Rating Rationale
November 25, 2022 | Mumbai
Mishra Dhatu Nigam Limited
Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.590 Crore (Enhanced from Rs.540 Crore)
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.150 Crore Commercial PaperCRISIL 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 facilities and commercial paper programme of Mishra Dhatu Nigam Limited (MIDHANI).

 

The ratings continue to reflect the strategic importance of MIDHANI to the Government of India and the support provided by the government, established market position of the company in the super alloys segment and its strong financial risk profile. These strengths are partially offset by susceptibility of profitability to volatility in raw material prices and foreign exchange (forex) rates, and large working capital requirement.

 

Total operating income increased by ~6% on y-o-y basis to Rs 871 crore in fiscal 2022. The company’s operating margin improved to 32.2% in fiscal 2022 from 31.0% in fiscal 2021 supported by operating efficiency and high value-added products in the super alloy segment which aided profitability. Gross current assets (GCAs) continued to remain high, led by large inventory, given the prolonged production cycle.

 

Orders worth Rs 1,500 crore as on October 01, 2022, which are to be executed over the next 1 year, offer healthy revenue visibility. Space and defence together contribute to around 70% of the total orders.

 

The financial risk profile remains strong, driven by ample liquidity, low debt, and minimal dependence on the bank limits. Capital expenditure (capex) of Rs 250-300 crore is expected over the medium term, which would be funded through a prudent mix of internal accrual and long-term debt.  

Analytical Approach

For arriving at the ratings, CRISIL Ratings has considered the criteria for notching up standalone ratings of entities based on government support. The joint venture, Utkarsha Aluminium Dhatu Nigam Ltd, has been moderately consolidated as MIDHANI is likely to infuse equity to support the project over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

  • High strategic importance to and support from the government: The government set up MIDHANI mainly to achieve self-reliance in manufacturing special metals and super alloys critical to the growth of the defence, space, and atomic energy segments. The government has complete control over the board and can also appoint its members. The Miniratna status provides the company greater autonomy in operations and discretion to set up projects. Strong funding support from the government is likely to continue, though the timeliness and extent of this support, in case of any exigency, will remain a rating sensitivity factor.

 

  • Established market position in manufacturing super alloys for strategic sectors: Over the past four decades, the company has established its position as a leading supplier of a wide range of super alloys to sectors such as defence, space and atomic energy. It has the capability to manufacture a wide range of advanced products across the value chain, which includes melting, forging, rolling, wire drawing, investment casting, machining and quality testing segments. Longstanding presence and strong capabilities have led to healthy customer relationships and patronage from key clients in the defence and space research sectors. Government initiatives, such as Atmanirbhar Bharat and import embargo on a number of defence items, should boost the manufacture of defence and other heavy equipment in India and thus benefit the company. The company also intends to cater to sectors, such as oil and gas, mining, power, and railways.

 

  • Strong financial risk profile: The company has healthy networth and low gearing of Rs 1,189 crore and 0.23 time, respectively, as on March 31, 2022. Gearing has averaged to below 0.5 time over the past five years on account of low dependence on external borrowing following stable cash accrual and government funding for any major capex. Large customer advances and grants kept the total outside liabilities to tangible networth ratio moderate at 1.34 times as on March 31, 2022. Debt protection metrics were healthy, with net cash accrual to total debt and interest coverage ratios at 0.56 time and 13.11 times, respectively as on 31st March’2022.

 

Weaknesses:

  • Susceptibility of operating margin to volatility in raw material prices and forex rates: The company imports all major raw materials, such as nickel, cobalt, molybdenum, pure iron and titanium, the prices of which are highly volatile. Hence, profitability remains susceptible to fluctuations in raw material prices and forex rates.

 

  • Working capital-intensive operations: GCAs were high at 701 days as on March 31, 2022, mainly on account of large work-in-progress and stocking up of raw materials, given the prolonged production cycle. Improvement of inventory days remains a key monitorable over the medium term.

Liquidity: Strong

Liquidity is supported by healthy net cash accrual, minimally utilised bank limit, low debt obligation and strong funding support from the government. Cash and bank balance stood at Rs 65 crore as on March 31, 2022, and will be available to meet incremental working capital requirement. The fund-based bank limit remained unutilised, while the non-fund-based limit of Rs 200 crore was utilised only at 41% on average over the 12 months through September 2022. Liquidity remains strong, as working capital is largely funded through internal accrual and customer advances.

Outlook: Stable

CRISIL Ratings believes MIDHANI will maintain its market position as a key manufacturer of super alloys and continue to benefit from the government’s focus on strategic sectors and patronage of its key customers.

