Key Rating Drivers & Detailed Description

Strengths:

Established market position

A strong position in the manganese alloy industry is supported by broad product portfolio, large manufacturing capacity, and extensive experience of the promoters. MAL is one of the largest domestic producers of manganese-based ferroalloys, with installed capacity of 2,35,600 tonne per annum (TPA), and holds around 7% of the installed manganese-based ferroalloy capacity in India. With acquisition of IMFAL, having capacity of 49,500 MTPA (million TPA) in fiscal 2022, MAL has become the largest manganese alloy manufacturer in India. Customers include prominent steel producers such as Steel Authority of India Ltd (SAIL) and Tata Steel Ltd in domestic market. MAL has also increased its presence overseas. Further, the promoters have over two decades of experience; their strong understanding of market dynamics and healthy relations with customers and suppliers should continue to support the business.

Robust operating efficiency

Operating efficiency has been healthy, supported by prudent alteration in product mix, efficient power and raw material consumption intended to reduce per tonne cost, presence of manufacturing units at multiple locations for enhanced production efficiency, and prudent working capital management. Risk management policies are sound, with negligible inventory and largely order-backed procurement. Furthermore, realisations are largely secured by letter of credit-backed sales to new customers or entities with weak credit risk profiles; open credit is only allowed to strong entities such as SAIL or to entities with long-term association with MAL.

Healthy financial risk profile

Financial risk profile should remain supported by healthy accretion to reserve and negligible external debt. Networth was strong at Rs 1,521 crore as on March 31, 2021 (Rs 1293 crore a year earlier); gearing was comfortable at 0.03 time as on March 31, 2021 (0.02 time). The company did not undertake any capital expenditure (capex) in fiscal 2021. Total outside liabilities to tangible networth ratio is likely to remain under 0.5 time over the medium term despite the proposed capex of Rs 275 crore (over next 2-3 years) as it will be largely funded through cash accrual. Debt protection metrics were strong, with interest coverage and net cash accrual to total debt ratios of 92.4 times and 5.00 times, respectively, in fiscal 2021.

Weakness:

Exposure to volatility in prices of raw material and finished goods

Operating margin remains vulnerable to fluctuations in input prices (such as manganese ore, power, and coke) as well as realisations of finished goods. Cost and supply of manganese ore directly impacts the realisations of manganese-based ferroalloys, and any sharp change in input price with no similar change in realisations can significantly dent profitability.

Susceptibility to performance of end-user industry and cyclical demand for ferroalloys

Ferroalloys are intermediates for the steel industry. Hence, prospects of the ferroalloy industry (comprising players such as MAL) are linked to the fortunes of the steel industry, which is inherently cyclical, as indicated by a downswing during fiscals 2009 and 2016, resulting in a sharp fall in the demand for, and prices of, ferroalloys.

Key Financial Indicators

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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