average utilisation of the fund-based working capital facility (sanctioned limit of Rs 30 crore) at 61% and for non-fund based limit (sanctioned limit of Rs 65 crore) at 72% for FY23. Existing cash and equivalents, unutilised bank lines and expected annual cash accrual of Rs 25-30 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 168 crore as on March 31, 2023. |
Outlook: Stable HFAL will continue to benefit from its strong linkages with the parent, along with expected improvement in operating performance. |
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 85 MW (55MW 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 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 per annum [MTPA]), pellet plant (2.7 MTPA) and vertically integrated steel plant in Raipur. The steel plant manufactures sponge iron (capacity of 495,000 tonne per annum [TPA]), billets (400,000 TPA), MS rounds (400,000 TPA), hard bright (HB) wires (400,000 TPA), ferro alloys (16,500 TPA) and pre-fabricated structures (110,000 TPA). |
Key Financial Indicators (Standalone)
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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 |
| 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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## 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
Criteria Details
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