Rating Rationale
February 16, 2024 | Mumbai
Jai Balaji Industries Limited
Rating reaffirmed at 'CRISIL BBB-/Stable'; 'CRISIL A3' assigned to Bank Debt; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.765 Crore (Enhanced from Rs.100 Crore)
Long Term RatingCRISIL BBB-/Stable (Reaffirmed)
Short Term RatingCRISIL A3 (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 A3’ rating to the short-term bank facilities of Jai Balaji Industries Limited (JBIL) and has reaffirmed its ‘CRISIL BBB-/Stable’ rating on the long-term bank facilities.

 

The ratings continue to reflect extensive industry experience of the promoters, JBILs integrated operations and improving market position in value added products. These strengths are partially offset by moderate, albeit improving financial risk profile and on-going capital expenditure.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive industry experience of the promoters and integrated operations: The promoters have experience of more than two decades in the iron and steel industry and are supported by a well-qualified and experienced management team. This has given them an understanding of the dynamics of the market, enabling them to establish strong relationships with its customers, suppliers, and other stakeholders. Healthy relationships have been instrumental in driving the strong improvement in JBILs scale of operations, as reflected in revenues of Rs 4568 crore in 9 months of fiscal 2024 against Rs 4401 crore in 9 months of fiscal 2023. Revenue improved to Rs 6125 crore in fiscal 2023, marked by a 3-year revenue CAGR of 29%. JBILs scale is further supported by its integrated operations, spread across four operational units in West Bengal and Chhattisgarh, and a diverse portfolio of value-added products of Ductile Iron Pipes (DI pipes) and Special Grade Ferro Alloys including basic steel products like DRI (Sponge iron), Pig iron, Mild Steel Billet, Reinforcement Steel TMT Bars, Wire Rods etc. Thus, JBIL had made use of a healthy market presence allowing it to penetrate deep into the value chain. Furthermore, captive power plants and own railway sidings has controlled cost of production, as reflected in healthy operating margins of 14.57% in 9 months of fiscal 2024 against adjusted EBITDA margin of 9-9.4% in fiscals 2022 & 2023.

 

  • Improving market position in value added products: JBIL has a moderately healthy market share in the Ductile Iron pipes & special grade ferro alloy market backed by its ability to manufacture higher grades and value-added products. It makes DI pipes and specialized chrome bases ferro alloy (with application in superior grade stainless steel used in aerospace & defense sectors amongst others).

 

JBILs total capacity for DI pipes has increased to 3 lakh tonne per annum (TPA) in January 2024 (from 2.4 lakh TPA earlier) which is around ~8% of the total domestic capacity and plans to add 3.6 lakh TPA capacity by May 2025. For ferro alloy, JBIL has increased its installed capacity to 1.3 lakh TPA in January 2024 (from 1.0 lakh TPA earlier) and plans to add 0.3 lakh TPA by September 2024. This together reflects JBILs improving market position and partially protects its scale from demand slowdown. However, timely installation and stabilization of the capacities translating into better fixed cost absorption with sustenance of EBITDA margins around 14-15% and healthier cash flow generation remains a key monitorable over the medium term.

 

Weaknesses:

  • Moderate albeit improving financial risk profile & on-going capital expenditure (capex): Financial risk profile was weak, marked by sizeable debt, consequent to significant capex post incorporation, while the returns in fiscal 2013-14 were subdued due to lower steel realizations and de-allocation of coal mines. Consequently, debt to EBITDA rose to nearly 95 times by the end of fiscal 2014. Over the years, JBIL has taken steps to improve its capital structure through refinancing, including capital infusion through QIB, issue of share warrants and divestment of non-core assets. This coupled with ramp-up of operations reduced debt/EBITDA to around 2.6 times by end of fiscal 2023 and to 0.9 times as on December 31, 2023.