Rating Sensitivity factors

Upward factors

  • Sustained healthy revenue growth and operating profitability (over 30%), leading to a healthy cash generation
  • Steep reduction in working capital levels, especially inventory (GCA below 550-600 days), and prudent capex spend also benefiting financial risk profile

 

Downward factors

  • Sluggish business performance and moderation in operating profitability, impacting cash generation
  • Material increases in debt levels due to higher capex, increase in funding support to associate, and sustained high working capital intensity (gross current assets over 700 days) leading to moderation in financial risk profile
  • Change in stance of support from Government or steep decline in shareholding by Govt of India.

About the Company

MIDHANI, majority owned by the government. The company manufactures a variety of super alloys, titanium and titanium alloys, special-purpose steels, controlled-expansion alloys, soft magnetic alloys, electrical-resistance alloys, molybdenum products, and other special products made as per customer specifications. The company also offers metallurgical testing, evaluation and consultancy services. Its quality control is recognised by the National Accreditation Board of Laboratories. MIDHANI is under the administrative control of the Ministry of Defence's Department of Defence Production.

 

Utkarsha Aluminium Dhatu Nigam Ltd, incorporated in 2019, is a 50:50 joint venture promoted by MIDHANI and National Aluminium Company Ltd, to set up a 60,000 tonne per annum high-end aluminium alloy production plant in the Nellore district of Andhra Pradesh. This is for meeting the requirement of high-end aluminium alloy products in defence, aerospace, and other critical sectors.

Key Financial Indicators

Particulars

Unit

2022

2021

Revenue

Rs crore

871

820

Profit After Tax (PAT)

Rs crore

177

166

PAT Margin

%

20.3

20.3

Adjusted debt / adjusted networth

Times

0.23

0.15

Interest coverage

Times

13.11

20.38

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.crisil.com/complexity-levels. 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

Cash Credit*

NA

NA

NA

200.0

NA

CRISIL AA-/Stable

NA

Letter of Credit^

NA

NA

NA

108.0

NA

CRISIL A1+

NA

Bank Guarantee^

NA

NA

NA

92.0

NA

CRISIL A1+

NA

Proposed Non-Fund based limits

NA

NA

NA

40.0

NA

CRISIL A1+

NA

Working Capital Fund-Based Limits*

NA

NA

NA

150.0

NA

CRISIL AA-/Stable

NA

Commercial Paper

NA

NA

7-365 days

150.0

Simple

CRISIL A1+

* Company may avail these limits in the form of Cash Credit, Working Capital Demand Loan, Short-term Loan, Commercial Paper with any Scheduled Commercial Bank within the overall fund-based limits of Rs 350 crore

^Interchangeable with other banks within overall non-fund-based limit of Rs 200 crore

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Utkarsha Aluminium Dhatu Nigam Ltd

Moderate Consolidation

Joint Venture Company
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 350.0 CRISIL AA-/Stable   -- 30-11-21 CRISIL AA-/Stable 29-07-20 CRISIL AA-/Stable 16-07-19 CRISIL AA-/Positive CRISIL AA-/Stable
      --   -- 29-07-21 CRISIL AA-/Stable   --   -- --
Non-Fund Based Facilities ST 240.0 CRISIL A1+   -- 30-11-21 CRISIL A1+ 29-07-20 CRISIL A1+ 16-07-19 CRISIL A1+ CRISIL A1+
      --   -- 29-07-21 CRISIL A1+   --   -- --
Commercial Paper ST 150.0 CRISIL A1+   -- 30-11-21 CRISIL A1+ 29-07-20 CRISIL A1+ 16-07-19 CRISIL A1+ --
      --   -- 29-07-21 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee& 2 Union Bank of India CRISIL A1+
Bank Guarantee& 10 HDFC Bank Limited CRISIL A1+
Bank Guarantee& 80 State Bank of India CRISIL A1+
Cash Credit$ 50 HDFC Bank Limited CRISIL AA-/Stable
Cash Credit$ 40 Union Bank of India CRISIL AA-/Stable
Cash Credit$ 110 State Bank of India CRISIL AA-/Stable
Letter of Credit& 18 Union Bank of India CRISIL A1+
Letter of Credit& 10 HDFC Bank Limited CRISIL A1+
Letter of Credit& 80 State Bank of India CRISIL A1+
Working Capital Fund-Based Limits$ 150 Not Applicable CRISIL AA-/Stable
Proposed Non Fund based limits 40 Not Applicable CRISIL A1+
This Annexure has been updated on 25-Nov-2022 in line with the lender-wise facility details as on 30-Nov-2021 received from the rated entity.
& - Interchangeable with other banks within overall non-fund-based limit of Rs 200 crore
$ - Company may avail these limits in the form of Cash Credit, Working Capital Demand Loan, Short-term Loan, Commercial Paper with any Scheduled Commercial Bank within the overall fund-based limits of Rs 350 crore
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
Rating Criteria for Engineering Sector
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support
CRISILs Criteria for Consolidation

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