Rating Rationale
June 27, 2024 | Mumbai
Maithan Alloys Limited
Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.600 Crore
Long Term RatingCRISIL AA/Stable (Reaffirmed)
Short Term RatingCRISIL 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 AA/Stable/CRISIL A1+’ ratings on the bank loan facilities of Maithan Alloys Limited (MAL).

 

The ratings continue to reflect MAL’s established market position and strong financial risk profile. These strengths are partially offset by its exposure to volatility in raw materials prices and finished goods and cyclicality in the ferro alloys industry.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of MAL and its subsidiaries - Impex Metals and Ferro Alloy Pvt Ltd (IMFAL; ‘CRISIL A+/Stable/CRISIL A1’), Maithan Ferrous Pvt Ltd (MFPL), Anjaney Minerals Ltd (AML), Salanpur Sinters (P) Ltd (SSPL), Ramagiri Renewable Energy Ltd (RREL) and AXL - Exploration Pvt Ltd (AXL) collectively known as the Maithan group, as these entities are under common management and have business and financial synergies.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position: A strong position in the manganese alloy industry is supported by a broad product portfolio, large manufacturing capacity, and extensive experience of the promoters. MAL is one of the largest domestic producers of manganese-based ferroalloys and it holds more than 5% of the market share of the total domestic ferro alloy industry.

 

With acquisition of IMFAL and completion of the ongoing capital expenditure (capex) at MFPL by the second half of fiscal 2025, production capabilities should further strengthen with installed capacity for manganese alloy estimated at 3,29,400 tonne per annum by fiscal 2026. Longstanding industry presence has enabled the promoters to gain a deep understanding of market dynamics and maintain healthy relationships with reputed customers, both domestic and overseas.

 

Furthermore, operating income was over Rs 1,751 crore for fiscal 2024, positioning 39% degrowth on-year due to moderation in alloy prices while volume sales remained steady. Growth resulting from the resumption of operations at IMFAL and completion of capex at MFPL, by the second half of fiscal 2025, should aid sales volume over the medium term. Sustained improvement in manufacturing capabilities further strengthening the market position, driven by a rise in volume sales, is monitorable.

 

  • Strong financial risk profile: The group’s strong capital structure is supported by its healthy networth at Rs 3,126 crore as on March 31, 2024, and minimal exposure to fund-based external debt, yielding gearing and total outside liabilities to total networth ratio of 0.01 time and 0.10 time, respectively, in fiscal 2024. Ongoing capex at MFPL is being funded by internal accrual. Hence, in the absence of a large, debt-funded capex, and steady accretion to reserves, the capital structure is expected to remain strong over the medium term. The group’s debt protection metrics were also healthy with interest coverage and net cash accrual to adjusted debt ratios at 84.20 times and 13.10 times, respectively, as on March 31, 2024. Despite exposure of profitability to volatile commodity prices, limited exposure to external debt should keep the financial risk profile healthy over the medium term.

 

Weakness:

  • 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 non-coking coal) 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 reflected in fall in operating margin to about 8% in fiscal 2024 against 21% a year earlier. As ferro alloys are intermediates for the steel industry, prospects of the ferro alloy industry are linked to 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 ferro alloys and its prices. The performance of the Maithan group will remain susceptible to fluctuations in raw material prices and volume of steel produced.

Liquidity: Superior

Fund-based and non-fund-based bank limit utilisation was low at 6% and 36%, respectively, for the 12 months ended March 31, 2024. In the absence of debt obligation, healthy net cash accrual should adequately meet capex and incremental working capital requirements. The current ratio was healthy at 10.8 times as on March 31, 2024. Free cash bank balance and liquid investments were around Rs 1,825 crore as on March 31, 2024. Low gearing and strong networth provide financial flexibility in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes MAL will continue to benefit from its established market position and healthy financial flexibility.