 

However, JBILs debt profile is constrained by large repayments, which yields current ratio of less than 1 time. Moreover, the company has also envisaged capex of Rs 1000 crore, funded by internal accruals, to be spent in phases by fiscal 2026 and of this, about Rs 381 crore was incurred by December 31,2023. Aside from regular debt repayment, high dependence on internal accruals for meeting working capital requirement and capex in absence of working capital lines, limits company’s financial flexibility. Going forward, with the on-going capex, sustenance of healthy cash flow from operations and improvement in financial flexibility and liquidity remains a key rating sensitivity factor.

 

  • Susceptibility to demand and price risk: Demand for steel products depends on the level of construction and infrastructure activities in the country. While there has been a significant push by the government on steel-intensive sectors such as railways and infrastructure, any downturn in economic cycle will adversely affect demand. Furthermore, the steel industry remains exposed to fluctuations in the prices of key inputs (such as iron ore and coal), which impacts realization from finished goods. Any adverse movement in industry scenarios can have a direct bearing on the company’s performance, partially supported by JBILs increasing focus on value-added products.

Liquidity: Adequate

Cash accruals are expected to be over Rs 700-750 crore which are sufficient against term debt obligation of Rs 176 crore per fiscal over the medium term. In addition, it will act as a cushion to the liquidity of the company and support its working capital requirement and capex.

 

The current ratio was low at 0.78 time on March 31, 2023. JBIL maintains DSRA covering 1 month principal and interest translating into deposits of ~Rs 20 crore with its lender. Free cash and balance balances were estimated to be around Rs 45 crore on December 31, 2023.

Outlook: Stable

CRISIL Ratings believe JBIL will continue to benefit from an established relationship with its stakeholders.

Rating Sensitivity factors

Upward factors

  • Track record of operations, sustenance in scale of operation with operating margins stable around 14% strengthening operating efficiency and cash flow adequacy.
  • Improvement in financial flexibility and liquidity profile with sustenance of healthy cash flow from operations.

 

Downward factors

  • Decline in scale of operations with profitability falling below 10%, leading to lower-than-expected net cash accruals.
  • Large debt-funded capital expenditure or substantial increase in its working capital requirements weakening capital structure and/or liquidity position.

About the Company

JBIL, flagship company of Jai Balaji group was incorporated in July 1999. JBIL is primarily engaged in business of manufacturing of various value-added products of Ductile Iron Pipes (DI pipes) and Special Grade Ferro Alloys including basic steel products like DRI (Sponge iron), Pig iron, Mild Steel Billet, Reinforcement Steel TMT Bars, Wire Rods etc along with sinter and captive power plant. JBIL has four integrated steel plants located at Burdawan (West Bengal) and Durg (Chhattisgarh). The company is listed at Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). JBIL is headed by Mr. Aditya Jajodia (Chairman & Managing Director) and his family.

Key Financial Indicators (CRISIL Ratings adjusted)

As on/for the period ended March 31

 

2023

2022

Operating income

Rs crore

6126.16

4644.65

Reported profit after tax

Rs crore

57.83

48.06

PAT margins

%

0.94

1.03

Adjusted Debt/Adjusted Networth

Times

1.55

-1.91

Interest coverage

Times

3.74

2.88

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

level

Rating assigned with

outlook

NA

Term loan

NA

NA

Dec-2026

500

NA

CRISIL BBB-/Stable

NA

Working Capital Demand Loan

NA

NA

NA

40

NA

CRISIL A3

NA

Proposed Non Fund Based Limits

NA

NA

NA

225

NA

CRISIL A3
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 ST/LT 540.0 CRISIL BBB-/Stable / CRISIL A3 31-01-24 CRISIL BBB-/Stable   --   --   -- --
Non-Fund Based Facilities ST 225.0 CRISIL A3   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Proposed Non Fund based limits 225 Not Applicable CRISIL A3
Term Loan 100 Tata Capital Financial Services Limited CRISIL BBB-/Stable
Term Loan 400 Tata Capital Financial Services Limited CRISIL BBB-/Stable
Working Capital Demand Loan 40 Tata Capital Financial Services Limited CRISIL A3
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Steel Industry
CRISILs Criteria for rating short term debt

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