| Mishra Dhatu Nigam Limited | ||||||
| Rated amount enhanced | ||||||
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| 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 Ltd (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.
Revenue and operating margin improved to Rs 302 crore and 25.6%, respectively, in the first half of fiscal 2022 from Rs 277 crore and 20.1%, respectively, in the first half of fiscal 2021. Faster order execution, post impact of the Covid-19 pandemic and subsequent lockdowns in the first quarter of fiscal 2022, supported revenue growth, while operating efficiency and high value-added products in the super alloy segment aided profitability. Gross current assets (GCAs) were still high, led by large inventory, given the prolonged production cycle.
Orders worth Rs 1,370 crore as on October 01, 2021, which are to be executed over the next 2-3 fiscals, offer healthy revenue visibility. Space and defence contribute to around 50% and 30%, respectively, of the total orders.
The financial risk profile remains strong, driven by ample liquidity, low debt and minimal dependence on the bank limit. Capital expenditure (capex) of Rs 100-150 crore is expected over the medium term, which would be funded through a prudent mix of internal accrual, customer advances 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.
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: * 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 101 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 1,123 crore and 0.14 time, respectively, as on September 30, 2021. 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 1.29 times as on March 31, 2021, against 1.50 times a year earlier. Debt protection metrics were healthy, with net cash accrual to total debt and interest coverage ratios at 0.42 time and 22.76 times, respectively, in the first half of fiscal 2022, against 0.30 time and 9.49 times, respectively, in the corresponding period of the previous fiscal.
Weaknesses: * Susceptibility of operating margin to volatility in raw material prices and forex rates The company imports all 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 643 days as on March 31, 2021, mainly on account of large work-in-progress and finished goods inventory, given the prolonged production cycle. Moderation of inventory 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 84 crore as on September 30, 2021, because of low debt obligation, 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 12% on average over the 12 months through September 2021. Liquidity remains ample, 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 * Sizeable revenue growth and steady operating margin of 27-29%, ensuring healthy cash accrual and liquidity * Better working capital management with further moderation in GCAs
Downward factors * Significant decline in operating margin and stretch in liquidity * Stretch in the working capital cycle with GCAs exceeding 650 days on a sustained basis * Any major, debt-funded capex, weakening the capital structure * Any change in the national defence policy, which may dilute the company's importance to the government |
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
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Interchangeable with other banks within overall fund based limit of Rs 200 crore ^Interchangeable with other banks within overall non-fund based limit of Rs 200 crore |
Annexure – List of entities consolidated
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| 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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This Annexure has been updated on 30-Nov-2021 in line with the lender-wise facility details as on 30-Nov-2021 received from the rated entity.
Criteria Details
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