Rating Sensitivity factors

Upward factors:

  • Significant and sustained improvement in operating performance, supported by backward integration, minimising volatility in earnings before interest, taxes, depreciation and amortisation (EBITDA)
  • Ramp up of production at IMFAL and MFPL, leading to significant growth in volume sales and steady operating margin
  • Sustenance of strong financial risk profile with net debt to EBITDA ratio below 1 time

 

Downward factors:

  • Any downturn in the industry or drop in market share, weakening operating efficiency and financial flexibility
  • Large, debt funded capex, huge dividend payout or unrelated diversification exerting pressure on liquidity              
  • Fall in scale of operations or profitability leading to cash accrual less than Rs 200 crore on sustained basis

About the Group

MAL, established in 1985, manufactures ferroalloys such as ferro manganese, ferro silicon and silico manganese, with varying proportions of other chemical compositions. It has installed ferroalloy capacity of 2,35,600 tonne per annum. The company is listed on the Bombay Stock Exchange and National Stock Exchange. IMFAL was acquired in November 2021 through the National Company Law Tribunal for manufacturing manganese-based alloy. It is a wholly owned subsidiary of MAL. Through MFPL (80% subsidiary of MAL) the group is increasing its production capacity for manufacturing manganese-based alloy. Commercial production is scheduled to be commissioned by the second half of fiscal 2025. The entities - AXL, AML, SSPL, RREL are currently not operational. The Maithan group is managed by Mr S. C. Agarwalla and his sons, Mr Subodh Agarwalla and Mr Sudhanshu Agarwalla.

Key Financial Indicators (Combined and CRISIL Ratings-adjusted)

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

1,751

2,887

Reported profit after tax (PAT)

Rs crore

349

499

PAT margin

%

19.92

17.29

Adjusted debt/adjusted networth

Times

0.01

0.01

Interest coverage

Times

84.20

1,257.81

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 the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank Guarantee NA NA NA 5 NA CRISIL A1+
NA Bank Guarantee NA NA NA 10 NA CRISIL A1+
NA Bank Guarantee NA NA NA 35 NA CRISIL A1+
NA Cash Credit NA NA NA 18 NA CRISIL AA/Stable
NA Cash Credit NA NA NA 30 NA CRISIL AA/Stable
NA Cash Credit NA NA NA 30 NA CRISIL AA/Stable
NA Cash Credit NA NA NA 12 NA CRISIL AA/Stable
NA Fund & Non Fund Based Limits NA NA NA 3.5 NA CRISIL A1+
NA Letter of Credit NA NA NA 43 NA CRISIL A1+
NA Letter of Credit NA NA NA 49 NA CRISIL A1+
NA Letter of Credit NA NA NA 130 NA CRISIL A1+
NA Letter of Credit NA NA NA 115 NA CRISIL A1+
NA Letter of Credit NA NA NA 63 NA CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 56.5 NA CRISIL AA/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Maithan Alloys Limited (MAL)

Full

Parent

AXL – Exploration Private Limited (AXL)

Full

75% subsidiary

Anjaney Minerals Limited (AML)

Full

100% subsidiary

Impex Metal and Ferro Alloys Limited (IMFAL)

Full

100% subsidiary

Salanpur Sinters (P) Ltd (SSPL)

Full

100% subsidiary

Maithan Ferrous Private Limited (MFPL)

Full

80% subsidiary

Ramagiri Renewable Energy Limited (RREL)

Full

100% subsidiary
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 LT 146.5 CRISIL AA/Stable   -- 30-03-23 CRISIL AA/Stable   -- 31-12-21 CRISIL AA/Stable CRISIL AA/Stable
      --   --   --   --   -- CRISIL AA/Stable
Non-Fund Based Facilities ST 453.5 CRISIL A1+   -- 30-03-23 CRISIL A1+   -- 31-12-21 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 5 IndusInd Bank Limited CRISIL A1+
Bank Guarantee 10 Axis Bank Limited CRISIL A1+
Bank Guarantee 35 State Bank of India CRISIL A1+
Cash Credit 18 IndusInd Bank Limited CRISIL AA/Stable
Cash Credit 30 State Bank of India CRISIL AA/Stable
Cash Credit 30 Axis Bank Limited CRISIL AA/Stable
Cash Credit 12 HDFC Bank Limited CRISIL AA/Stable
Fund & Non Fund Based Limits 3.5 State Bank of India CRISIL A1+
Letter of Credit 43 IndusInd Bank Limited CRISIL A1+
Letter of Credit 49 Citibank N. A. CRISIL A1+
Letter of Credit 130 State Bank of India CRISIL A1+
Letter of Credit 115 Axis Bank Limited CRISIL A1+
Letter of Credit 63 HDFC Bank Limited CRISIL A1+
Proposed Long Term Bank Loan Facility 56.5 Not Applicable CRISIL AA/Stable
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
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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